Student Loan Blog : Bloomberg

Citing the Economy, Students Transfer from Private to Public Schools

Student Loan Girl — Mon, 09 Mar 2009 22:29:00 GMT

Public colleges and universities are experiencing a greater influx of transfer applications from private school students as the flagging economy heightens students’ concerns about their ability to pay for college, Bloomberg reports (“Rutgers Sees 50% Jump in Transfers as Economy Sours,” March 5, 2009).

“Students seem to be price shopping,” said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers. “People are hedging their bets financially. There is a real economic motivation.”

According to the College Board, students at four-year private colleges pay, on average, $34,130 for tuition, room, and board, while students attending a four-year public school generally pay only $14,340 — a price discrepancy prompting more students to switch schools as the recession lingers.

Schools See Sizable Jumps in Transfer Applications

Rutgers University is just one of a growing number of public schools, including state universities in Texas, Indiana, and Florida, that is seeing more transfer requests coming from students attending private institutions; this year it has received 632 transfer student applications, which is a 52-percent increase from the 416 applications it received last year.

At Florida Atlantic University, a public school where state residents pay just $3,662 in tuition for a 30 credit-hour semester and are eligible for state scholarships that cover 75 percent of their college costs as long as they maintain a B average, transfer applications have increased 37 percent for the summer term and 22 percent for the fall semester. For its summer session starting in June, the school has already received 265 transfer applications from students at private colleges, a figure that will easily surpass last year’s total of 277.

“I’d love to take credit for it all, but I know the economy has to have some part,” said Barbara Pletcher, Florida Atlantic’s director of admissions.

While admissions officers have noticed that transfer applications have increased more than in past years and that a greater number of them have come from students at private colleges, they are quick to point out that applications don’t always translate into enrollments. Students often don’t realize they can’t afford to pay for school until they receive their tuition bills, by which time it’s too late to transfer and too late to take out additional student loans to cover the expenses they didn’t account for.

“After they get their tuition bill, you’re going to see a group scrambling and we will be full,” said Jason Langdon, director of admissions at Montclair State University in New Jersey, which has received 22 percent more transfer applications this year. “The earlier in the process they can get everything lined up, the better off they’ll be.”

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Citibank Suspends Student Loan Program for International Students

Student Loan Girl — Thu, 16 Oct 2008 01:04:00 GMT

Citibank announced it is canceling its private student loan program for international students in an effort to minimize its financial risk during the global financial crisis, Bloomberg reports (“Citigroup Curbs Foreign-Student Loans at Harvard, MIT, Michigan,” Oct. 15, 2008).

The lender’s CitiAssist private student loan program allowed international students at certain schools to borrow as much as $150,000 in private student loans without a cosigner; similar programs required that international borrowers have a U.S. citizen or permanent resident cosign on the loans.

Citibank informed MIT and the University of Michigan this month that it will stop making CitiAssist loans to the schools’ international students in November, just before students begin borrowing for the 2009–2010 academic year. Earlier this month, the bank also terminated its international lending program at Harvard University.

CitiAssist “did fill a very important role,” says Elizabeth Hicks, executive director of student financial services at MIT, where more than 200 of the school’s foreign students at the Sloan School of Management will have fewer borrowing options to help them meet their education costs, which total nearly $76,000.

International Student Loans Drying Up, More Banks Unwilling to Lend

In suspending its lending program to international students, Citibank joins Bank of America, one of the largest providers of student loans to foreign students, which terminated its foreign student lending program in April.

Other lenders are not likely to fill in the lending gap to international students, due, in part, to the fact that international students have a higher likelihood of default than U.S. students and because loans to “international students are not the most profitable loans,” says Mark Kantrowitz, publisher of Finaid.org, a financial aid website sponsored by Citibank’s parent company Citigroup.

Analyst Daniello Natoli, of New York-based financial firm Matrix USA, adds, “It makes sense for [Citibank] to move away from riskier products such as loans to international students, whose creditworthiness is more difficult to assess.”

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SAT and ACT Tests Not the Best Predictors of College Success, Study Finds

Student Loan Girl — Wed, 24 Sep 2008 21:12:00 GMT

The colleges and universities that use students’ SAT and ACT standardized test scores when making college admissions and financial aid decisions should base these decisions on tests that more closely reflect a student’s high school achievement and understanding of the high school curriculum, according to the recommendations made by a new commission comprised of influential college admissions officials.

The commission, led by William R. Fitzsimmons, Dean of Admissions and Financial Aid at Harvard University, recently completed a yearlong study that questioned the relevancy of SAT and ACT tests for college admissions (“College Panel Calls for Less Focus on SATs,” The New York Times, Sept. 21, 2008).

“It would be much better for the country,” Fitzsimmons says, “to have students focusing on high school courses that, based on evidence, will prepare them well for college and also prepare them well for the real world beyond college, instead of their spending enormous amounts of time trying to game the SAT.”

