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A Times Editorial

Banks shut out needy students

The credit crisis is bringing out the worst in major banks.

Several megabanks, including JP Morgan Chase and Citibank, announced they will phase out loans to students at two-year community colleges and smaller four-year universities. Their decision will make it even more difficult for the children of working Americans to gain a college education and is a cynical move by an industry that throws high-interest credit cards at college students who quickly find themselves buried in debt.

Student loans are predominantly offered through large lending institutions, and most are guaranteed by the federal government at a set interest rate, currently 6.8 percent. Congress also passed legislation allowing the government to buy student loan bundles from lenders, freeing them to offer more loans.

The decision to phase out bank loans at smaller schools is a matter of profit margin. Federal guarantees are available no matter the size of the school, so the big banks want to shift their resources to students at large universities. Larger schools mean larger loans, which translates into bigger profits for the banks.

Though tuitions are relatively low, community college students are the most in need of loans through the big banks. Community colleges draw a larger proportion of low-income students. They also are not connected with the direct loan program, which offers federal loans to students at larger four-year institutions straight from the government.

Most students will still be able to find loans, though on much less favorable terms: higher interest rates, higher monthly payments, fewer electronic banking options and a greater chance students will have to switch lenders during school. Congress may have to put pressure on the banks to resume offering loans to community college students. If the banks won't budge, the federal government should offer direct loans to students in states' community college systems.

Banks shut out needy students 06/11/08 [Last modified: Monday, June 16, 2008 12:58pm]
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