Subprime Troubles Affect Student Loans
According to FinAid, the leading guide to financial aid, students relying on college loans will soon feel the negative effect from the subprime mortgage crisis.
Subprime borrowers will not only have more trouble securing a student loan, but all student borrowers will be subject to stricter lending practices such as higher credit scores needed to secure student loans. Those loans will also be tied to higher interest rates.
The Securities and Exchange Commission was also told last week that Sallie Mae, the leading provider of student loans to college students in the United States, plans to be more selective in granting loans to students. A likely outcome will see overall private student loan interest rates raised by up to 1 percent to make up for increased costs, and borrowers will need to have a credit score of at least 650 to qualify for a private student loan, up from the previous requirement of 620.
Lenders are also expected to cut loan discounts and increase minimum balance requirements for loan consolidation. Lenders may also introduce incentives for borrowers to interest payments while they’re in school, or increase costs for borrowers who don’t.
Among the upcoming changes to federal student loan policies, FinAid expects that loan consolidation will be discouraged, minimum balances for loan consolidation will increase to about $10,000 and loan discounts will be cut. In addition, lenders are also expected to shift most marketing to promote private student loans instead of federal Stafford and PLUS loans, which cost borrowers less when compared to higher-interest rate private loans.
These new changes to interest rates and loaning policies will mean more debt for new and current college students. To learn more about this negative effect on student loans visit the CNN Money story, Subprime Woes Make a Mess of Student Loans.
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