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Banks clamp down on college loans

Nancy Marshall-Genzer Jun 2, 2008

Banks clamp down on college loans

Nancy Marshall-Genzer Jun 2, 2008


Bob Moon: Banks that make student loans are getting choosy. Even if they’re still happy to lend to Ivy Leaguers, they’re slamming the door on students from community colleges.

Some say it’s not fair. Others say that’s business.

Marketplace’s Nancy Marshall Genzer reports.

Nancy Marshall Genzer: Since the latest credit crunch, banks have been re-evaluating risk. The latest group to be hit by this are students at community colleges and technical schools.

John Dean is special counsel at the Consumer Bankers Association.

John Dean: It was like a chain of dominos. Financing just simply stopped dead and the banks were suddenly flooded with additional applications for loans.

Statistically, students at these schools are more likely to default. Harris Miller is president of the schools’ trade group, the Career College Association. He says without loans, the students will become part of a permanent underclass.

Harris Miller: The people who provide the skills in the operating room to support the surgeon, the people who support the IT network…

Now, these loans are backed by the federal government, but banks still don’t like them because they’re risky and it’s hard for banks to sell the debt.

There is another option. Students can get a private loan not backed by the government from lenders like this one, spoofed in a YouTube video:

[Clip from Fake Student Loan Ad]: And don’t forget: You don’t have to pay us until the day after you graduate. Wait, a day after?

But Terry Hartle of the American Council on Education says those loans are becoming scarce at even some four year colleges.

Terry Hartle: The worry here would be for trade schools and for small, private colleges and universities.

You can get a student loan directly from the government, but those loans are limited — enough to pay the tuition at a community college, but not much else.

In Washington, I’m Nancy Marshall Genzer for Marketplace.

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