Student loan jitters continue

Private sources look more closely at who's applying

Paying for college is already tough enough.

But with banks tightening their belts, students who rely on private loans could find it even tougher to fund their education.

While little has changed to affect the availability of traditional federally backed student loans, financial aid experts are less certain about financing offered by private banks.

Locally, most college students opt for government-backed loans. The key for them is "not to panic, and be vigilant about doing loan applications early," advised Don Griggs, director of financial aid at the College of Charleston.

"We know of no student, yet, who has been told they can't have a student loan for next year," Griggs said.

Out of a student body of more than 10,000, he said, only 612 College of Charleston students tapped the private market for loans last year. Nevertheless, the financing option has been on an upward trend in recent years, and Griggs expects the number to increase for the next academic year.

Hank Fuller, The Citadel's director of financial aid, said about 150 of the military school's 2,000-plus cadets took out private loans during the 2007-08 school year. Most were out-of-state students.

John Dean, special counsel to the Consumer Bankers Association, an Arlington, Va.-based industry group, said underwriting standards for privately funded school loans are tighter and costs are rising, mirroring what's happening in the mortgage side of the lending business. That means borrowers are finding it more difficult to qualify, and those who do can expect to pay higher fees.

"We're hearing reports that some students are unable to get loans," Dean said.

Bank of America, one of the nation's largest student loan providers, raised eyebrows last month when it announced it would not write any private student loans for the coming academic year. Private loans accounted for less than 15 percent of the company's $6 billion total student loan business last year, the Charlotte-based bank said in a statement.

Others also are reviewing their college lending practices. According to a Federal Reserve survey last month, three of the 20 banks that reported originating private student loans last fall expect to scale back this year. Also, eight of the respondents said they expect a decline in the number of schools for which they will underwrite private student loans.

Dean said lenders are stepping away from what they consider higher-risk applicants — a group that includes older adults, who often are in career-transition programs and already have debt from other loans.

The schools themselves also are a factor, Dean said. Massachusetts Institute of Technology, for example, would be considered low-risk because its graduates are highly sought after by employers. But community colleges often fall into the higher-risk category because their graduates might have a harder time finding well-paying jobs.

"In a bad economy, you have a situation where borrowers may not be able to secure a job when they get out," Dean said.

At the Medical University of South Carolina, students generally haven't encountered any problems obtaining private loans, said Pearl Givans, director of the financial aid office.

But problems in the industry could make it tough on students who have a lot of consumer debt. MUSC students generally are older, so many rely on their own credit, not their parents', to fund their educations.

"Right now, the industry is quite scary," Givans said.

Diane Knich of The Post and Courier contributed to this report. Reach Peter Hull at 937-5594 or phull@postandcourier.com.