Magazine article Diverse Issues in Higher Education

Suffering the Borrowing Blues: Proprietary Schools Likely to Be Most Affected by Lenders' Retreat from High-Risk Student Loans, Officials Say

Magazine article Diverse Issues in Higher Education

Suffering the Borrowing Blues: Proprietary Schools Likely to Be Most Affected by Lenders' Retreat from High-Risk Student Loans, Officials Say

Article excerpt

Low-income students and students of color may have a harder time getting some college loans because of an ongoing credit crunch and tighter underwriting rules in the industry.

While the trend may not affect federally guaranteed loans, usually the first line of credit for college students, it likely will have an impact on the fast-growing private loan market that serves low-income students once they reach federal lending limits, analysts say.

The trend became clearer in mid-January when loan giant Sallie Mae announced plans to cut back on private loans to students attending postsecondary institutions with low rates of student success.

"We're not going to lend at schools with poor graduation rates," Tom love, a Sallie Mae spokesman, tells Diverse. "We will do less private lending at these schools."

Joyce says this move is most likely to affect proprietary schools and not institutions like historically Black and Hispanic-serving institutions that enroll a large number of low-income students.

"We are the leading lender there, and we're looking to grow in those spaces;' he said of HBCUs and HSIs. Yet Joyce did not say what graduation cutoff rates Sallie Mae would use in making lending decisions. The company is reviewing that issue and should develop guidelines soon, he adds.

Nationwide, data show Blacks and Hispanics trailing Whites in graduation rates. While National Center for Education Statistics data show an average graduation rate of 56 percent, rates for Hispanics and African-Americans are 46 percent and 40 percent, respectively. The rate for White students is 59 percent.

The combination of trends and data provides some cause for concern. "Some lenders want to redline students at certain schools," says Eileen O'Leary, director of student aid and finance at Stonehill College in Easton, Mass. "They may concentrate their federal lending on schools with better default rates."

According to Joyce, Sallie Mae wrote off $1 billion in bad private loans last year. About two-thirds went to students who either dropped out or moved to part-time status, which automatically triggers repayment.

"That's a lot of money," he says. "It's a win-win to invest in students who will be successful. It's a lose-lose to [invest in] students who won't graduate."

Nationwide, complex factors are affecting student access to loans, O'Leary tells Diverse. …

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