Stafford loan limits may rise
May 8, 2008 1:26 PM
House and Senate legislators attempted to avert a deepening loan crisis last week by passing a bill allowing the federal government to buy up student loans from cash-strapped lenders.
For several weeks, analysts speculated that the student loan sector would be the next casualty of the struggling credit industry. Anxiety was further fueled by announcements from lenders that they would no longer be offering the federally guaranteed loans.
“It seemed like lenders were making a fortune on student loans,” said Barbara Hubler, SF State’s director of financial aid. “I’ve understood that, in the past, student loans were nearly as lucrative as credit cards for lenders.”
But regulatory changes and recent shifts in financial markets made it harder to resell and profit on student loans.
However, Hubler sees SF State students as insulated from private student loan problems because the campus participates in a direct lending program.
SF State students apply directly to the government for federal Stafford loans through the financial aid office without involving an outside lender.
“President [Robert A.] Corrigan was a strong supporter of direct loans from the beginning,” she said. “He wanted us to be one of the first campuses to offer them.”
SF State has been a direct lending school since 1994.
But the new legislation will affect SF State students because it raises maximums for student borrowing on Stafford loans.
In the past, undergraduates were limited to $23,000 in aggregate borrowing as a dependent, or $46,000 as an independent student. Under the new bill, those limits would be raised to $31,000 and $57,500, respectively.
Jane Glickman, a spokeswoman for the U.S. Department of Education, said President George W. Bush supports the legislation and is expected to sign it into law in a matter of days.
The bill stipulates that the raised borrowing threshold would go into effect for new loans on or after July 1, 2008.
Hubler hopes the change would significantly reduce the need for SF State students to seek private student loans.
About 50 percent of SF State students receive some form of financial aid, Hubler said, but only about 300 current students applied for private student loans.
For students who do need to find a private student loan, Hubler predicts a rough road.
“Students who don’t have a co-borrower for their loan or have poor credit should not expect to be eligible for a private student loan,” she said.
No one—not even continuing borrowers—should expect to skate through the loan process, she said.
“Don’t wait until August,” Hubler warned, to start applying for loans.
“Students who are a little risky are going to be refused,” she said. “And if they’re having difficulty finding a private loan because of their own financial situation, we’re not going to be able to do much to help them.”
During her 27 years coordinating financial aid on campus, Hubler has seen a distinct shift in students’ borrowing needs.
“Up until a few years ago, outside private loans were unheard of,” she said.
But higher fees and longer times to graduation have forced students to borrow more heavily to finance their degrees.
SF State student Chris Albon said he will reach the current $46,000 federal borrowing maximum before he graduates next spring.
Albon said he could benefit from the new limits but previous limits were impetus to finish his degree as soon as possible.
“I want to get out of school and into the work world,” he said, adding that next spring will mark his sixth year in college.
But Albon’s debt load has affected more than his graduation timeline.
He changed his degree goal from journalism to geography.The option of a job in land-use planning made him more comfortable about his ability to make enough in salary to pay back his college loans.
Budgeting money isn’t his strong suit, but he said he is well-informed about loan repayment options.
Long in advance of graduation, Albon is weighing his options about deferrals, consolidation, avoiding penalties and minimizing interest payments.
“They’re so lenient,” he said. “I think you’d have to be an idiot to default on a federal loan.”
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