Three banks have told Syracuse University they are getting out of the student lending business, after President George W. Bush signed a financial aid reform bill late last month.

About a dozen others said they are cutting back on breaks that help students pay back the loans after they graduate.

The Higher Education Access Act received bipartisan support in Congress and the approval of the Department of Education before Bush signed it into law three weeks ago. Financial aid directors nationwide and at SU say it’s an important step to getting more students into the country’s colleges and universities.

The new law doubles federal funding in the next 10 years for Pell Grants, the first level of financial aid for students and families who need the money most. It also sets out to halve the interest on subsidized Stafford Loans within five years.

To get the funds, however, legislators pulled back some of the benefits given to the banks that administer those loans.

Lenders nationwide have announced they will in turn cut allowances awarded to students who maintain good credit. Others have decided to drop out of the business.

So far, First Niagara Bank, College Credit and the Student Capital Corporation have told the financial aid offices at SU and State University of New York College of Environmental Science and Forestry that their clients here will have to find another lender.

The consequences are still playing out on the Hill, as financial aid administrators are waiting on a set of regulations that will tell them exactly how to administer the new law, despite the fact that some of its policies became effective at the beginning of this month.

A spokeswoman for the Department of Education said she is not certain when a team of legislators and administrators will finish crafting the first set of regulations.

‘It’s good news, bad news,’ said John View, director of financial aid and scholarships or scholarship programs at ESF. ‘It’s not like they went out and had a bake sale to raise the money.’

View instead focused on the positives of the new law and what it could mean for the future of education in the United States.

‘They probably can’t begin to put enough money into the program,’ he said of Pell Grants. ‘The better educated our population is, the better off it is.’

‘The lenders are getting hit first’

The new law increases the maximum Pell Grant for each student by nearly $500 in the next school year, and by more than $1,000 by 2012. The top award is currently $4,050.

It also raises the threshold so more students can receive the grants. Just how many students will benefit from this is not known.

But the legislation also doubles the origination fee banks have to pay the government and nearly halves what the government pays back in maintenance fees.

The result is that a 0.5 percent difference in favor of the banks became a 0.4 percent advantage for the Department of Education on every loan opened since Oct. 1.

The law also reduces the government’s investment in students who default on their loans, and allows students to clear their debt in bankruptcy cases.

‘The lenders are getting hit first,’ said Kaye DeVesty, interim director of financial aid and scholarship programs at SU. ‘The loan programs are increasing in cost for the banks.’

Kevin Bruns, executive director of America’s Student Loan Providers, said the three banks are among roughly two dozen nationwide that have quietly announced to schools that they will be discontinuing services. Others, he said, are still deciding.

What’s more common, he said, is for banks to take away ‘borrower benefits,’ including interest rate discounts for paying on time or tying interest payments to a checking account. They’ve also started making students pay origination fees that were traditionally handled by the bank as a matter of doing business.

‘This is really a win-lose: The Pell Grant increase has been long overdue, and certainly it’s good for those families,’ Bruns said.

‘But it doesn’t make sense to cut one student aid program to fund another,’ he said. ‘It doesn’t seem like we’re up to the challenge if we can’t invest more in higher education.’

The three banks at SU are not among the organization’s 87 members.

‘Families will be hurt by this,’ Bruns said Tuesday from his Maryland office.

Despite mandatory interest rate decreases, less competition and the loss of ‘borrower benefits’ will increase the cost of borrowing, he said.

At SU

Three times as many students at SU – nearly 60 percent – received federal loans compared to grants in 2006.

At ESF, 80 percent of students received loans while only 10 percent got grants, according to the National Center for Education Statistics.

The Department of Education is currently processing a request to provide a breakdown of how many students on the Hill receive subsidized Stafford Loans and Pell Grants.

Last year, First Niagara, College Credit and the Student Capital Corporation accounted for loans to only 25 students at SU. Citibank, the largest lender, had 4,976 clients here.

Dave Cutler, vice president of consumer lending for First Niagara, said the bank’s small size is part of the reason it had to discontinue the Stafford Loan program.

‘We really feel bad about it; we’ve been in the business for about 20 years,’ he said. ‘But if we stay in the business, we lose money.’

Cutler said the handful of students with First Niagara loans at SU and ESF will be able to renew next year with Nelnet, another bank.

Representatives from the Student Capital Corporation and College Credit could not be reached.

‘A step in the right direction’

Amid threats from banks, proponents of the law maintain it’s a step in the right direction for the country.

‘Overall, this will sort out the lenders who really can make a commitment to students,’ said DeVesty, interim director of financial aid at SU.

The goals of the act are also in line with those of Christopher Walsh, former director of the financial aid, who announced last month he’d be stepping down to help students from predominantly low-income neighborhoods attend the university.

When Bush signed the bill into law, a statement from the White House applauded Congress for its efforts, and said there is still more to do.

‘The number of students receiving Pell Grants has increased by more than one million since the president took office,’ the statement read. ‘The president has proposed expanding Pell Grants even further, and the bill he signed today brings us closer to his goal.’

Junior Caroline Savage, of the New York Public Interest Research Group’s Syracuse branch, said the law is in line with one of the organization’s founding tenets.

The group has recently lobbied for revisions to New York state’s Tuition Assistance Program, the international relations and philosophy major said.

‘Any time we can work on keeping tuition costs low, it’s a step in the right direction,’ she said.

Published on October 21, 2007 at 12:00 pm