Private lenders tightening their belts for student loans

Insufficient credit isn't just affecting home mortgages and car loans.

Some local college students who fund their educations with the help of private loans are finding that well is drying up, too, according to officials at Northwest-Shoals Community College and the University of North Alabama.

"Private lending is a very small percentage of the total student loan volume at (UNA)," said Ben Baker, director of student financial services at the four-year school. "We have had no funding issues or delays in loan reimbursements for private loans to this time in the academic year. However, there has been a tightening of credit standards to qualify for private loans."

That tightening, Baker said, has reduced the number of students who qualify for private loans. It comes at a time when families are struggling to pay for college for their students, and U.S. Treasury Secretary Henry Paulson said he and others in the Bush administration are aware of the burden it places on Americans.

Despite acknowledging the problem, Paulson has not detailed plans to help student loan providers with the $700 billion economic bailout approved in October and potentially ease the situation for lenders and borrowers.

Students sometimes pursue private loans, which are usually more costly than federally guaranteed loans, after they have exhausted their borrowing limits under the federal program.

Earlier this year, Congress upped the loan limits on the Federal Family Education Loan program, approving a $2,000 increase in loan eligibility per student per year. The previous limits in the program ranged from $3,500 a year for freshmen to $5,500 for juniors and seniors.

"We have quite a number of students who have utilized the increase in annual FFEL loan eligibility to help pay for some of their costs to attend UNA," Baker said.

The majority of students at UNA and Northwest-Shoals - between 75 and 80 percent - attend school on some form of federal aid.

Susan Scott, assistant director of student financial services at Northwest-Shoals, said the school does not participate in private alternative loans, but, it did lose "several lenders in the past year and had slow delivery by one of our lenders."

UNA faced a similar situation with one of its lenders, EdAmerica, that found itself without the money to lend to schools for students who had already been approved for loans.

"At this time, there is not a definitive proposal that will ensure more private funds will be available to students from the $700 billion financial rescue program," Baker said. "Will the private lenders relax their credit standards to generate more private loans, even if there is an ample supply of funds? That question will be answered in the future."

The Chronicle of Higher Education contributed to this report.