college

Doing the student loan shuffle

Students who attend foreign institutions and unaccredited U.S. schools that don't qualify for federal aid may encounter problems as well.

"My understanding is that those are some of the schools that the private lenders don't even want to deal with," Delisle says.

The hardest-hit students may be those attending community, junior and technical colleges, where the loan amounts run much lower and the default rates frequently run higher than for borrowers at four-year universities.

"I have heard stories at some schools where it's harder for their students to get loans, and some of the lenders have been making changes in the way they make new loans," says Barry W. Simmons Sr., financial aid director for Virginia Polytechnic Institute and State University in Blacksburg, Va. "I think there have been some isolated cases, but we won't feel the full impact until we see what happens in fall enrollments."

Alternative options

While most higher education institutions aren't setting aside funds specifically for casualties of the student loan credit crunch, Simmons says students who find themselves in a cash crisis should immediately head to their school's financial aid office. In addition to providing information about unadvertised school-specific scholarships and grants, a financial aid office may be able to direct students to a different lender that can accommodate their needs.

"Peer-to-peer lending sites are also a definite option," says Kantrowitz. Eliminating the need for banks, co-signers and credit approval, sites like Greennote.com and Virginmoney.com allow students to ask a wide network of friends, family -- even strangers -- for small fixed-rate student loans repayable after graduation. Generally the peer-to-peer lender is responsible for keeping track of who owes what to whom, collecting the funds and distributing the payments to those who fronted the money in the first place.

Kantrowitz says that while peer-to-peer sites may not work for students who need to raise vast quantities of college cash, they are viable alternatives for students with bad credit who need a few thousand to get them through until graduation.

If all else fails, take a look at low-cost education alternatives, says Joe Hurley, founder of the financial aid Web site Savingforcollege.com (a subsidiary of Bankrate.com). "Students can save a lot of money by spending two years at a community college then transferring to a four-year school," says Hurley. "If they can't find a loan, they should consider switching to a different school that's going to cost less or offer a better financial aid package."

Until lenders start jumping back into the private student loan game, those with college costs beyond what the feds will cover will have to rely on a mish-mash of funds from their school, community, or network of friends and family. "Unfortunately we can't offer one single solution for students who lose their loans," says Simmons. "There are no black-and-white answers for this."

Claes Bell contributed to this report.

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