Admissions officers should rely instead on exams that are closer linked to high school curriculum like the College Board’s Advanced Placement tests and SAT Subject Tests and the International Baccalaureate exams when making admissions decisions, Fitzsimmons says. Unlike the SAT and ACT exams, he argues, these other tests have fewer ties to the billion-dollar test-prep industry.

Test Scores Indicate Students Who Are Well-Off Have An Advantage

Fitzsimmons’ research group, convened by the National Association for College Admission Counseling, found that the nature of standardized testing places less emphasis on students learning their high school curriculum and more emphasis on test preparation — a discrepancy that favors affluent students who can afford test-prep resources.

The commission’s report found that standardized test scores emphasized the socio-economic differences of the SAT’s and ACT’s test-taking population and were reflective of a student’s race and ethnicity, socio-economic class, and their family’s level of educational attainment.

“Society likes to think that the SAT measures people’s ability or merit,” Fitzsimmons says. “But no one in college admissions who visits the range of secondary schools we visit, and goes to the communities we visit … can come away thinking that standardized tests can be a measure of someone’s true worth or ability.”

Testing Companies, Schools Disagree on Report’s Findings

Representatives from the College Board — which administers the SAT exam, taken by 1.6 million high school students this year — and ACT Inc. — which is responsible for the ACT exam, taken by 1.4 million students this year — both disputed the report’s findings. The companies contend that their tests do measure students’ understanding of classroom material, not just their test-preparation skills, according to a Bloomberg article (“Colleges Shouldn’t Rely on SAT, ACT Tests Study Says,” Sept. 22, 2008).

“Hundreds of national research studies show that the SAT is a valid predictor of college success,” the College Board wrote in a statement. “We have long advised that the use of the SAT in the admission process is in combination with high school grades.”

Prior to the report’s recommendations, only 280 four-year schools, including Wake Forest University, Smith College, Bates College, and the University of Wisconsin, had stopped requiring the standardized tests for admissions, and the report calls for more schools to follow suit.

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Shares of Corinthian Colleges Stock Take Nosedive Over Student Loan Defaults

Student Loan Girl — Fri, 29 Aug 2008 01:56:00 GMT

Despite an 11.5-percent boost in student enrollment and an 18.3-percent growth in revenue over the last quarter, Corinthian Colleges saw its shares tumble in afternoon NASDAQ trading on Tuesday, as investor fears persist of rising defaults on the school network’s student loans (“Defaults Drown Corinthian,” Forbes, Aug. 26, 2008).

Corinthian’s stock value plummeted 19.3 percent, with investors selling off shares even as the company posted a smaller-than-expected fourth-quarter loss, thanks to higher revenues spurred by the increase in enrollment.

Second-Worst Stock Downslide Since Being Dropped by Main Student Loan Provider

Corinthian, a for-profit operator of more than 100 colleges and trade schools in the United States and Canada, has been struggling to maintain a source of financing for its 72,000 students ever since three of its largest student loan providers — Sallie Mae, College Loan Corp., and Student Loan Express — informed the company that, effective March 1, they would no longer be able to offer “serial” private student loans to the schools’ subprime borrowers. These serial transactions provided current subprime student borrowers — those who have weaker or limited credit histories — with subsequent student loans for ongoing studies.

In 2007, over 75 percent of Corinthian’s private student loan portfolio consisted of subprime student loans, and 90 percent of Corinthian’s private student loans in the United States were provided by Sallie Mae.

In fact, the 19-percent drop in Corinthian shares on Tuesday was the biggest percentage decline only since Sallie Mae made its announcement, on January 22, that it would stop issuing subprime private loans to Corinthian’s students. In the last 12 months, up until Tuesday, reports Bloomberg, Corinthian shares had risen 20 percent (“Corinthian Falls After Increases in Student Lending,” Aug. 26, 2008).

Taking Student Loans Into Its Own Hands: Inviting Risk With Revenue

To offset its loss of student loan lenders, Corinthian established a new company-sponsored student loan program in the fourth quarter called ACCESS and, according to Chief Executive Officer Jack Massimino, was able to provide funding for “the vast majority of students.”

But with a greater volume of student loans comes increased exposure to potential student loan defaults, and Corinthian’s defaults in the fourth quarter rose to 9.1 percent of its revenue, compared to 6.2 percent a year ago.

Corinthian’s chief financial officer, Kenneth Ord, said that for the 2009 fiscal year, Corinthian will spend all available cash on student loans that isn’t already earmarked for capital expenditures; however, investors are still uneasy, worried that Corinthian will fall short of its projected earnings for 2009 and may need to write off some of its student loans to stay afloat.

The company’s student loan program — and the higher rate of borrower defaults that investors fear is coming with it — “adds risk to the forecast,” said Jeffrey Silber, an analyst with BMO Capital Markets. “People were expecting sizable margin expansion, and this is going to put a damper on that. People are not giving [Corinthian] the benefit of the doubt.”

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