Banks clamp down on college loans
With banks running from risk, it's getting more difficult for students at small colleges to borrow money for their education. Nancy Marshall Genzer outlines options for students in the rapidly shrinking student loan market.
College students (iStockPhoto)
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TEXT OF STORY
Bob Moon: Banks that make student loans are getting choosy. Even if they're still happy to lend to Ivy Leaguers, they're slamming the door on students from community colleges.
Some say it's not fair. Others say that's business.
Marketplace's Nancy Marshall Genzer reports.
Nancy Marshall Genzer: Since the latest credit crunch, banks have been re-evaluating risk. The latest group to be hit by this are students at community colleges and technical schools.
John Dean is special counsel at the Consumer Bankers Association.
John Dean: It was like a chain of dominos. Financing just simply stopped dead and the banks were suddenly flooded with additional applications for loans.
Statistically, students at these schools are more likely to default. Harris Miller is president of the schools' trade group, the Career College Association. He says without loans, the students will become part of a permanent underclass.
Harris Miller: The people who provide the skills in the operating room to support the surgeon, the people who support the IT network...
Now, these loans are backed by the federal government, but banks still don't like them because they're risky and it's hard for banks to sell the debt.
There is another option. Students can get a private loan not backed by the government from lenders like this one, spoofed in a YouTube video:
[Clip from Fake Student Loan Ad]: And don't forget: You don't have to pay us until the day after you graduate. Wait, a day after?
But Terry Hartle of the American Council on Education says those loans are becoming scarce at even some four year colleges.
Terry Hartle: The worry here would be for trade schools and for small, private colleges and universities.
You can get a student loan directly from the government, but those loans are limited -- enough to pay the tuition at a community college, but not much else.
In Washington, I'm Nancy Marshall Genzer for Marketplace.
Comments
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From Mahwah, NJ, 06/19/2008
Great Articel. I am interested to know if any four year college have gotten "stuck" with balances for the past semester because of a bank pulling out of the business after loans were in process?
From State College, PA, 06/04/2008
As an adviser to a few hundred adult students, my advisees find it difficult to balance life responsibilities and college affordability. Most of my advisees are adult students who are just starting school for the first time, finishing a degree, or trying to get a leg up in their workplace. Most are part time students with full time lives away from school. With military obligations, families, full-time careers, and financial resposibilities, adult students can have a rough time balancing everything.
The credit crisis certainly has changed the role of private lenders in college affordability. Pennsylvania's Higher Education Assistance Agency (PHEAA) has gotten out of the loan business entirely. Students, as a result, have needed to find alternate sources of aid. Despite a student's academic performance or history, the credit rating seems to now play a bigger role than their post-degree credit potential.
It's bad when a student doesn't do well academically, but it's worse when a bank tells them they have little confidence in their ability to repay an educational loan. As a result, students have to charge their education onto a credit card with a higher interest rate--interest that is not tax deductible. With the need for nurses, teachers, doctors, social workers, and other fields that many adult students want to go into and have plentiful hiring potential, they are consistently discouraged due to the financial burdens they face. The stricter academic performance requirements for part-time students add an additional dimension to their stress.
If banks are concerned about not being able to hedge their loan burdens, that is one thing. If banks are concerned about making a difference in the lives of customers, it's another. Just don't let the credit crisis impact the prime time in a business cycle to invest in innovation and advancement.
From Ann Arbor, MI, 06/03/2008
The following information in your article is not entirely accurate: "You can get a student loan directly from the government, but those loans are limited -- enough to pay the tuition at a community college, but not much else." The amount a student can borrow through the federal loan program is defined by program regulation not who makes the loan. So students can borrow the same amounts through either a bank or directly from the federal government's Direct Loan Program. There is no liquidity problem in the Direct Loan Program. Educational institutions that are concerned about their students' access to federal loans should consider applying to participate in the Federal Direct Loan Program. If the profit margins aren't high enough for the banks to make loans let them pull out of the program. Direct Loans are a better deal for students and cost less for taxpayers.
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