Experts are worried about the future of the student loan market and whether or not enough money will be available in the coming years for all who want to attend college. The Wall Street Journal reports that colleges and universities are shying away from private lenders (which had been utilized pretty aggressively in the last several years) and back toward federal student loan programs.

Under the federal program, the government guarantees certain loans to students and their families. The loans are attractive because the closing costs are usually lower and the interest rates are competitive.
In contrast the private lenders (who still do the bulk of college lending) offer Stafford loans, PLUS loans for parents and graduate students, and consolidation of student loans. They’ve got over 80% of the college lending market cornered. Although their loans may not seem as competitive as the federal loans, the process is still fairly easy and the money is readily available, making this an attractive choice too.

But private lenders are going away. Experts say there’s no immediate danger of having too few loans for college students. But the potential is there a few years down the road, as some of the big name lenders are not offering new loans. They wonder if the direct loan system offered by the federal government can handle an increased load. The Department of Education says they did $13 billion in loans last year, and could do double that if necessary.

I don’t know what you’ve seen, but I’ve found that paying student loans often falls to the bottom of the priority list for consumers. The money often doesn’t seem real when you’re standing in the financial aid line in the fall… And that’s how some college students end up borrowing far more than they should. It seems like easy money at the time, and when it comes to paying off the loans, there seems to be pretty low motivation.

Frankly, I don’t blame private lenders for cutting back on student loans. This is a time during which those granting credit need to be more choosey with their loans. And not every kid is cut out for college anyway. Maybe a little tightening on the student lending front will help weed out some of the students don’t really belong there. And those who do want to be there and should be there will maybe just work a little harder to make their college dreams come true.

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