TEXT OF INTERVIEW
Tess Vigeland: There's some relief this week for college students who are worried about the effect of the credit crunch on their loan prospects. The president signed legislation aimed at stabilizing the $85 billion market.
For the details, we turn once again to Kim Clark of U.S. News and World Report and Kim, tell us briefly what this new law does for students who need help paying for college?
Kim Clark: Yeah, it's doing two things that relate to the credit crunch. One is it's giving parents who are having trouble with a mortgage -- let's say their mortgage reset higher and now they're having trouble making those payments -- those parents used to not be able to get a parent loan. Now they will be able to get a parent loan. The other thing they're doing is the federal government is going to act as the lender of last resort. So if you are awarded, let's say, a Stafford loan, which is the standard student loan, and you go to your normal bank and say "OK, I got a Stafford loan. Can I have it please?" and they say "Oh no, we're decided we're not doing that anymore," now you go to your school and the school is the one that's supposed to find out who you're supposed to go to and how you can get your Stafford loan.
Vigeland: All right, so all of this is for federally-backed loans. What about the private student loan industry? Where does this leave that?
Clark: Well, also this week there was a lot of news on that front, because one of the biggest players in the private student loan market is called First Marblehead. They laid off more than half their staff and they just are losing tons of money because, in part, this new legislation is going to eat into their market by allowing people to borrow more and giving people who have kind of dodgy credit a chance to borrow under the federal program. Those people are not going to be borrowing private loans anymore, which is sort of better, because the federal loans are a better deal: they're cheaper and they offer more options like extended payback and deferrals and so on.
Vigeland: All right, I know you've written a lot about the student loan industry and I wonder if you might have perhaps an unusual method for students who are looking for any way to save a buck as they head to college.
Clark: Well, I think one of the best ways to save money on college is to look at the things that people don't even think about. There's this growing movement -- the co-op movement is coming back from the 60's. Students can enter these co-op dorms and do maybe five hours of chores a week and save thousands of dollars. One of the best examples is at UCLA, right there in Los Angeles near you Tess. If you sign up for one of these co-op dorms, you save more than $6,000. For five hours of cleaning up and maybe scrubbing the bathroom, but big deal. I figured it out; you're earning basically $39 an hour for those chores, so it's a great way to save money.
Vigeland: Do we really think that Gen-Y is ready to do chores?
Clark: I think they are. These are definitely coming back. When you think about you could borrow that money or you could not go to UCLA or you could go to UCLA and, OK, so you have to do five hours of chores a week, I think that's a no-brainer. I think you know what the right decision is.
Vigeland: Kim Clark is a senior writer with U.S. News and World Report. Thanks Kim.
Clark: You bet.