Credit crisis makes student loans harder to come by

The credit crunch on Wall Street is spreading its tentacles over all areas of the credit market, and students are not immune.

A majority of private colleges and universities lost at least one student loan lender, and a significant portion of students said they found it hard to get a replacement lender, according to a national survey released Tuesday.

More than 500 members of the National Association of Independent Colleges and Universities responded to the survey, conducted in September. Of the colleges that responded, 424 said they lost at least one student lender and 27 percent of that group said students had trouble finding a new lender.

The lack of available funds for investment in student loans is causing lenders to make the requirements for securing loans more stringent, said Trace Urdan, a senior analyst at Signal Hill Capital Partners, a Baltimore- and San Francisco-based investment bank.

"The credit score requirements of lenders will go up and up until the only people who can get loans are the people who don't need loans," he said. "1/8 The money 3/8 is still available but not so easy to get." He predicted a rise in enrollment at two-year community colleges as a result.

Alan Collinge, who runs the political action committee Student Loan Justice, agreed, saying he suspected few students, if any, would be unable secure a loan but that the loans themselves world get worse.

"The terms and interest rates in these loans are going to get far worse, and they were really bad to begin with," he said. "Students can't bear the weight of student debt. When the average borrower is leaving school with $23,000 in loans something has gone horribly wrong."

Collinge blamed universities for part of the crunch for raising their tuition rates at a faster rate than inflation.

"Universities have been sitting in the catbird seat with this explosion of student loan debt," he said. "As we go into this recession I predict the universities will lower, for once, their tuitions."

While it is uncertain whether universities will lower tuition, it is clear that they will have to work harder to keep enrollment up. Of the universities surveyed by the NAICU, 19 percent had a smaller freshman class than they expected and 18 percent had fewer students returning than they expected.

In response, some universities are taking steps to help the credit crunch in their own way: by educating students about credit.

Stephanie Rauterkus, an assistant finance professor at the University of Alabama at Birmingham, teaches classes and gives campus-wide lectures on credit management.

"We're really focusing on preventative measures," she said. "We got comfortable because the markets were doing so well and we thought the good times would keep rolling and we kept living beyond our means. We're going back to basics and explaining good budgeting and effective use of credit so they'll be a little bit more protected from what happens in the market."