May 28, 2008

Even With Federal Assistance, Citibank Won't Help Some Colleges

Washington — The Bush administration announced a plan last week to provide federal financial assistance to loan companies, to help ensure continued student access to government-subsidized loans. It apparently won’t be enough, however, to ensure that some students keep their lenders.

Citibank, one of the nation’s largest providers of student loans, has told a series of colleges in recent days that it won’t be doing business with them any longer.

The bank’s student-lending division, the Student Loan Corporation, said in a statement that it was “suspending lending at certain schools where we anticipate processing minimal loan volume. We have also temporarily suspended lending at schools which tend to have loans with lower balances and shorter periods over which we earn interest.”

Citibank wouldn’t say how many colleges its decision affected. Financial-aid directors at several colleges have been voicing their complaints and confusion today about the decision, saying that in some cases Citibank is abandoning institutions with above-average borrower-repayment rates.

“Whether this decision comes back to bite them in the long term, they’ve made a short-term business decision to lower costs and increase profitability,” Samuel F. Collie, the interim financial-aid director at Eastern Oregon University, wrote to his colleagues on an electronic bulletin board. “An unintended consequence may be that any ‘good will’ on their books will suffer a serious writedown in fiscal ’08.” —Paul Basken

Comments

1. Yes, a major student loan lender may be able to find slightly more profitable investments through other avenues. But they did make a very good living with student loans for many years, and to abandon any student, because of the institution attended, will have long-term repercussions. They should accept the plan announced for 08-09, which appears to give them adequate insurance, and serve all students for this year to keep the door open for better market conditions, which seems inevitable.

   — John    May 29, 09:33 AM    #

2. Banks dont record bribes paid to financial aid officers as goodwill on their balance sheets. But it seems like Samuel Colie from Eastern Oregon thinks they should have. He may want to take economics 101 before opining on financial aid going forward.

   — disgusted academic    May 29, 09:39 AM    #

3. Apply for Scholarship there alot available and is fee free. I currently live in South Florida and the community college i attend was hit extremely hard by budget cuts in florida. the financial aid funding was cut short and my financial was pulled because of other reason there are lots of scholarships available.

   — Albert    May 29, 09:54 AM    #

4. What has really changed is that education itself is no longer seen as a good investment. Lenders used to say that student loans were good business because FFELP produced long-term customers for other products, such as, mortgages, and an educated citizenry strengthend the national economy, which is always good for banks. Sadly, it seems that short-term profits that benefit the bottom line have become more important than long-term goals that benefit the country.

   — Ph    May 29, 11:09 AM    #

5. Disgusted Academic: Sam’s suggesting that schools might wonder whether Citibank’s decision to flip/flop on their commitment to student loans, this late in the year, doesn’t paint them as an unreliable business partner.

   I’m really not in a position to judge your own Econ 101 credentials, what with your bold choice to post under a screen name. But c’mon, spell the man’s name right before you unload on him, will you?

   — Eric Bucks - BGSU    May 29, 11:22 AM    #

6. My undergraduate degree was in economics. Interesting interpretation of my comments by Mr. Disgusted Academic who obviously has a limited understanding of the issue.

   — Sam Collie    May 29, 12:24 PM    #

7. Disgusted Academic:
   Did you even read the article?

   BTW, there were 6 people of 14,000 Financial Aid Administrators who were found to have financially profited from lenders. That is 0.04 %, which if my math is right, makes us a pure as Ivory Soap.

   — Ted Malone--    May 29, 12:38 PM    #

8. I would concur that anyone who is first being exposed to the issue through this article is missing a lot of back story and foundation.

   I do tend to disagree with Sam slightly, assuming the soundbite summarizes his views aptly – to me the issue is not what ‘goodwill’ an individual lender holds with individual schools, but the possibility of
   A) whether the choice to ‘cherry-pick’ the best parts of a government program prompts the current legislative body (which is actively paying attention to student loans of late) to respond with the legislative stick, or
   B) more schools collectively flee FFELP altogether and turn to DL, thereby cutting into the broader base of all FFEL lenders.

   As John notes, an attempt to squeeze a slightly higher profit margin in the short run presents several outcomes which might end up killing the golden calf over the long run.

   — Peter Goss    May 29, 01:31 PM    #

9. This is redlining, pure and simple. No more community colleges, no more proprietary schools, because nobody leaves those schools $100K in debt. If Citibank were to do the equivalent with mortgages or credit cards, it would be by denying credit to people in certain neighborhoods or cities, and they’d be called before the Senate Banking Committee faster than you can say “housing discrimination.”

   So much for all those hollow student-friendly slogans they all used to use in their marketing materials. The bottom line is just the bottom line.

   — DS    May 29, 01:53 PM    #

10. Citibank must not realize that financial aid folks have very long memories. We will remember the banks that stayed in the game with the schools.

    — Jon    May 29, 02:55 PM    #

11. What every one fails to see is the position of the bank. Yes, it is unfortunate that banks have had to withdraw from the FFELP program but please realize that there is a bigger picture. That being of shareholders..a public company’s main obligation is to it’s shareholders…these lenders do not have a moral obligation to lend unprofitable or low profit loans. But they do have an obligation to becoming more profitable for thier shareholders. Unfortunately, schools just think banks are cherry picking but there is a reason this is happening. When all this started a year ago no one saw any school objecting to chages by the DoEd, maybe if school’s would have been more vocal it would have helped prevent us from being this situation all together or maybe not as bad. Think about it….

    — Frustrated    May 30, 12:05 AM    #

12. Two words: Direct Lending

    I believe it’s the best federal loan solution for students, schools and taxpayers.

    — Raoul    May 30, 02:29 PM    #

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