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Student Lenders Snub Some Types Of Colleges

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The New York Times

Published: June 2, 2008

Some of the nation's biggest banks have closed their doors to students at community colleges, for-profit universities and other less competitive institutions, even as they continue to extend federally backed loans to students at top universities.
Citibank has been among the most aggressive in paring the list of colleges it serves. JPMorgan Chase, PNC and SunTrust say they have not dropped whole categories, but are cutting colleges as well.

The practice suggests that if the credit crisis and the ensuing turmoil in the student loan business persist, some of the nation's neediest students will be hurt the most.

So far, financial aid administrators say they have been able to find fallback lenders that students can switch to, but the hurdles are costly to students - in money and time. The maximum interest rate on federal loans, now at 6.8 percent on the most commonly used loans, is set by Congress, but lenders are scrapping benefits.

Some loan companies have exited the student loan business entirely, viewing it as unprofitable in the current environment. By splitting out community colleges and less-selective four-year institutions, some remaining lenders seem to be breaking the marketplace into tiers.

Lenders will not say how many colleges they have dropped, making it hard to determine how many institutions have been affected. Although financial aid administrators say the trend is widespread, they are reluctant to identify which lenders have stopped serving their colleges.

The banks say their decisions are based on an analysis of which colleges have higher default rates, low numbers of borrowers and small loan amounts that make the business less profitable.

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