Clock's Ticking for Student Loan Applicants

The credit crunch is hitting the student loan market. And just because your school approved you for a Stafford Loan doesn't mean you'll find a bank to fund it -- unless you hurry!

That's the message for students headed off to college or back to school in just a few short weeks. Even if you had a loan last year, it's possible that your lender will not be willing to come through with money for the fall semester.

In fact, a new survey by -- a Web site that says it will allow lenders to "compete" for your student-loan business -- says that 60% of students needing loans for the fall semester don't have all their money lined up. Half of those surveyed said they may have to change their plans to attend college if the money doesn't come through.

Loan Limits Up, Loan Money Down

The message is loud and clear: Don't wait until your tuition bill is due to check with lenders. Although Congress took steps to create liquidity in the student loan market by making the Treasury a lender of last resort, many banks are still unwilling to add these loans to their portfolio.

With lenders limiting the total amount in their student loan portfolio, many will find it is "first come, first served" for the money that is available.

For this year, Stafford loans limits have been increased to $5,500 for freshmen, up from $3,500. And seniors can borrow as much as $7,500. Subsidized Stafford loans -- on which interest does not start accruing until graduation -- are based on need, as determined by the FAFSA form.

Even students who don't think they could qualify based on need may receive approval for unsubsidized Stafford loans, where interest starts accruing immediately but can be deferred until graduation.

The subsidized Stafford loans will carry a fixed rate of 6% when you graduate. Unsubsidized Stafford loans carry a lifetime rate of 6.8%.

Finding Student Loan Money

At you can run a search of participating lenders who are still making student loans and have agreed to work with your college or university -- for both Stafford and private loans. Search for the Stafford loans for which you've been approved first. Then, you can turn to private loans, typically made with a parent co-signing for a student.

I created a search on for $10,000 worth of loans. At least six lenders were offering Stafford loans -- a great place to start looking. On the private loans, lenders' rates ranged from as low as 4.5% to as high as 14%!

The search also shows you the total cost of repaying that loan. Borrowing $10,000 at the loan rate of just over 14% will result in a total repayment cost of more than $41,500, if you stretch it out over 300 monthly payments. That's 25 years.

The rate you'll pay on a private student loan depends on your credit score. In previous years, private loans were made to borrowers with credit scores in the low 600s. But in this credit crunch, you'll need at least a score of 700 to qualify.

PLUS loans are made to parents, regardless of need. They carry a fixed rate of 8.5% for the life of the loan. Parents who qualify based on credit scores can borrow up to the full amount of the cost of college for the year, less any student loans. Some schools participate in a Federal direct lending program for PLUS loans, and on those loans the rate is "only" 7.9%.

Warning: Don't Over-Borrow

Kevin Walker, CEO of, has a warning for families: While there is money available if you act quickly, you need to keep your four-year plan in perspective.

Says Walker: "Just because you can borrow huge sums of money for college, it doesn't mean you should.

You get the picture. You'll need good credit and an immediate search to find money for college this fall. Don't delay. But also don't get so involved in this "treasure hunt" that you forget the ultimate cost of borrowing -- either to you, the graduate, or to your parent's retirement plans.

It's important to sit down and figure out the costs vs. the benefits. Part-time attendance at a community college may be the answer for some students, who can then transfer and complete their studies at a state school. Even online university degrees are looking attractive these days, if you have the self discipline.

And more expensive schools are going to be forced to give out more of their endowment money in the form of scholarships and grants that don't have to be repaid.

If they don't, they'll be faced with dwindling enrollment as more and more families conclude they simply can't afford the most expensive version of the college dream. And that's The Savage Truth.

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Terry Savage is an expert on personal finance and also appears as a commentator on national television on issues related to investing and the financial markets. Savage's personal finance column in the Chicago Sun-Times is nationally syndicated. She was the first woman trader on the Chicago Board Options Exchange and is a registered investment adviser for stocks and futures. Savage currently serves as a director of the Chicago Mercantile Exchange Corp.

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