Impact of the Credit Crisis on Student Loans

Availability

Private student loans, on the other hand, continue to suffer from availability issues. Three-quarters of the lenders offering private student loans, representing about a third of the private student loan volume, have suspended their private student loan programs. The remaining lenders are still liquidity constrained, and have reacted by tightening their credit underwriting standards and increasing interest rates.

• In early 2007, borrowers could obtain traditional private student loans with credit scores as low as 620 and non-traditional private student loans with credit scores as low as 520.
• Today, all of the non-traditional private student loan programs have evaporated and traditional private student loan programs are requiring credit scores of at least 650 and in many cases over 700. Even borrowers with credit scores over 750 are finding it more difficult to obtain private student loans.
• Students enrolled at foreign medical schools are also experiencing a reduction in the availability of private student loans.

Eligibility

The Federal PLUS loan, on the other hand, requires the borrower to not have an adverse credit history. An adverse credit history is defined as having had a foreclosure, repossession, tax lien, wage garnishment, default determination or bankruptcy discharge within the last five years or a current delinquency on any debt of 90 or more days. To the extent that the subprime mortgage credit crisis was precipitated by an increase in foreclosure rates, there has been an increase in PLUS loan denial rates.