Connecticut College: Parents Learn How The Subprime Meltdown Impacts Your Child Paying For College
If you are like thousands of Connecticut parents then you have no idea how the subprime mortgage real estate collapse and student loans are related. You probably would not know that the mortgage banks that were giving out hundred thousand dollar mortgages with adjustable rate mortgages without verifying income may now impact your childs ability to get money for a Connecticut college or nationwide university.
Let me explain this in plain English.
When you take out a mortgage loan from a bank that bank turns around and sells your mortgage to another company. They do this because they get a fee from the buying bank in exchange for giving up future mortgage payments from you the consumer. That is why you get a notice in the mail that says your mortgage has been transferred to another servicer.
If you have an 8% rate on a thirty year fixed mortgage then the bank expects all of the principal and interest payments as their source income for the next thirty years. However, the recent mortgage collapse was because mortgage companies gave out adjustable rate mortgages (ARMS) with rates that increased and left some people without the income to pay their mortgage or other bills. Therefore the bank that bought the mortgage from your original bank is now stuck with a mortgage that is not generating any income, because the homeowner cannot afford the payment.
Well, if thousands of homeowners are defaulting on their mortgage payments with the banks that normally buy the mortgages as sources of monthly income then why would they continue to buy more?
They dont.
So the mortgage company that originally sold you your mortgage cannot sell their mortgages and their business model is dependent on selling the mortgages. If they do not sell the mortgages they go out of business. That is exactly what happened the last 24 months.
Okay, how does this affect Connecticut student loans?
Well, the same banks that buy the mortgages from mortgage companies also buy the student loans from Connecticut student loan lenders. So when the mortgages started defaulting they got scared that student loans were next, because after all if you could not pay your mortgage for the house you plan on living in, would you pay your student loan?
In an effort to help borrowers minimize the cost of Connecticut student loans and protect the Connecticut student loan lenders the government just passed several new laws that affect student loans. Including:
The minimum balances for loan consolidation will be increased to $10,000 to deter borrowers from refinancing small loan amounts will large upfront fees.
Consolidation loan discounts will be eliminated, with the possible exception of a 0.25% interest rate reduction for borrowers who sign up for auto-debit.
Lenders will discourage borrowers from consolidating their loans.
Many smaller lenders and consolidation-only lenders and marketers will exit the market, so there will be fewer education lenders.
Lenders will encourage borrowers to utilize private student loans, due to them making more money on those loans. Borrowers will need to beware of the higher costs of private student loans and avoid them until they've exhausted their federal education loan eligibility.
If you have a student in their junior or senior year of high school and planning to go to a Connecticut College then you must be aware of these changes and how they affect your child.
About the Author: Connecticut parents find out how to send your child to the school of his or her dreamswithout getting trapped in a financial nightmare of high rate, high payment, expensive debt! Click Here.
Find out the single biggest mistake 9 out of 10 parents make when applying for aid to Connecticut Colleges that literally cost them thousands of dollars! More importantly, how to avoid this fatal error! Click Here.
How to double, or in some cases triple, your eligibility for FREE grant money for Connecticut Colleges. even if you are dead broke or a millionaire making a good six figure income .
Related Articles