Posted Date: June 11, 2008

Loans Getting Tougher For Community College Students

Leonard E. Colvin
Chief Reporter
New Journal & Guide
                
         Some consumers with weak credit ratings are having problems securing home loans, as well as school loans for their kids who often attend area-community colleges.
       Records, such as a report by the Project for Student Debt, suggest that lenders are becoming more tight-fisted with students at two-year community colleges, vocational schools and career trade schools. 
“Although we do not have any problems we are closely watching what takes place in the market,” said Phyllis Milloy, vice president of finance at Tidewater Community College. “It is too bad. But we hope the federal government  will make some changes with legislation which will help the lenders. We know they are feeling the pinch of the credit situation.”
The point is that money for college is becoming harder to find because many banking institutions are on what’s called the “preferred” list. This means these lenders are no longer providing or participating in the federal student loan program—or are using more stringent criteria to determine who will qualify for federally backed loans. 
       Robert Shireman of the Project for Student Debt, said that lending institutions are opting out of the federal student loan program or reducing the number of loans to students who are attending less costly community colleges. This reduces the amount of money they will owe these institutions at the end of their college careers. On average, students can owe up to $80,000 to banks in student loans once a four year, undergraduate career end. 
Further, more banks are also scrutinizing a student’s class list, previous academic strengths, the likelihood of dropping out, and the family’s financial status.
       Students attending preparatory schools for classes in nursing or accounting or vocational school—which may not lead to a job that will allow them to repay the loans—are having a harder time persuading banks to give them credit as well.
        Shireman said that students, without such loans, may opt to take more expensive private student loans or use credit cards if direct federal student loans are not available as an alternative
       Most community colleges and  four-year schools participate in the Direct Student Loans program, which come directly from the federal government.
  At least 1 million community college students, 1 in 10 nationally, do not have federal student loans, which is the safest  way to borrow for college, according to a report titled: “Denied: Community College Students Lack Access to Affordable Loans.” Most of these students live in Georgia, Alabama, North Carolina, Louisiana , Montana, Virginia, Tennessee and Utah.
       Hampton Roads’ largest community college, TCC has  over 35,000 students and does participate in the federal student loan program and has various options for  low-income students, who may have to tap into several sources to pay for their tuition.
   TCC has campuses in Norfolk, Portsmouth Virginia Beach and Suffolk and 29 percent of is students are African  American. 
About 40 percent of the 40,000 students enrolled at TCC use student loans to finance their education. Milloy said TCC has four banks on its “preferred” list of  banks it recommends to students to secure loans.
       The banks with the largest number of student loan portfolios are Sallie Mae, Chase, Wachovia, City Bank and MellNet, which is not a bank but does make student loans backed by the federal government.
       “This is the preferred list for most banks that colleges use when they  have ascertained how much a student is eligible for and needs to pay his tuition,”said Shireman.
“Students and their parents do not have to use this list. Further banks are not being truthful so far as the default rate. Many schools have programs which help students find ways to pay back their loans or banks,” Shireman continued.
“Recently the federal government bought up billions of dollars in student loans from banks they were having problems collecting so they would have more money available to loan students. Virginia has one of the lowest numbers of minority students who may be vulnerable to not finding alternatives to bank loans backed by the federal government. There are states like Louisiana and Georgia with much higher numbers of these students.”
        The federal government, the lender of last resort with its $30 billion dollar direct-student-loan operations, hoped to lure more lending institutions back into the student loan business when it ordered the Education Department to mitigate the stressed lending situation.
Shireman said that some 80 banks have left the student loan business but at least three recently returned to the fold. So this is a good time for people to consolidate various loans to reduce the interest rate and lower payments.

 

Click Here to Subscribe to the New Journal and Guide.