COLUMBIA — Usually, students choose universities based on location, reputation and degree programs. But this fall, some students may be forced to base their decisions largely on where they can receive a student loan.
A nationwide trend of banks refusing to offer loans to students at community colleges and smaller private institutions could hit home sooner rather than later at Stephens College and Columbia College.
Two banks, PNC Bank and Citibank, cut the schools from their student loan programs effective May 1.
Citibank is no longer offering student loans due to the small loan volume from Stephens, said Rachel Touchatt, director of financial aid at the college. PNC Bank stopped because it doesn’t have any local branches.
So why are banks cutting community colleges, along with some private universities, from their student loan programs?
Over the past few years, Congress has cut more than $38 billion from student loan bank-based programs. As of May 1, bank lenders were forced to decline to lend to certain schools, said Mark Rodgers, vice president of public affairs at Citibank.
“In making our decisions, we simply looked at the typical size and length of loans at schools and at schools where we did very little lending,” Rodgers said. “Due to current circumstances, including recent legislation and the increase in the cost of funds, those loans were no longer profitable to continue making.”
More than 95 percent of students have some form of financial aid at Stephens, Touchatt said. Approximately 75 percent of the class of 2007 had student loans.
The biggest problem that Stephens will face because of the loss of Citibank’s lending is that it was one of the school’s only alternative loan suppliers, Touchatt said.
“The concern is alternative loans are harder for students to find, so to take away Citibank makes that a more difficult option since private loans are having trouble with alternative loans because of their higher costs,” she said.
Most students wait until the last minute to apply for alternative loans, or the extra money needed when there is a gap in the student’s financial assistance received and the cost of attendance. At this point, it is unclear how many students will apply for alternative loans and, therefore, unclear how much Citibank’s cut will affect Stephens students, Touchatt said.
Columbia College has also been cut by Citibank, again due to low loan volume. In addition, Bank of America, Commerce Bank and Chase have all modified ways of processing loans and changed fees.
Despite these changes, Sharon Abernathy, director of financial aid at Columbia College, said, “There will always be funds for students.”
Abernathy said that the U.S. Department of Education agreed to fund private lenders to put more money into the market so that there will be funding for those private lenders. Sallie Mae, America’s largest provider of student loans, has committed to funding every student who applies for a student loan.
For most banks, denying certain schools student loans is only temporary. Rodgers said that as the economy allows for more student lending, the bank will begin to work with those denied schools to incorporate them back into the loans program.
According to the American Association of Community Colleges, there are 1,195 community colleges in the nation, with an enrollment of 11.5 million students of which 47 percent receive financial assistance. Because of the cuts, many of these students may be forced to take out private loans or use credit cards to continue with their higher education.
Citibank’s Student Loan Corporation said in a news release that it “will suspend lending at certain schools where loans with lower balances and shorter interest-earning periods result in unsatisfactory financial returns.”
From the banks’ perspective, it all boils down to what would jeopardize their likelihood of getting loans paid back.
“It is definitely a stumbling block, but it’s not the end of the world,” Abernathy said.