Loans Expert

IU students with Stafford loans have nothing to fear about losing money due to the struggling economy and the credit crunch, IU officials said.

“It’s important that students remember that their federal Stafford loans come directly from the Department of Education,” said Roy Durnal, senior associate director of student financial assistance. “There is no lender involved. It’s directly from the Department of Education. Students at IU-Bloomington won’t have a problem because of the direct loan program that we participate in.”

However, Durnal said, many students have to turn to private loans and parent loans to pay for the full costs of college. In these areas, students might run into trouble.

“Those both go through credit checks,” Durnal said. “In the case of private student loans, that does come directly from a private lending institution, so money in those private loan areas is getting tight. Part of what the government is trying to do is make money more available for situations like student loans.

“Parent loans come from the Department of Education, so again there is no intermediary or bank involved, but the parent goes through a credit check. We would expect that there would be situations where parents, due to the economy, would have a little more difficult time getting approved through a credit check.”

The parent loans and private student loans are different because they come from different sources. While a private institution can increase the interest rate on a loan, the Department of Education cannot, and so the department’s loaning rates will stay constant due to the nature of their loans.

Students whose parents pass the credit check for their parent loan will continue to receive the same loan they have been. However, students with loans in the private sector might see a squeeze on the aid they get.

Some examples of private institutions that provide student loans are Sallie Mae, CitiBank, Chase and other banking institutions.

“Students may have difficulty because some banks and some lending institutions are either getting out of the student loan business or certainly tightening their credit,” Durnal said.

Essentially, the issue with the parent loans is with the credit scores of the parents. The issue with private loans is the institutions have too many loans out.

Application for the parent loan, which can substitute for a private loan and, at this point, could be seen as a safer investment, is simple, Durnal said.

“The student has to be a student in good standing making academic progress at Indiana University-Bloomington,” Durnal said. “The parent fills out a single-page application form. Basically, they tell us some basic information – name, address, how much they’re requesting – and we submit that information to the Department of Education, who does a credit check on that parent.”

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Tags: Parent Loans