More Banks Backing out of Loans for Community College Students

Daily Herald (Arlington Heights, IL), September 11, 2008 | Go to article overview

More Banks Backing out of Loans for Community College Students


Byline: Kerry Lester klester@dailyherald.com

Citing uncertain financial times, an increasing number of national banks are curtailing their lending relationships with community colleges, all the while continuing to loan to students at more lucrative institutions.

Several local schools including Harper College, McHenry County College and Waubonsee Community College are feeling the pinch.

JP Morgan Chase spokesman Tom Kelly said the financial giant in May suspended lending to Illinois schools that provided the least amount of business.

"Given what the interest rate is, and what the subsidy of the loan is, some schools are just not profitable enough to take the risk of making those loans anymore," Kelly said.

Community colleges arent as profitable to banks for a number of reasons.

With lower tuition costs, they tend to have fewer borrowers. Those community college students who do take out loans tend to borrow less than students at more expensive, four-year institutions.

With a higher percentage of financially independent students, community colleges also tend to have a higher default rate.

Citibank spokesman Mark Rodgers said that on May 1, the banks Student Loan Corporation Unit "temporarily suspended" lending at schools that have loans with lower balances and shorter periods over which the bank can earn interest.

Financial aid administrators charge that this move is squeezing the neediest of students.

According to the American Association of Community Colleges, 6.5 million undergraduates attend community colleges. One third of those students are minorities. Another third are reliant on loans.

About 1,100 of Harpers 25,000 students take out loans, a majority from major lenders, Scholarship and Financial Aid Director Earl Dowling said.

"Seeing lenders pull away because students dont have to borrow as much as students from a four-year university, thats a sad state of affairs," he said.

Waubonsee Community College in Sugar Grove lost four lenders JP Morgan Chase, Citibank, PNC and Oxford Bank in the last year, Director of Student Financial Aid Services Chuck Boudreau said. The 10,000-student school sees about 5 percent of its population take out loans each year.

McHenry County College in Crystal Lake processed 868 loans for the 2007-08 school year, Financial Aid Coordinator Laura McGee said. As of early this week, the school had processed 277 loans for the current academic y ear.

"Were in such disarray because of all this," she said of having lenders refuse services to students. "It is making it very difficult for the students and for staff to keep track of all of the changes. This could really affect default rates in the future with the students having to change their lenders so frequently."

The frustrated schools are all exploring the option of offering direct loans which allow students to borrow directly from the federal government.

An April 15 survey by Student Lending Analytics, a California-based data company, reported that 7.2 percent of community colleges now participating in the Family Federal Education Loan Program have already decided to switch to the federal direct loan program, and another 28. …

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