Loan decision may be seismic shift for 2-year colleges

Scott Roelke wasn't worried about the recent trend of banks and other financial institutions no longer offering federally backed student loans.

As the financial aid director at Dakota College Technical College and the president of the Minnesota Association of Financial Aid Administrators, Roelke thought that while students might have to look around a little bit more for loans, everything would be fine.

He has changed his mind.

This week, JP Morgan Chase said it would stop issuing federal student loans at schools where loans weren't profitable enough. On Wednesday, most financial aid officers at two-year schools in the Minnesota State Colleges and Universities (MnSCU) system received word that Citibank would no longer lend to their students.

"Last week, I was not concerned at all," Roelke said. "After this week, I am now concerned. This is kind of a sea change. We didn't think that lenders of a size of a Citibank or a Chase would eliminate two-year institutions, but they have. That changes the landscape completely."

In the short term, students will be able to obtain federal loans from other sources. Roelke hopes it's not the beginning of a trend of lenders leaving the community college market.

"If other lenders are looking at this and saying, 'Well, Citibank and Chase got out,' it gives them the idea that it's all right for them to not serve the students at two-year institutions," Roelke said. "My concern is that this may be an indicator of where things are going."

Over the past few months, dozens of financial institutions -- including locally based TCF Financial and NorthStar Education Finance Inc., which provides the T.H.E. loans -- have scaled back their involvement in student loans or dropped out of the market completely. Some have made the move because of slimmer margins on college loans because of federal legislation, others because they can't obtain funds through capital markets.

Loans to two-year students are less lucrative to banks because they are often smaller in size than loans to students at four-year schools. Nationally, two-year students also have higher default rates.

"I understand their numbers behind it, but it doesn't make it right," Roelke said.

The availability of loans and other forms of financial aid are especially important for two-year schools. In 2005, students at two-year schools in Minnesota borrowed nearly $171 million, according to the state's Office of Higher Education.

When compared with four-year universities, two-year schools generally have more lower-income students, more students of color and more first-generation college students -- three groups that administrators want to see grow on college campuses.

Roelke doesn't want students who are already at-risk to give up on education because of difficulty obtaining loans.

According to a recent study by the College Board, a person who has a two-year associate's degree will earn 28 percent more over the course of his or her career than someone with just a high school diploma. A four-year college grad will earn 61 percent more than someone without any college.

MnSCU officials are watching the developments closely.

"It's just too early to tell whether it's going to get harder and harder," MnSCU spokesperson Melinda Voss said. "We don't see that our students are having problems now."

Lois Larson, the director of financial aid at Century College in White Bear Lake, remains optimistic that funding -- especially from local players U.S. Bank and Wells Fargo -- will be available for two-year students.

"Two-year colleges aren't generating enough money for [Citibank and Chase]," Larson said. "I don't think it's a value judgment on what kind of students we have, it's strictly a financial decision.

"I have a lot of confidence in some of our major lenders. I think they will pick up the market share from the people that are pulling out."

Jeff Shelman • 612-673-7478