October 6, 2008 by Mara Strom
You can’t turn on the TV these days without being bombarded by financial doom and gloom. If you are a college student (or planning to be one in the near future), there is no doubt that
current economic climate is going to have some kind of an impact on your student financial aid package. Over the next few weeks, we’ll be looking at the cost of attending college during an economic downturn, with stories on how to recession-proof your college savings and how the market cash will impact your 529 Plan.
This week, I’m putting the spotlight on how the recession may impact your student loans. The University Chronicle recently reported on how that the current credit market crunch is affecting education lenders. According to their October 2nd article, the loans that will be affected by the market crash are private student loans. Experts say that federal loans will continue to be secure.
Most current private loans feature a fixed rate (albeit higher than the rate on federal loans), so the recession should not affect your existing loan. If you need to take out a private loan in the future, however, expect to see higher interest rates – and stricter terms of approval.
Private loans are being affected by the market differently because lenders also have to worry about student loan defaults. That’s probably going to sound like bad news to the majority of you. According to a recent Seattle Times article, more than 2/3rds of college students borrow money to get through school. That’s up from less than half just a decade ago. As unemployment figures go up, student loan borrowers will likely increase as well – since parental contributions may be drying up.
The good news is that many colleges, especially expensive private schools (where the average annual cost of tuition alone is $23,000), are digging deeper into their coffers to help students need. According to this recent story on NPR, the key to getting more aid is being willing to ask for it.
Are you finding that the credit crunch is affecting your college budget? What creative solutions have you taken to cover yourself for this semester?