"Higher" Ed Loan Sharks Now Red-Lining Schools / Sectors

Student Loans Start To By-Pass 2-Year Colleges, June 2, 2008, by Jonathan Glater, NYTimes ...

Of the many positive aspects of post-New Deal America that began to be un-done during the Clinton years,

and have been just about fully dismantled by 8 years of venality and corruption under the BCRHB clique / claque,

allegedly universal access to "higher" education has been one of the most valuable, both socially and economically,

and certainly one of the aspects of US life most admired outside its borders ...

Now, in substantive terms, "higher" education in the US has been living on its past glories for about the last, oh, 30 years now,

given the horrific impact on American academia of the brutally pernicious doctrine of "publish or perish", and the radical devaluation of teaching in favor of "research,"

most of which is either utterly irrelevant to real-world problems it should, and could easily, be addressing -- e.g. social science and humanities --

or completely dominated by the corporate research agenda -- natural sciences, above all in the bio-medical field ...

But access to "higher" education has been at least a seemingly democratic element of the social compact that has sustained the illusion of "the American dream" ...

Now, though, even that lame fiction has begun to be chipped away by the ever-widening ramifications of the self-inflicted systemic financial crisis afflicting the US ...

We've talked before about how the Bush gang -- with their ever-willing accomplices, the Democrats -- has privatized the profits of the student financial aid scene, while socializing the losses, i.e., getting a government bail-out ...

But the charade has been exposed as increasingly threadbare, with the announcement that the corporate loan sharks who now dominate the student loan field have begun THEIR version of "red-lining,"

the long-time discriminatory practice of mortgage bankers, who suddenly decide that houses within a certain area -- denoted by a "red-line" -- are no longer worthy of being given mortgages ...

The result, of course, is almost instant decay of neighborhoods that have been red-lined, since homeowners can no longer find buyers who are able to finance purchases, leading quickly to both economic and social breakdown in those areas ...

That same lovely practice has now moved from the housing sector -- where we are daily seeing how well the Standard Operating Procedures have worked out there ;-) --

into the loan practices of higher education, which, after housing, represents the largest investment most families will make in their lives ...

Yet another disgusting example of the breakdown of the United States in all dimensions ...

The gory details ...

Some of the nation’s biggest banks have closed their doors to students at community colleges, for-profit universities and other less competitive institutions,

even as they continue to extend federally backed loans to students at the nation’s top universities. ...

The practice suggests that if the credit crisis and the ensuing turmoil in the student loan business persist, some of the nation’s neediest students will be hurt the most.

The difficulty borrowing may deter them from attending school or prompt them to take a semester off.

When they get student loans, they will wind up with less attractive terms and may run a greater risk of default if they have to switch lenders in the middle of their college years. ...

... community colleges ... which are a stepping stone to other educational programs or to better jobs, often draw students from the lower rungs of the economic ladder.

More than 6.2 million of the nation’s 14.8 million undergraduates — over 40 percent — attend community colleges.

According to the most recent data from the College Board, about a third of their graduates took out loans, a majority of them federally guaranteed.

“If we put too many hurdles in their way to get a loan, they’ll take a third job or use a credit card,” said Jacqueline K. Bradley, assistant dean for financial aid at Mendocino College in California.

“That almost guarantees that they won’t be as successful in their college career.” ...

Some loan companies have exited the student loan business entirely, viewing it as unprofitable in the current environment.

By splitting out community colleges and less-selective four-year institutions, some remaining lenders seem to be breaking the marketplace into tiers.

Students attending elite, expensive, public and private four-year universities can expect loans to remain plentiful.

The banks generally say these loans are bigger, more profitable and less risky, in part perhaps because the banks expect the universities’ graduates to earn more.

Lenders will not say how many colleges they have dropped, making it hard to determine just how many institutions have been affected.

Although financial aid administrators say the trend is widespread, they are often reluctant to identify which lenders have stopped serving their colleges,

for fear that it will complicate matters for current students who have taken out loans from those lenders and still need to deal with them.

Michelle McClain, 40, who is studying to become a teacher, learned on Friday that she would have to find a new lender after Citibank dropped William Jessup University. The news angered her.

“The loan is between me and the lender,” Ms. McClain said.

“I’m the one that’s taking out the loan, I’m the one whose credit is in jeopardy if I don’t pay it, I am the one totally responsible for the loan, and as long as I’m going to an accredited college, I don’t understand why it would make one iota of difference where I am going to college.” ...

The banks that are pulling out say their decisions are based on an analysis of which colleges have higher default rates, low numbers of borrowers and small loan amounts that make the business less profitable.

(The average amount borrowed by community college students is about $3,200 a year, according to the College Board.)

Still, the cherry-picking strikes some as peculiar; after all, the government is guaranteeing 95 percent of the value of these loans. ...

The government sets the criteria for college participation in federal loan programs, requiring that colleges be accredited and have low default rates to participate, for example.

Now lenders are being more selective than the government.

“There’s been a certain amount of market segmentation going on, but this is the first time we’ve seen a lender, especially as large as Citibank, saying, ‘We don’t want to do business with you,’ ” said Samuel F. Collie, director of financial aid at Eastern Oregon University in La Grande, Ore. ...

The credit crisis, which has made it harder for some lenders to raise money, and a reduction in the government’s subsidy to lenders have contributed to the reevaluations by the lenders.

“This is one of those perfect storm situations,” said Susan L. Mead, director of financial aid at Dutchess Community College in New York. She said her institution had been dropped by no less than six lenders: HSBC, Citibank, M&T, Chase, Citizens Bank and Student Loan Xpress. ...

Another danger for students is that as they are forced to find and switch to replacement lenders, they may lose track of some debt obligations and miss a few payments.

“It might put them in default,” said Claudia Martin, director of financial aid at Monterey Peninsula College, a community college in California that was dropped by Citibank and two other lenders. “We always recommend that a student stay with the same lender all through school.”