Students at Corinthian Colleges and other for-profit learning institutions are getting a painful lesson in credit-crunch economics: Some lenders, including giant Sallie Mae, are turning off the money faucets for less credit-worthy applicants.
That means students at these commercial schools who use high-rate private loans to bridge gaps in their tuition costs or who fail to qualify for conventional loans and grants may have a harder time financing their educations.
It's the latest blow for Santa Ana-based Corinthian Colleges Inc., which has nearly 68,000 students at 93 career training schools in 24 states and is one of the nation's largest for-profit providers of post-secondary education. Corinthian's problems are echoing through the commercial education industry, which has seen company values plummet in the last few months as investors fret that a lending squeeze could reduce enrollment.
Corinthian said Monday that Sallie Mae, the nickname for SLM Corp., would stop lending to current students who are considered high credit risks. The loans are a kind of funding of last resort for students, with interest rates as high as 19%.
Corinthian students who relied on private loans reacted with dismay even though their current loans wouldn't be affected.
"I wouldn't be able to come to this school without my loan. I don't think this is a good idea," said Valerie Barragan, 20, as she left the West Los Angeles campus of Everest College, one of 12 Southern California schools owned by Corinthian. Barragan, a single mother with a 10-month-old child, is studying to become a medical assistant.
Corinthian said last month that Sallie Mae and two other lenders, College Loan Corp. and Student Loan Express, wouldn't make new private loans. Corinthian had assumed then that Sallie Mae would continue to offer loans to current students through the end of their educations.
Sallie Mae also cut off such loans to two other big for-profit education chains. They were Carmel, Ind.-based ITT Education Services Inc., which has 49,000 students in 93 schools in 34 states, and Career Education Corp. of Hoffman Estates, Ill., which has 90,000 students at 75 campuses in the U.S., Canada and Europe.
The change could be a particular problem for Corinthian because about 75% of the private loans to its students were of the sub-prime variety in fiscal 2007. Corinthian schools offer various programs in health, criminal justice, business, vehicle repair and maintenance, construction trades and information technology.
