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As has been widely publicized as of late, the sub-prime housing crisis has had a disastrous effect on our nation’s economy. The ripple effects from the collapse of that industry have been felt far and wide, and those ripples are turning into waves in the student loan arena.

The latest setback is the failure of financing giants Fannie Mae and Freddie Mac, two of the biggest loan providers in the country, who are also backing up foreign currency as well. With the Federal Government prepared to dole out billions of dollars of aid to these two financial heavyweights from the US Treasury, the ripple effect throughout the loan market is being felt everywhere, including student loans.

In an article in The Times, US Treasury secretary Henry Paulson had this to say about the bailout of Fannie and Freddie:

“[Their] continued strength is important to maintaining confidence and stability in our financial system and our financial markets. Therefore, we must take steps to address the current situation as we move to a strong regulatory structure.”

Coincidentally enough, the Boston Globe ran a story on the front page of the paper two days ago focusing on the Ferraguto family’s struggle to find a loan provider for their son’s senior year at Holy Cross and how the crumbling loan markets has left students in the lurch.

In the article, the Ferraguto’s mention that their complications started way back in April.

It was then when they received a letter from the Massachusetts Educational Financing Authority (MEFA), the nonprofit lender for thousands of students who attend colleges and universities in Massachusetts. The letter said the authority would no longer offer federal loans, including low-interest Stafford and parent loans. Even worse, the authority said money for private student loans was in doubt.

MEFA wasn’t the only agency that abandoned some or all of their student loan output for this coming year either. Numerous other agencies and banks eliminated federal, private or both types of student loans in an effort to cut costs and eliminate ties with the disastrous loan market.

Due to this frenzy of groups eliminating their loan offerings and the general instability of the market as it is, Colleges and Universities have been backlogged in awarding financial aid while they seek backers for the loans.

Seeking to ease the burden on students and to alleviate the problem, Holy Cross and some other schools have decided to sign on to the federal government’s direct loan program. Effectively, it makes Holy Cross a loan broker, connecting students to federal loans and reducing the need for them to apply to banks or other lenders for assistance. Holy Cross estimates the program will allow it to facilitate about $20 million worth of loans this year.

What this all should tell you is that if you will be attending College in the fall and you have yet to verify the status of your loans and if your usual lenders will be available to you – DO SO NOW! In the event that you are left scrambling like the Ferraguto family was, you still have some options. Check with your school to see if they are joining in with the direct loan program like Holy Cross did. If they haven’t, the financial aid office should have some suggestions for loan providers now that they have sorted out which companies are still offering loans to students. Act swiftly if you haven’t yet, so you aren’t left out in the cold when it comes time to pay the bills.

And for a humorous take on the Fannie Mae and Freddie Mac bailouts, or prop-ups, and the state of the economy in general be sure to check out the following Daily Show clip available here.

For the full text of The Times article, click here.
For the full Boston Globe story, click here.