Credit crunch hurting student loans

Over the last two decades, government grants for college have been increasingly replaced by loans. While a big boon to banks and lenders, the privatization of student aid has put those wanting to go to college in an increasingly precarious position.

And that situation has just gotten worse, as the housing credit crisis causes lenders to back away from student loans, Stateline.org reports:

An increasing number of banks, private lenders and state agencies are dropping their student loan programs, forcing students to scramble for new sources of money. While some experts say students should be able to easily find new lenders, students who switch could end up with higher interest rates and fewer benefits, such as paid upfront loan fees, as the financial market tightens.

It's not just private lenders; state agencies are backing off as well:

Just last week, Kentucky announced that unless more money becomes available, it will not accept loan applications from new students after May 1, closing the door on 27,500 potential borrowers.

Students needing help will be able to find lenders to loan them money -- but likely at exorbitant rates and on terms that could keep students mired in debt, effectively creating a new subprime market of students in debt:

While some experts say students should be able to easily find new lenders, students who switch could end up with higher interest rates and fewer benefits, such as paid upfront loan fees, as the financial market tightens.

For more information on the issue, see the Project on Student Debt.