Anya Kamenetz Generation Debt

Can you still get a student loan for the fall semester? The answer is yes, but it's going to take some work.

Back in April, I wrote a column that dismissed talk of a student loan credit crisis.
It's time to revisit that judgment, because the problems with student loan availability have definitely gotten worse. As we get closer to the beginning of the semester, the time is right to go over students' and families' best options for getting a last-minute student loan.

First, how bad is this problem? It is still true, as the secretary of education recently pointed out, that no eligible student has been unable to get a federal loan. While the number of lenders who have actually gotten out of the Federal Family Education Loan Program has doubled to 99 (see full list here) since my April column, that's still a very small percentage of all lenders. In May, Congress rushed to pass legislation that would increase access to student loan funding. And many of the largest lenders, like Sallie Mae, Citibank, and JP Morgan Chase, are actively taking up the slack by expanding their loan portfolios.

Still, media reports across the country are making people worry. The most common problems are faced by students whose federal student loan providers suddenly back out with no notice, or those who are having trouble finding a private student loan due to stricter criteria. But there are a lot of resources out there for students who are willing to look.

"There may be some more scrambling to come," says Bob Shireman, president of the Institute for College Access & Success. "But students should not make the mistake of assuming they won't be able to get a loan."

If you find yourself with a funding shortfall for college, here's what to do:

1. First, go to your college's financial aid office and apply for federal student loans. Stafford loans have a total undergraduate limit of $57,500. If a lender they've been dealing with has pulled out of the program, the financial aid office will have info on other lenders for you to try. Remember, federal student loans have no credit requirements.

2. Check if you're eligible for a Direct Stafford loan. Direct loans draw directly on the Treasury, making them the most secure source of student loan options. They also have better repayment options for students. But your school must participate in the program in order for you to get a Direct loan. In recent months, in response to the turmoil in the market, several more schools have switched to direct lending, but not all of them are advertising it. Check the list at the National Direct Student Loan Coalition to be sure.

3. If your Stafford loan amount isn't enough, see if your college has any Perkins loan funding available. Perkins loans are a backup federal student loan program for students with demonstrated financial need.

4. If you can't qualify for Perkins loans, look into PLUS loans. PLUS loans are also government-backed loans at a low interest rate, and the limits are even higher than the Stafford loan, able to fill students' entire financial aid needs. The catch is that parents, not students, must borrow the money. If parents are leery of putting so much debt in their name, students can offer to split the repayment costs for PLUS loans and put that in writing.

5. If your parents' credit is too weak and they have already been denied a PLUS loan, your college financial aid administrator has the power to grant you additional Stafford loan funding.

If you've followed all these steps and exhausted every source of federal loan money and you still have a perceived shortfall, it's time to review your college plan. Can you work more hours to make more money? Do you really need a new car? Is your budget realistic? Run the numbers more than once to figure out just much you really need.

If you're confident that you have a good plan in place to pay for school, then here's how to get the best private student loans. But keep these loans to an absolute minimum. Remember, with higher interest rates and fewer repayment options, they're not all that much better than putting your tuition on credit cards.

1. Look for a co-signer with excellent credit history. This should be a parent or close relative who is truly willing to assume the debt.

2. Shop around, but not too much. A few weeks ago, "The New York Times"
reported that making many credit inquiries for private loan applications can actually lower your credit score. For students with little credit history, the impact can be worse. So be selective in your shopping, and do it within a few weeks. Shireman suggests trying "one of the state lenders, your own bank, and maybe one that you find on one of these search sites like SimpleTuition." The biggest state lender is the Pennsylvania Higher Education Assistance Agency.

3. Ask the right questions. You may be in a panic to get that money now for the upcoming semester, but you're going to be paying off that loan for 10 years or more, so make sure you understand the fine print about discounts, rates, fees, and penalties. Shireman's organization publishes a list of questions students should ask about private loans.

And what if you can't get a private loan at a fair rate? The lowest possible rates listed on sites such as SimpleTuition are around 4.3 percent, while Bankrate lists a national average rate of 8.31 percent. This compares to federal student loan rates of 6 percent for next year, decreasing each year over the next few years to 3.4 percent.

If the loans you're finding are much higher than the national average for private loans, or if many lenders won't work with your school, it may be time to reconsider your choice of college. Shireman says this is happening more commonly with for-profit and online schools: "Students who are finding that they're being pushed into using expensive private loans or credit cards really should think about where they're going and how they're paying for it."

And, no, it isn't too late to switch colleges. When it comes to for-profit and online schools, many students do make last-minute decisions about where and whether to enroll. And community colleges I talked to last fall were getting slammed with applicants who couldn't line up funding for state colleges at the last minute.

It's borrower beware out there, but as the market for college funds gets tougher, students who pass up lower-quality programs and avoid taking on high-interest debt will end up better off.