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Student Loan Companies Drop Less Profitable School Loans

Francine L. Huff
LoanBiz Columnist

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Some student loan companies say they'll no longer make loans to community college students or those in schools with traditionally higher default rates. Lenders such as Citibank, PNC, and JPMorgan Chase have begun dropping schools from their approved lists and channeling funds to where they will generate more income. That means that some students may have a tougher time getting the student loan assistance they need.

Tougher to Stay in School

About 6.2 million students--40% of U.S. undergraduates--attend community colleges, according to the New York Times. Many of these students come from families with low or modest incomes. If these students have more difficulty getting student loans, they may be forced to work more and study less to fund their educations. Others may even drop out of school if it becomes too difficult to get student loans.

Higher Default Rates

The banks say they're dropping schools with higher default rates, fewer borrowers, or smaller loan amounts in order to maximize their profits. Although some schools say they've been able to find other lenders, the terms of those new student loan programs aren't always as favorable. Some benefits, such as rate cuts for borrowers who make payments on time, may no longer be available.  

Students who attend larger traditional state or private schools probably won't have to worry about student loan programs drying up. The Student Loan Marketing Association (Sallie Mae) says it will continue to grant federal loans to students who attend smaller or non-traditional schools. In a recent press release, president of Sallie Mae, C.E. Andrews issued the following statement, "Some lenders have ceased lending to certain school types, such as two-year and proprietary institutions. We want students at those schools to know that we will lend to all students at all schools who need a federal loan to pay for college, just as we have for the last 35 years."

Switching Lenders

Students who already have loans and are forced to switch lenders could find their repayment terms changing and, in the confusion of multiple lenders, could miss payments. This could damage their credit scores and put them at risk of default. Borrowers who find themselves in this situation should contact their lender to make sure they know exactly what is going to happen with their existing loans. They should also contact the financial aid office at their school to explore alternate lenders to continue receiving the educational funds they need.

Although some lenders have decided to offer fewer student loans, federal loan funding is still available for those who need help paying for their education.

Sources

About the Author
Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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