Finding the money for college during this widening credit crunch just got easier, thanks to emergency legislation signed by the president last week.
The new law raises the amounts that undergraduates can borrow under the federal student loan program. It also loosens the rules so parents who are behind on mortgage payments can still qualify for federal parent loans. And it gives them more time to repay parent loans.
"It's long overdue," says Sharon Hassan, director of financial aid at Goucher College. "It took a crisis in the market for this to happen."
Congress worked quickly to reduce any credit crunch threat to education loans this year. The subprime mortgage crisis triggered the credit crunch that has now spread to other areas, including student loans. Dozens of private lenders that make loans under the federal program have said this year that they no longer will do so. And lenders have been raising their criteria for private loans, making it harder for students to get a loan if they don't have stellar credit or a co-signer.
If you're student or a parent, many of the changes under this new law will apply to loans made beginning in July. Here are the key provisions:
*The annual loan limit for unsubsidized Stafford loans goes up by $2,000 for all undergraduates. The new limits for dependent students will be $5,500 for freshmen, $6,500 for sophomores, and $7,500 for juniors and seniors. Independent students or those whose parents don't qualify for a government PLUS loan will be able to borrow up to $6,000 in each of the first and second years, and $7,000 in the third and fourth years.
*These are unsubsidized loans, so that means you - not the government - pay the interest on the loan while you're in school.
*The total amount you can borrow under the Stafford loan program during your college years also is going up. Undergraduate dependent students will be able to borrow a maximum of $31,000, up from $23,000. The new limit for independent students will be $57,500, up from $46,000.
*The credit criteria for parent PLUS loans have been temporarily loosened. Parents currently can be denied loans if they are 90 days or more delinquent on any debt payments. Beginning in July, lenders will be able to still consider parents for a loan if they are no more than 180 days late on a mortgage payment or medical bills as of January 2007. This more lenient treatment of medical and mortgage bills continues through the end of 2009. You still can't be 90 or more days late on other debt payments, though.
