Gloomy article on student loans in WSJ

I think you're overreacting a little, from the same article you linked:

Some observers are convinced that if lenders dependent on asset-backed securities leave the market, big banks with other sources of capital will step in and fill the void, especially for loans guaranteed by the federal government, which accounted for more than three-quarters of the $77 billion that students borrowed for the 2006-07 academic year. "This is a very good business," says Sandy Baum, a policy analyst for the College Board, "and such a low-risk thing."

Federal loans are guaranteed by the government and if you fill out the FAFSA, it's extremely likely that you will qualify for at least one graduate student loan program (PLUS) even if you don't qualify for the more popular subsidized/unsubsidized Stafford. Moreover, default rates for graduate students are much lower than those of college kids and even if lenders decided to slow things down, they would seek out MBA grads at good schools who would most likely have the greatest earning potential and thus be good borrowers. The student loan industry is huge and not going away anytime soon, but with interest rates expected to fall further, student loan-backed securities are going come back into favor once the market settles a bit. However, that's not to say that the volume of private education loans won't be affected.


Of course, things may be different for international students but I don't know what happens to those loans.

thanks for the article. Saving is good, though you may end up spending all your nest eggs since your expected contribution will be high after filling out the FAFSA (mine is insanely high... )

Guys for the uninitiated - what exactly is FASFA ? Sounds like end of year tax-returns that we do in Australia. Do you guys get taxed while you get paid or do u have to pay tax as a lump sum at the end of the year ?

It's the Free Application for Federal Student Aid. The thing you have to fill out in the US to get any loans and scholarships from any universities.

Same here. I dont have the means to save the 40k needed for the first year in between now and August.

Then again, seriously, I think us going to these elite/ultra-elite schools, I mean if they dont give us money, who will they give it to? Does it get any less riskier?

Alright, so I did some more research on this and apparently the FAFSA only determines eligibility for subsidized or unsubsidized Stafford Loans. Which means, that most US folks should still remain eligible for federal Graduate PLUS Loans at 8.5% fixed (before any lender incentives). 8.5% isn't a really great deal, but at least it means you still have options other than private education loans even if your EFC is a little too high.

You still need to fill the FAFSA to get the PLUS loans certified by your school's financial aid office. But PLUS eligibility is based more on your credit history than your EFC as determined by the FAFSA.

Even at the college level, most top schools understand the FAFSA's methodology is a little wacky and require students to submit something called the CSS PROFILE (no relevance for b-school) for financial aid determination. So I wouldn't go nuts over this.