08/13/2008 - For years, college students and their parents have relied heavily on credit cards, home equity, and private loans to pay for school, according to a recent survey provided exclusively to BusinessWeek. But those sources of cash are drying up. On Aug. 6, Wachovia joined the more than 150 financial firms that have fled the private student-loan business. And Morgan Stanley froze home-equity lines for some clients.
In a weird way, the credit crunch may be an important wake-up call for some families who had been financing tuition costs in irrational and expensive ways during the era of easy money and rapidly rising home prices. The growing skittishness of lenders will force more borrowers to exhaust their federal options, a growing pool of funds that typically have lower interest rates and more favorable terms. The fixed rates on a government loan run from around 6.8% to 8%, compared with an adjustable 8% to 20% for a private one. The average credit-card rate tops 13%. "There's a lot of hysteria that the turmoil in the credit market will mean students can't get loans," says Robert Shireman, president of advocacy group Institute for College Access & Success. "But students should be thinking really hard about whether they should be taking out private loans in the first place."
Read the full article Getting Smarter on School Loans on Business Week's Web site.
Pew is no longer active in this line of work, but for more information, visit the Project on Student Debt Web site or visit the The Project on Student Debt on PewHealth.org.