A letter was sent out by Education Secretary Margaret Spellings to lenders explaining that the government will purchase some of the student loans, freeing more money up for the issuerers to lend money.

Under the plan, lenders will have the option of selling the government securities backed by student loans on terms markedly more favorable than the rates now available in the financial markets.

In case the offer fails to keep enough private lenders in the system, the Education Department is increasing its ability to issue and service loans directly, Spellings wrote. She added that the department is also prepared to advance money to agencies that would act as lenders of last resort.

Although many lenders have stopped issuing government-backed loans, Bank of America, last month reaffirmed its commitment to issuing federally backed loans. It said it would no longer issue strictly private student loans.

*Source- Buisness Week*

Because of the credit crunch, conventional lenders are making it tough for any but the most creditworthy borrowers to qualify for private college loans. Now, a new breed of student lender is trying to get students to return the snub—by writing off the Sallie Maes and Citibanks of the world in favor of relying on friends, family, and even perfect strangers to finance their college loans. "It's not a solution to the credit crisis in student loans by any means," says Mark Kantrowitz, publisher of financial aid Web site finaid.org. "But the idea of using peer networks to raise money is intriguing."

*Source-Chicago Tribune*

May 8, 2008

President Bush signed legislation designed to ensure that turmoil in the credit markets doesn't cause a shortage in student loans.

The measure is intended to inject liquidity into the student loan market by allowing the U.S. Department of Education to buy federally guaranteed student loans that lenders have not been able to sell to investors.

The legislation addresses a crisis in the market that has forced Citigroup Inc.'s Student Loan Corp., SLM Corp. and about 50 other lenders to stop writing some forms of student loans. They cite increased borrowing costs, cuts in government subsidies and a lack of investor interest in securities backed by loans.

Without government action, demand for federally backed student loans would outstrip supply, industry officials said. An estimated 7 million borrowers will need more than $68 billion worth this academic year.

Student Loan Corp., 80%-owned by Citigroup Inc., said it will suspend lending at certain schools and withdraw from the federal studentconsolidation loan market, becoming the latest company to pull in its horns regarding student lending.

More from the Wall Street Journal

Graduate students should exhaust their federal Stafford loan eligibility before applying for a Graduate PLUS loan.
Eligibility

* You may be eligible for a Graduate PLUS loan if you are enrolled in school at least half time.
* A credit check is required.
* You must be a U.S. citizen or national, a U.S. permanent resident, or an eligible non-citizen.
* You must submit a FAFSA.

More at Sallie Mae

Federal Parent PLUS Loans enable parents with good credit histories to borrow money with which to pay the education expenses of their children. Each child must be a dependent undergraduate student enrolled at least half time in an approved college or university.
About Parent PLUS Loans

* The primary benefit of the PLUS Loans is that parents can borrow federally guaranteed low interest loans to help pay for their child's education.
* A Federal PLUS Loan allows parents to borrow the total cost of undergraduate education including tuition, room and board, supplies, lab expenses, travel less any other aid.
* These parent loans are non-need based. Eligibility for the PLUS Loan depends on a modest credit check that determines whether the parent as an adverse credit. An adverse credit history is defined as being more than 90 days late on any debt or having any Title IV debt (including a debt due to grant overpayment) within the past five years subjected to default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off. Click here to learn more about credit.
* Your school may require the FAFSA Financial Aid Application to qualify for the PLUS Loan. Be sure to check with your school's financial aid office first.
* The interest rate on the PLUS Loan is fixed at 8.5% as of July 1, 2006.
* Unlike other type of loans, including home equity, Parent PLUS Loans require no collateral
* Interest may be tax deductible.

A Federal Perkins loan is a low interest (5%) loan for undergraduate and graduate students with “exceptional” financial need.
Perkins loan qualification requirements

* Enrollment in an eligible school at least half-time in a degree program
* U.S. citizenship, permanent residency, or eligible non-citizen status
* Satisfactory academic progress
* No unresolved defaults or overpayments owed on Title IV education loans and grants
* Satisfaction of all Selective Service requirements

The U.S. Department of Education provides a programmed amount of funding to the school. In turn, the school determines which students have the greatest need. The school combines federal funds with some of its own funds for loans to qualifying students.

To apply for the Federal Perkins loan program, you must submit the Free Application for Federal Student Aid (FAFSA).

Your school will pay you directly (usually by check) or apply your loan to your school charges. You'll receive the loan in at least two payments during the academic year.

Federal Perkins loans share many of the characteristics of subsidized Stafford loans. The most notable differences are no fees and a longer grace period.

Federal Stafford loans first disbursed July 1, 2006 are fixed-rate, low interest loans available to undergraduate students attending accredited schools at least half time. Stafford loans are the most common source of college loan funds.

Eligibility

* You must have submitted a FAFSA to be eligible for a Stafford loan.
* For subsidized Stafford loans, you must have financial need as determined by your school.
* You must be a U.S. citizen or national, a U.S. permanent resident, or eligible non-citizen.
* You must be enrolled or plan to enroll at least half time.
* You must be accepted for enrollment or attend a school that participates in the Federal Family Education Loan Program.
* You must not be in default on any education loan or owe a refund on an education grant.

More info at Sallie Mae