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Students still borrow despite loan-pool cutbacks

Pat Patera

The U.S. credit crunch is shrinking the education loan pool in northern Nevada, but students at colleges aren’t much affected as they return for fall classes.

“The primary effect of the national situation is that some students have had to choose different lenders, due to their previous lender either not participating in the Federal Family Educational Loan Program, or choosing not to offer loans at certain institutions,” says Sharon Wurm, director of financial aid at Nevada System of Higher Education office in Reno.

The family educational loan program provides federal guarantees to student loans written by financial institutions, and more than 100 lenders nationwide have bailed out of the student loan business in recent months.

The University of Nevada, Reno, as well as Truckee Meadows Community

College and Great Basin College all have seen lenders drop out of the program completely. TMCC and Great Basin College have been specifically targeted by some lenders who are scaling back their offerings.

Still, there is no shortage of lenders who are still participating in the guaranteed loan program, so students still are able to borrow federal student loans, Wurm says.

“We’re not experiencing a decrease in loans available to students,” says Jane Tors, director of media relations at University of Nevada, Reno. The school has a loan volume of $30 million, she adds, with a default rate of just 3 to 4 percent compared to community colleges, which show default rates in the range of 10 to 12 percent.

“So lenders are still working with us,” she says.

Nate Clark, president of Career College of Northern Nevada, says tighter credit has no effect on his school’s students. Although 80 percent of the school’s students have some type of financial aid, either loans or grants, the college relies on a federal direct-lending program that dispenses loans directly to students.

Although students at University of Phoenix continue to tap private lenders for educational loans, the private college also is making sure it has contingency plans in place.

“So far, we have not had any impact from the private loan sector,” Joe D’Amico, interim president of Apollo Group Inc., the parent company of the University of Phoenix, told securities analysts a few weeks ago. “We still have lenders who are doing private loans. To meet any shortfall in financing, we have been exploring the utilization of institutional grant and scholarship programs as necessary to ensure that our students who may need private loans and cannot obtain them have a method to remain enrolled.”

Community college students also retain financing options.

“We’re not seeing a problem with our students being able to find lenders,” says Anne Hansen, director of information and marketing at Western Nevada Community College.

Fewer than 300 students are affected at the college, where 6 percent of students have need-based subsidized loans and another 6.8 percent carry unsubsidized loans.

While Wells Fargo and Citibank have withdrawn from the lending pool, she says students still have five options: Union Bank, US Bank, Wachovia, Bank of America and Sallie Mae Education Trust.

Meanwhile, at Morrison University, only three students during the past three years have looked beyond the federal loans for additional funding from private banks, says Jim Hadwick, financial aid administrator.

Private bank loans, he says, usually fund the difference for students at pricey schools who have tapped federal loans but still come up short.

Parents usually apply for the private loans to fill the gap.

Lenders were writing high-risk student loans (which carried no collateral) mostly to gain future customers, counting on continued loyalty once those students entered the business world.