Last-Minute Student Loans Are Still Available

Students and parents have had to search harder, wait longer, pay more, and—in at least a few cases—post pleas for funding on the Web. But most of the nearly 9 million education borrowers this fall appear to be getting the loans they need.

At least 130 lenders, including big banks such as Washington Mutual and Wachovia, shut down some or all of their student lending departments this year. Quick fixes by Congress appear to have stanched the exodus of lenders and freed up cash for borrowers. "We are not aware of any students whose borrowing difficulties have blocked their ability to enroll," says Bob Cohen, spokesman for the Career College Association, whose membership of for-profit trade schools lost the most lenders of any type of college. "Without Congress stepping in, the crunch would be a crisis," he added.

Students who can't cover their tuition bills from their savings are benefiting from the newly raised maximums on the amount they can borrow through the federal Stafford program. This spring, Congress raised the ceiling by $2,000 to at least $5,500 (but upperclassmen and adults can get more). Congress also trimmed a little off the Stafford costs, setting the top Stafford annual percentage rate this year at 7.25. Those who qualify as needy or who find lenders willing to offer discounts can borrow for as little as 6 percent.

In May, Congress also relaxed the credit standards for parents having mortgage troubles. Although PLUS loans still charge a maximum fixed annual rate of 9.4 percent, this year's versions are more attractive because they allow parents to defer payments until the student leaves school.

Parents with home equity or good credit are also finding reasonable deals. Home equity lines of credit are currently hovering around 5 percent. And employed adults with FICO scores in the 700s can find private loans below 7 percent. The rates on those alternatives are at a higher premium over benchmarks than they were last year and are variable, notes Student Lending Analytics; they are likely to get pricier when interest rates return to their historical norms.

Nonprofits. Best off are students or parents in states where nonprofits were able to get funding, such as North Carolina and Texas. "Last year, we turned people away," says Dan Weaver, assistant commissioner of the Texas Higher Education Coordinating Board, about Texas's alternative education loan charging a maximum fixed APR of 7.1 percent. But thanks to increased funding, the state still has more than $50 million ready to lend to Texas residents, he says.

All this doesn't mean things have been easy for borrowers, however. Some students at Kennesaw State University in Georgia are resorting to food pantries because their student loans haven't been disbursed. And students who haven't built up good credit histories and can't get an adult with good credit to cosign a loan report say they are generally being offered only Stafford loans, which sometimes aren't enough to pay their bills.

Christina Christopher of Adelanto, Calif., started to panic earlier this year when she maxed out her Stafford loans and needed $2,500 more to finish her M.B.A. at Devry University, a for-profit school. She was rejected by all four banks to which she applied for a private loan. In desperation, she tried one of the new companies that help students get friends and family to give them loans. She posted a profile on Greennote.com and E-mailed just about everyone she knew. Within three weeks, friends and even a few strangers forwarded enough for Christopher to pay for her last class and graduate. "I'm ecstatic," she says.

The reforms and rise of alternatives are raising hopes that the credit crunch might result in long-term improvements for students and schools. Steven Dodd, president of Key Education Resources, the education lending division of Key Bank, says he doesn't see any sign that investors will start offering lots of cheap money to students again anytime soon. "But the disruption might lead to better outcomes," including channeling students away from expensive loans and maybe even pressuring schools to lower prices, he says. If so, students and parents alike might be better off rooting for the crunch to continue.