Student Loans And The SubPrime Mortgage Crisis

In today’s world every student whether post graduate or graduate students in colleges or universities must take advantage of what are know as education loans. Education loans can be characterized as ordinary Student loans, parent loans and private student loans (those not supported by the federal government). As we focus on student loans we will review the devastating effect of the credit squeeze problem on the student loan regime in the USA. However let us first define what exactly the sub prime mortgage issue is.

The sub prime mortgage crisis that faces the USA is a fluid economic dilemma that has directly affected the liquidity of the US banking system due to unprecedented foreclosures in the USA. The crisis was actually caused due to a boom in the housing market years before and as developers scrambled to find the next seller, credit requirements were all but thrown out the window and loans were made available to higher-risk borrowers with lower income or lesser credit history than were known as prime borrowers. Incentives included longer terms, lower deposits or equity requirements for a mortgage loan but relatively higher interest rates. However as property prices fell, foreclosures increased and restructuring became impossible and suddenly mortgage companies were left holding notes for properties valued at a substantially lower value.

Though this should have no bearing on student loans in general what has resulted is that borrowers must be concerned by the inevitable impact of the sub prime credit crisis on both the cost and normal availability of federal student and private student loans. Normal Federal student loans will always remain accessible despite the fact that legislature is being reviewed to reduce loan discounts and increasing the overall minimum balance required for student loan consolidation of existing student loan facilities. Private student loans however have already been affected with several effects:

• Much stricter eligibility restrictions
• Demanding a higher credit score
• A mandatory cosigner with a higher credit score.
• Initial increases in the interest rates and fees charged.

Where as normal student loans does not require payments during the course of study, where the borrower is able to he/she is encouraged to do this as a method to reduce overall debt balances.

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