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Not all bad news on student loans

Mon, 21 Apr 2008

With college costs seemingly forever on the rise, students have racked up enormous debts to get that precious sheepskin. Private lenders, some of them using tactics reminiscent of the shadiest subprime mortgage lender, have eagerly filled the market niche.

And now, the credit crisis has pinched those college lenders, who are suffering a shakeout similar, if on a smaller scale, to that of their brethren in the mortgage industry.

The Oregonian talked with Dave McDonald, associate provost at Western Oregon University in Monmouth, about how the industry turbulence is affecting college lenders, how the state is attempting to make college more affordable, and how students and their parents can try to avoid trouble.

Banks are making fewer loans and trying to minimize risk. How has the broader trend shaken out in the college loan industry? Unlike the rest of the world, there are two kinds of college lenders: government-backed loans and private. The federally backed world has been largely immune from the troubles. The private lenders, which make about two-thirds of the total loans, are very much like the mortgage lenders. There's lot of uncertainty, some tightening of credit, lots of turmoil.

Is this hitting your students there at Western?

Where this is hitting students hardest is at the high-cost private institutions, those that are charging $30,000-$40,000 a year in tuition. Western is much more of a low-cost institution (annual tuition $6,000).

But Oregon students are not immune. The average college graduate in Oregon leaves school with about $20,000 in college debt. Most of those students are coming out of school with a 20-, 30-year loan repayment schedule, just like a mortgage. If they're getting the federally backed loans, the interest rates are 4.5 percent. The private loans are more like 8 percent, 10 percent interest.Those are grim numbers.

It's a really bad policy place to be. We can't afford as a state to have a generation of individuals less educated than their parents.

Source: http://www.oregonlive.com