Treasury hopes to make it easier to get private student loans, which have become popular with non-traditional students and those who attend high-cost schools.
But the proposal has generated protests from groups who say the government shouldn’t prop up high-cost private loans.
There are limits on the amount of federal loans students can borrow, so many students use private loans to cover the rest of their college costs.
In 2005-06, private loan borrowing exceeded $17 billion, about 20% of all education borrowing. This year, though, the credit crunch has sharply limited the availability of private student loans.
More than 60 lenders have stopped offering them in the past nine months, according to the National Association of Student Financial Aid Administrators (NASFAA), a trade group, which supports Treasury intervention.
South Carolina Student Loan stopped offering new private loans, effective Nov. 19. The non-profit lender was unable to raise funds for new private loans, CEO Chuck Sanders says.
Lenders that remained in the business tightened their lending standards considerably, says Kevin Walker, CEO of SimpleTuition, a website that lets borrowers shop for student loans.
A year ago, private lenders were providing loans to borrowers – or borrowers with co-signers – who had a credit score of 625 or higher, Walker says. Today, he says, most lenders are requiring a FICO score “in the low 700s.”