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Posted by vida

According to Bloomberg News, parents who have a bankruptcy or foreclosure on their credit history may find closed doors when they apply for certain types of financial aid for their child. 

Since these adverse credit items usually remain on a credit report for 7 or more years, children who are now 11 years of age and older may face difficulty obtaining federal and private student loans when they are ready to attend a college or university. Financial aid decisions for new freshmen are routinely based upon the parents’ income and credit worthiness.

The current banking crisis, coupled with new laws that limit the compensation received by student loan lenders, has created a tighter situation for those without stellar credit. Although the federal government is scrambling to fix the situation, some college students will find a less-than-friendly borrowing climate when they apply for the smaller pool of available student loan monies.

Both Stafford and PLUS loans are affected; since a third of student loan banking institutions fled the scene when recent legislation placed tighter restrictions on profitable, but questionable, lending practices. Excessive government subsidies to lenders were cut by approximately $20 billion. Some banks that once made out like bandits at the expense of college students were unwilling to continue their services when profits fell.

A new program provided by the federal government, called Direct Loan Servicing, may make it easier for students and their parents to apply for college loans without going through banks.  The borrowing is done directly through the federal government and has four repayment options; but the loan must be offered through the student’s college as part of a financial aid package.  Repayment can be easily managed on the Direct Loan Servicing page that is part of the US Department of Education’s website.

However, parents should remember that the repercussions of today’s financial decisions may impact them and their children tomorrow. It is important to plan ahead and strengthen, not weaken, one’s credit history by:

  • paying all bills on time,
  • avoiding bankruptcies and foreclosures,
  • checking personal credit reports regularly for discrepancies,
  • paying down credit cards to below 30% of the card limit,
  • taking additional measures to improve credit scores.

Also, parents and students should begin saving for college and consider a Plan B if financial aid for college falls short of the required amount. Attending junior college for two years may become a necessity, rather than an option.

With careful planning, parents and students can avoid the disappointment of being denied the necessary funds to achieve their college goals.

financial aid, student loans, student loans, colleges and universities, credit score, credit report, foreclosures, bankruptcies, credit history, parents, college students 

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This entry was posted on Friday, May 23rd, 2008 at 3:15 am and is filed under financial aid. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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