March 13, 2008 Simpletuition.com helps students find loans Play video

(NECN: Boston, Mass.) - The slumping economy is making it nearly impossible for many students to get college loans, but one Massachusetts company trying to help.

NECN's Mont Fennel has more.

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Two-thirds of students leave college with student loans averaging $20,000. Experts are now warning, that in the next couple of months rates for private loans, which range from 6-14%, could jump another 1.5% because of the credit crunch.

The credit crunch has made home borrowing more expensive and mortgages harder to qualify for. It's now spreading to the twenty-one billion dollar private student-loan market.

"The problem is, those investors who would buy those loans are saying – well, I’m not sure the time's right for me to jump back in because maybe they're too risky -- maybe I lost some money somewhere else because of the sub-prime mess so I’m sitting on the sidelines for now until I figure out if the markets have stabilized."

Suffolk University Senior Theodore Davis has already paid a half percent more on a loan taken in January verses another in September.

"It’s frustrating and it's something that you're going to accrue and have for a long time."

The country's largest student loan provider, Sallie Mae, is turning away borrowers with poorer credit. The lender is also eliminating loans at community colleges whose loan default rates are higher.

New Hampshire’s not-profit loan agency last week said it

"There definitely will be thousands -- maybe tens of thousands of students across the country, who will simply have to withdraw entirely."

At least Davis can compare 36 lenders rates and terms on simpletuition.com.

"There are a lot of companies out there and you just have to choose wisely."

The Newton, Mass. company's CEO says traffic this year should triple to two and a half million users.

Kevin Walker says the credit crisis is not affecting the amount of federal student loans available, even though some lenders are not servicing them anymore.

"The government is obliged to step in and make sure loans can be found."

But for private loans, expect higher rates and fees, stricter credit qualifications, and more lenders requiring a co-signer -- all from a dwindling number of providers.

"There will be people on the margin, who will have to make a different choice about college whether that's taking a semester off or going to a less expensive school -- that will probably happen."

Meanwhile, Senator Kennedy this week proposed to increase the amount of federal funds a student can borrow -- for the typical freshman its now $3,500 dollars. And on Monday, the Massachusetts' lawmaker will host a hearing in Boston on the challenges of college affordability.