Even if we don't like it, students and parents have grown accustomed to the fact that the cost of higher education has, for many people, exceeded what can be covered out of pocket.
While federal loans help many people bridge this gap and are all but guaranteed to anyone who demonstrates needs, in order to make up the difference students, including myself, have taken to the private education loan industry in full force. Private education loans aren't guaranteed, but were readily available when I was a student several years back.
Now that the economy is in dire straits, lenders are facing cash shortages, and as a result it it is becoming tougher for students to get private loans, adding to the list of people and businesses facing a credit crunch. CNN tracked down Eric Hahn, a student whose lender, MyRichUncle, stopped writing private loans, leaving many students to scramble for a new lender while still trying to manage their class work.My cousin started college this fall and before he had even finished his first week of classes he found out that his vendor had decided to stop issuing loans. This sudden change made his first week of college life rather hectic, requiring him to select another lender extremely quickly. He was able to secure the loan, but he lost out on all of the research that he and his parents had put into selecting a lender with favorable terms and good customer service.
Lenders in the federal market are also having problems with cash shortages. Some education lenders, especially those known as last choice lenders, who serve as the final stop for federal loan borrowers, have had to apply for emergency funds from the government to handle the influx of borrowers.
Thankfully, there are still loans to be had for most students, but unfortunately for Eric Hahn, the interest rate being charged by other lenders is much higher. Eric ended up with a loan from Sallie Mae -- with a 12% interest rate -- which will allow him to finish his senior year. Interestingly enough, 12% is the same rate that the federal government is charging AIG on the recent 85 million dollar bailout it financed, a rate CNN's Ali Velshi referred to earlier this week as "loansharkish." I'll let you draw your own conclusions from that.
Credit crunch cramps students too!