The evidence is that banks are forcing a split in college education by reducing the availability of student loans to some students, based on what college they attend. In the current financial crisis, the major banks have cut back the number of colleges they supply loans to and the ones that have been dropped are community colleges.
The reason behind the choice of the financial institutions is the current global credit crisis. Because it is harder to raise money, the banks do not have the funds to lend and so they have to cut down on the loans they offer.
The excellent news for community college students is that other companies are still lending money to finance college education. These include Sallie Mae and Nelnet, both of whom recently committed to providing federal government backed loans to all students, regardless of the college they attend.
By far the best option for student loans is the federal student loan scheme. These loans have low fees, low interest that is fixed and is paid while you are studying. These government backed loans are available to all students regardless of their background or credit rating, and not dependent on the college they attend.
If this is so, then why are some community college students unable to get one of these student loans? It appears that there are some colleges that do not participate in the scheme, and this disqualifies the students from the loans. These students are forced to resort to other, more expensive, methods of finding money to pay for their college education – and they are often the ones who least can afford this.
Lending institutions will claim that students attending community colleges present a greater risk of defaulting on the loan, and can probably prove this. Instead of forcing these students into greater debt by not allowing them a cheap federal student loan, the colleges need to educate the students on responsible borrowing. This would make the scheme more attractive to lenders.