According to a recent article in the New York Times, some major financial institutions have been dealing with the credit crunch by refusing student loans to students at community colleges, for-profit online universities, and other schools that are considered less prestigious. In some cases, students at these schools have received student loans, but with higher interest rates and less favorable terms. Some banks are more eager to drop students loans than others. In California, Citibank has dropped its student loan program for all community colleges in the state.
Why are lending institutions doing this? It’s all about money, of course. Yes, many of the loans made to students at “less desirable” institutions are smaller—especially loans made to community college student, since these schools are less expensive and only require two years to get a degree. However, students at more elite schools are considered lower risk because these students are (according to the banks) more likely to earn more money in the long run.
If this trend continues, the ramifications are quite troubling. It means that the people who need the loans most won’t be able to get them. Many of these people won’t go to school, which will further exacerbate the gap between the rich and the poor. And many of these students will go to school and either wind up deeply in debt or work long hours to be able to afford the expense. Long hours at a job may take away students’ ability to do well in school—and at the community college level, this may mean a student can’t transfer to a four year college.
It’s not illegal for banks to reject categories of students for student loans. But the ethics of this are, of course, questionable.