Student Loans: New Credit Crunch Casualty

The credit crunch has claimed the heads of many a financial market since it was prematurely marked as ‘contained’ to subprime loans. These markets include jumbo mortgage loans, Collateralized Debt Obligations (CDOs), asset backed securities, High Yield bonds, SIVs, the inter-bank market, commercial paper, money market funds, and the auction rate market.

Now add Student Loans. Bloomberg is reporting that it is now much harder to get a student loan.

Traditional, dependent students, with creditworthy families, should find enough money for school year 2008-2009 without much trouble, although they will probably pay higher fees than they did last year.

Independent students with modest credit histories and no co- signer will have a harder time, especially if they are starting their freshman year.

Students attending for-profit career schools and some community colleges may have to scramble.

Parents with minor delinquencies will be allowed to borrow through the federal program, but those caught in the foreclosure trap will be shut out.

Bloomberg News, 22 May 2008

Ouch! I am very libertarian in my economics and politics. But, when you see market dislocations like this, that’s when it’s time for the regulators and legislators to step in. Otherwise, why do we even have government. I had heard that many private companies were being forced to flee the student loan market and that Sallie Mae was having huge difficulties, but this is sounding pretty dire. I do hope the market changes before matriculation in September or you’re going to have some very angry voters in November.

Anyone out there a parent with kids in school or going to school soon? I’d love to hear about it.

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