Student Lenders Saying No to Two-Year, Technical Schools
We at Total Bankruptcy have reported on how the credit crunch is making student loans less available and more expensive for those entering college and university. But the country's economic situation hasn't improved much since we noted that 14% of the student lending market stopped offering loans: bankruptcy filings have increased, foreclosures continue to plague American neighborhoods and the prices of food and gas continue to rise.
And now student lenders, according to the New York Times, are cutting back further on the student loans they're offering college students, this time eliminating or seriously reducing the loans for students of two-year, technical, for-profit and less-competitive schools.
Click Here For Free 2 Minute Evaluation
Major lenders like Citibank, JP Morgan Chase, SunTrust and PNC have reportedly severely limited the dollar amount available to those attending the aforementioned schools. Citibank, according to sources, has taken some of the most drastic measures, ceasing loans to all community colleges in California, among others.
The Chicago Tribune reports that banks have explained their actions by pointing out that borrowers attending two-year colleges typically borrow less money for shorter amounts of time, thus generating less interest for the banks than their counterparts at four-year institutions.
Because those who attend prestigious, four-year universities tend to enter higher-paying fields, lenders evidently consider loans to such students less risky than those to students who may not earn hefty salaries immediately after graduation. But the logic here seems off.
After all, two-year and community colleges tend to cost less than more traditional, four-year schools, which means that graduates of the former will have a smaller total amount to pay off after entering the workforce. Though four-year university grads may make more money, they're likely further in debt – that is, they have more to pay off – than those who attended less-renowned colleges.
But the implications of banks' decision to limit loans to students of two-year and technical schools are more worrisome than may at first be evident.
Traditionally, students of less-prestigious colleges – the ones feeling the brunt of the student lending crunch – are from families with lower income levels and fewer college graduates than students at four-year institutions. Though tuition may be lower at two-year schools, students' available income may also be lower, thus making educational loans essential.
Limiting or eliminating loans to this segment of the population (and it's by no means small – sources indicate that more than 40% of the nation's undergrads attend community college) could effectively perpetuate the cycle of poverty. Without loans, students may not be able to attend college; without a college degree, students are less competitive in many fields and unqualified for others; without work in such fields, students are relegated to lower-wage jobs.
And so it goes.
Thus the student loan crunch seems to be hurting the neediest students most.