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Paul Kiesel
Paul Kiesel
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40% of College Students Will Find it More Difficult to Receive Student Loans Next Year

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The subprime mortgage crisis has received most of the attention over the last six months, as lenders havebecome more credit strapped. But as homeowners, financial institutions and investors have felt all sorts of financialburdens, andat various times, students are now facing a grim reality of not being grantedreasonable loansto pay for higher education.

The firstgroup of students, and hopefully the last,that will feel the pangs of the credit crisis are community college students or students at less competitive institutions. The nation’s biggest banks are pulling out of these two sectors for the time being (some banks like Chase and Suntrust aren’t dropping “whole” categories, but are cutting colleges out of their portfolios), even though many of these loans that would potentiallybe issued are almost 95 percent backed by the U.S. Government, currently.However, students at competitive four-year universities, public and private, will not be affected for right now. According to the banks, their decisions are based on which colleges have higher default rates. But if the subprime mortgage resets hadn’t clobbered the credit market (and we’ll see what other problems arriseafter prime borrowers’ mortgage interest rates reset later this year), I’m almost certain these students that are about to betold “tough luck” by various lenders, wouldnot have had to deal with this reality, had lenders been more responsiblewhenoriginating poorly written subprime mortgages.

In fact, according to a New York Times article from yesterday, “More than 6.2 million of the nation’s 14.8 million undergraduates — over 40 percent — attend community colleges.” If that’s the case, the student loan industryis closingits doors to almost halfits potentialborrowers — borrowers seeking the means to better educate themselves and get the proper training to work in more technical and skilled positions. Granted, there are several fiscal reasons,reasonable and unfortunate alike,as to why lenders are going to be moving in another direction or abandoning these types of borrowers, but our government is again failing to do its best toprevent this credit crisis from spilling over into other sectors.

Ensuring Continued Access to Student Loans Act was passed last month to help make sure that students who need federally backed college loans will be able to get them, but this is done by offering subsidies to lenders to participate in these loan programs (lender incentive; they get more money than they should on a government backed loan andthismoney isprovided by taxpayers, of course). Again, our government is bailing out financial institutions, instead of injecting the financialaid into the proper entities (students, homeowners, and other who have been inadvertently affected by thefinancial hubris thatoriginated on Wall Street and was propagated through the White House almostsix years ago.)