Exclusive: Iowa Student Loan Won’t Offer Private Loans

DES MOINES, Iowa

A tightening credit market could make life increasingly difficult this fall for college students who may not find money available to borrow or could be forced to ask their parents to co-sign a loan.

The news on Wednesday that Iowa Student Loan would stop taking applications for private loans comes at a time when students are already carrying heavy debt and are working doubly hard to pay rising tuition costs.

“Its unfortunately forcing people into a state where they’re always sick, depressed or mad at themselves for something or mad at their parents for not being able to help out,” said Chris Civitate, 20, of Des Moines.

Iowa Student Loan, a private nonprofit organization that provides about 90,000 college loans to Iowa students each year, made the move because of tightening of consumer credit markets.

CEO Steve McCullough said private loans are becoming harder to provide because the market for selling the bonds that backs the loans has evaporated.

McCullough said the organization will stop taking private loan applications in April.

About 26,000 students seeking loans for college each year rely on private loans for at least a portion of their college aid package.

Last year, about 68,500 students relied on government-backed loans administered by Iowa Student Loan. Those loans should remain available through Iowa banks and credit unions, which have pledged to provide up to $250 million in loans for Iowa students, McCullough said.

He said he had been working for several weeks to get bank and credit unions to commit to provide the government-backed loans for the fall. He said about 70 institutions said they would.

Now, McCullough said he is beginning to work with other banks and financial institutions not offering the government loans to make private loans available.

He said the federal government may need to inject money into the market to help alleviate the credit crunch, much as it did this week to help the mortgage credit crisis.

McCullough said students who rely on private financing should be ready to face challenges finding a lender.

“There are still providers out there, but we just want to make sure they understand it’s not too early to start thinking about this and make their own contingency plans just in case there aren’t private loans available,” he said.

McCullough said the subprime mortgage crisis has caused investors to back away from all types of asset-backed securities and that includes the bonds that have been the financial underpinning of student loans.

“There’s basically just a liquidity crunch, a credit crunch, and the fear is that there won’t be enough capital available to fund all the students loans that need to get made for this fall,” he said.

The private, nonprofit Iowa Student Loan was created by Gov. Robert Ray in 1979 to provide low-cost loans for college students.

McCullough said the key for students is to look ahead at options and have a contingency plan.

“If I needed to give advice to students and parents right now, I’d say line up a co-signer right now and start to work to do that because the loans that are available likely will require one and where you may have been able to borrow without one in the past, you’ll likely be required to do that this fall,” he said.

Civitate is about midway toward getting a degree in flight operations and business aviation at the University of Dubuque.

He said he’ll pay $27,000 this year alone and expects to graduate with $125,000 in debt.

Civitate hopes to find other lenders that will supplement the money he makes working, what his parents provide for expenses and what he hopes to snag in scholarships.

He’s never had to have a co-signer before, but that looks likely now that he’s accumulated about $57,000 in debt. He worries that co-signing might hurt his parents’ credit scores.

“Fortunately, my parents are in a very good credit situation,” he said. “I know a lot of people who next year may have to go to a community college instead of finishing their degree at a four-year school.”

He said lack of credit may slow their progress toward a degree.

Civitate’s father, Jim, was a Des Moines firefighter for 21 years and now is in charge of disaster relief for the Salvation Army in central Iowa.

His mother, Carla, is a hair stylist for a Clive business.

She’s doubly concerned about the student loan situation because not only does her son need money to continue his education, her daughter, Jamie, plans to attend the University of Colorado at Colorado Springs this fall.

“I am aware that the bond market is drying up and Iowa Student Loan might not have the type of loans that my son has taken out previously,” she said. “At this point we don’t know what we’ll do.”

The Civitates sent their children to Catholic school and as a result paid tuition for their entire education.

“We’ve always put out money for tuition and never had excess to save for college tuition,” she said.

She also worried about the debt load her children would carry when they get out of school.

She estimates her son may have a $1,000 monthly loan payment by the time he graduates.

“That doesn’t give him anything to live on,” she said. “That’s kind of a sad situation. People in Iowa, even our governor talk about keeping kids in Iowa and making it realistic to keep our educated kids here and to have jobs for them. Will it be something that will be well-paying enough for him to pay for his education?”

On the Net: Iowa Student Loan: http://www.studentloan.org

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