Lenders Ignore Community College Students
Some of the biggest banking institutions are bailing on the student loan industry, referring to it as “unprofitable” and “a risky investment.” The hardest hit are community college students. Some providers, such as Citibank, JPMorgan Chase and SunTrust, are cutting their lists of colleges (mainly community and less-selective four-year colleges) whose students they will provide loans to, making students turn to other sources for pay for their college tuition.
Report by the New York Times:
By splitting out community colleges and less-selective four-year institutions, some remaining lenders seem to be breaking the marketplace into tiers. Students attending elite, expensive, public and private four-year universities can expect loans to remain plentiful. The banks generally say these loans are bigger, more profitable and less risky, in part perhaps because the banks expect the universities’ graduates to earn more.
Lenders are keeping quiet on how many colleges they’ve dropped which makes it tricky to estimate how many students have been affected. Colleges who have higher default rates are more likely to be dropped. And since most lower-income students attend community and a easy-to-get-into four-year colleges, these schools are the ones being dropped in most cases.
There are still some bright spots. Some lenders’, such as Sallie Mae and Nelnet are still lending and show no indication they will stop anytime soon. In fact they recently reaffirmed their commitment to federal loans regardless of the institution a student attends. And yet others like Wells Fargo are also picking up the slack and actively searching out colleges to lend to.
The New York Times article goes on to quote a college financial aid director referring to Citibank:
The logic is so flawed, that for us to have volume with them in the future, we have to have had volume with them in the past. [...] I find it totally and completely unethical.
But why would banks stop lending? It’s now harder than in the past for lenders to raise money due to the current credit crisis. That coupled with the government’s subsidy to lenders have contributed to the reevaluations of their lending practices.
Read the full New York Times article: Student Loans Start to Bypass 2-Year Colleges.
This blog supports