Community Colleges Want to Control How Much Certain Students Can Borrow in Student Loans

Student Loan Girl — Fri, 20 Jun 2008 23:54:00 GMT

Concerned that some students at two-year schools may borrow more in federal student loans than they can afford to repay, community college officials want the federal government to give community colleges control over how much their students can borrow in federal aid.

Community colleges want the authority to deny some of their own students the right to take out federally subsidized loans, because the schools believe that some students may not earn enough after graduation to repay their student loan debt, according to an article in The Chronicle of Higher Education (“Community Colleges Want Their Authority, Not Banks,’ Over Student Borrowing,” June 18, 2008).

The change is needed because colleges currently have no way of preventing a student from taking out a college loan that doesn’t make economic sense given the student’s long-term job prospects, says David Baime, vice president of government relations for the American Association of Community Colleges.

The association, which represents more than 1,200 institutions nationwide, is pushing for legislation that would give community colleges the right to control how much their students can borrow, rather than being at the mercy of private lenders who can stop lending to certain schools at any time. The AACC is lobbying for this authority after a recent move by some of the nation’s biggest banks to stop offering student loans to certain community colleges and other two-year institutions.

The banks’ decision to cease lending to these schools also prompted Democratic Senators Patty Murray and Christopher Dodd to introduce legislation that would prohibit lenders from ‘cherry-picking’ which schools they do business with.

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Proposed Legislation Would Prevent Student Loan Lenders from ‘Cherry-Picking’ Schools They Lend To

Student Loan Girl — Fri, 20 Jun 2008 01:14:00 GMT

To ensure all students have access to student loans regardless of what type of school they attend, two Democratic senators introduced legislation Tuesday that would prohibit banks and other lenders from “picking and choosing” which institutions of higher education they do business with, according to a New York Times article (“Bill Promotes Universal College Loans,” June 18, 2008).

Under the proposal, lenders that participate in the Federal Family Education Loan Program would have to extend credit to any eligible student, regardless of a student’s income or the type of institution they attend, as long as the student’s college is a member of the FFEL program, writes Times reporter Jonathan Glater.

Senators Patty Murray, D-Wash., and Christopher Dodd, D-Conn., introduced the legislation in response to the decision of Citibank, JPMorgan Chase, PNC, and SunTrust to stop offering student loans to community colleges and other two-year institutions.

“Lenders offering loans backed by taxpayer dollars shouldn’t be able to discriminate against certain schools or students,” Murray said in a statement. “Denying loans based on school, program length, or income level locks the door for far too many.”

Bill Faces an Uncertain Future

Banks who have ceased lending to certain two-year institutions contend that they lose money on the loans. Schools that have been cut off by the banks tend to have higher default rates and fewer borrowers with small loan amounts — financial factors that, lenders say, make business at these schools less profitable.

But financial aid administrators counter that lenders should not be allowed to “cherry-pick,” because selective lending could make it harder for low-income students to pay for college.

The proposal, which is under review by the U.S. Department of Education, has already been met with controversy. Some financial aid officials support the measure as way of ensuring access to student loans, while others believe it might have the unintended consequence of pushing lenders out of the federal student-loan business altogether at time when over 100 lenders have already left the FFEL program.

While the bill’s prospects are unclear, Sen. Edward Kennedy, D-Mass., chairman of the Senate Committee on Health, Education, Labor, and Pensions, is expected to co-sponsor the bill.

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Student Loan Blog : two-year schools

Community Colleges Want to Control How Much Certain Students Can Borrow in Student Loans

Proposed Legislation Would Prevent Student Loan Lenders from ‘Cherry-Picking’ Schools They Lend To