August 4, 2008

Painful Irony

By Malcolm, Wade

When a student graduates from Luzerne County Community College with minimal debt, Mary Kosin considers it a job well done.

But this positive attribute students usually graduate the two- year school less than $6,000 in debt - has created an ironic disadvantage in the current credit market, says Kosin, the director of financial aid.

Some banks won't loan to LCCC's students. It's just not profitable enough. The Nanticoke-based community college shares this issue with many similar schools across the country, meaning their students could be inconvenienced more than most. LCCC students can no longer get government-backed loans from four of the school's top lenders.

One pulled out of the student loan program entirely, but the other three chose to stop working with LCCC specifically

Here's why. The government sets fixed rates for the loans, giving students thesame rate regardless of credit history, what school they attend or how much they borrow.

A lower tuition like LCCC's translates to lower debt, which results in the lender recouping less interest on repayment. Add to that the lower graduation and high default rates at most two-year schools, and it's easy to see why they'd be the first to suffer in a tight credit market, explains Mark Kantrowitz, publisher of, a financial aid advising Web site. "We have our own unique issues," Kosin says.

Some schools in LCCC's situation - and some large schools like the Penn State system - have instituted programs for students to borrow directly from the federal government. But many financial aid experts agree this method costs students more money in fees, and the customer service falls short.

"The benefit to our students is not as good as in the private sector," Kosin says. Kosin is confident the money will be there for every student who needs it. But with so many banks leaving LCCC's program, most students will have loans from two different sources upon graduating. And Kosin anticipates they will have a harder time consolidating them, again because their low amount of debt means little profit for the holder of the loan.

"It's a catch-22 situation," she says. The issues differ at King's College, a private four-year school. Finding lenders for government-backed loans should be easier, but like at all schools, some students will need more loans on top of what the government provides. Between 20 and 25 percent of students at King's borrow privately, estimates Ellen McGuire, the college's director of financial aid.

King's plans to work with students whose financial status changed, making it harder to find credit, by helping them locate more scholarship money.

"But to be in a position in April or May and wondering whether the loans are going to be there," McGuire says, "has been difficult."

Copyright Northeast Pennsylvania Business Journal Jul 2008

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