How the Bad Economy Effects Your Student Loans

Financial is like a foundation for ours.
The faltering economy has had a ripple effect throughout the nation affecting everybody from Wall Street workers to coffee shop owners to students struggling with their student loans. Yes, unfortunately the bad economy means hard times for students too. However, understanding how a poor market effects student loans can help you better prepare for the crunch. The Economy and Private Student Loans
Private loans may have been hit the hardest by the falling economy and students will continue to have a tough time getting private loans.
According to FinAid.org, last year 36 lenders stopped writing private student loans. Those who are still offering student loans have become more selective - only lending to students with a clean credit history or a good cosigner. The crunch is especially affecting students headed towards community or technical colleges as private lenders are less willing to write short-term loans for one or two year programs.Interest Rates and Student LoansAn unstable economy has a bad effect on interest rates, which will in turn negatively effect students borrowing from private lenders.
Private lenders often base their interest rates on the LIBOR or London Inter-Bank Offered Rate. Private lenders and even Sallie Mae, the largest student loan lender in the nation, rely on the LIBOR for their interest rates. A change in the LIBOR can bump interest rates up as much as six or fourteen percent. As many private loans re-evaluate your interest rates on a monthly basis, a change in the economy can have a big effect on your student loans. The Economy and Federal Student LoansThe picture is brighter for federal student loans. About forty percent of federally backed loans come straight from the government.
The interest rates on these loans are fixed and these federally backed student loans shouldn't be affected by a tumultuous market. In fact, the government has taken action to help student aid in its Federal stimulus package. The American Recovery and Reinvestment Act helps college students by funding Pell Grants and offering education tax cuts. However, many federally backed loans are offered through private lenders, many of which are backing out of the student loan market. These loans could be harder for colleges to retain and offer.Understanding the Market and Student Loans
Many people facing a tough job market are considering going back to college to wait out the bad economy while they build their skill sets.
However, student loans may be harder to find as lenders have tightened their criteria and many have withdrawn from the market altogether. This doesn't mean college is out of reach. Research student loans to see what's still available - especially Federal loans as they continue to offer the lowest interest rates and are especially helpful for the financially needy.