Best Places to Seek Student Loans

Instead, they face an increasingly unfriendly marketplace where lenders — made skittish by the subprime meltdown and resulting credit crunch — have either significantly tightened their lending requirements or have suspended student financing altogether.

Since July of last year, 93 lenders, including College Loan Corporation and Student Loan Xpress, have stopped offering Federal Family Education Loan Program (FFELP) loans, says Mark Kantrowitz, publisher of FinAid.org, an online source for student financial aid information. Meanwhile, 27 lenders (including banks, state loan agencies and credit unions) have suspended private loan programs. Among this group, banking behemoth Bank of America (BAC), which provided approximately $1 billion in private student loans (accounting for 6% of the private student loan marketplace) during the 2007-2008 academic year, according to Kantrowitz.

Even though college loans may be harder to secure, students aren't completely out of luck. In fact, federal Stafford and Plus loans are still widely available. Picking up some of the slack left by lenders that exited the market, the Department of Education said last month that it will increase the amount students could borrow in Direct Loans (Stafford and Plus loans). In addition, Congress is reviewing legislation to allow federal home loan banks to redirect surplus funds toward student loan financing, thereby encouraging more lenders to participate in the marketplace.

Here's where students can turn for financing help:

Just make sure to submit the Free Application for Federal Student Aid (FAFSA) form as soon as possible. Financial aid officers use this form to determine a student's eligibility for federal aid, including Stafford and Plus loans and work-study programs. Go to the FAFSA web site for a list of filing deadlines across the country.

Once you've chosen a school, speak with its financial aid office. "The largest chunk of the support that the students will receive will come from the school that they're enrolled in," says Rod Bugarin, a former financial aid officer at Columbia University and Brown University. "Give your financial aid officer a call and really build that relationship." Make sure to touch base in the summer, he adds. It's an ideal time to ask about the need- and merit-based scholarships that the college provides.

Also, don't forget about scholarship opportunities close to home. "The biggest source of untapped funds comes from community groups, such as churches [and] Lions Clubs," says Bugarin. If you're graduating from high school, speak with a guidance counselor about scholarships that pertain to your accomplishments and activities.

Employed graduate students should ask their employers if they offer a tuition assistance program, which pays for a set number of classes or credits at an accredited university. Parents with dependent undergraduate children can sometimes use such programs to help pay their child's tuition as well.

Compared with the interest rates on private loans, which can range from 4.5% to a whopping 13%, rates on Stafford loans are much more reasonable — and predictable, says Kantrowitz. For the 2008-2009 academic year, subsidized Stafford loans, which are given to students who demonstrate financial need on their FAFSA form, carry a fixed interest rate of 6%. Unsubsidized Stafford loans, which are available to students regardless of their financial status, carry a 6.8% interest rate. (The Stafford loan interest rate for graduate students is 6.8%.)

Even better: Thanks to the Ensuring Continued Access to Student Loans Act of 2008, students can take out even larger federal loans this year. The law, which goes into effect July 1, increases the annual loan limit on unsubsidized Stafford loans by $2,000 per year for undergraduate students. (There is no increase for graduate students.) Here are the loan limits for the 2008-2009 academic year: