Private School Ends Loans During Tough Times For Industry

Credit still tight for students at for-profits, as the twin maelstroms of weak credit markets and controversy surrounding the for-profit education industry have forced dramatic shifts in private student lending at for-profit colleges in recent years.

In June, Pittsburgh-based Education Management Corp., one of the nation’s largest for-profit college companies, will shut down its in-house lending program and is looking at selling off the loans it holds. The owner of the Art Institutes, Argosy University and other schools said it started the program in August 2008 because its students were having trouble getting loans and is closing it now because that’s no longer a problem.

But investors and observers say the for-profit student lending market remains difficult because of students’ high default rates and investors’ wariness about being connected to an industry buffeted by scandal.

“Until the lenders become more comfortable and until the schools prove themselves more that they’re improving their programs and the quality of their student body, I think it’s kind of a wait-and-see game,” said Dave Hartung, vice president of education lender First Marblehead.

Before the financial crisis, college students — similar to homebuyers — had access to loans even when the students weren’t particularly creditworthy. For-profit colleges carry a riskier lender class than state and nonprofit private schools because they have more low-income and non-traditional students.


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