Global Economic Crisis Makes Borrowing Money More Difficult for International MBAs
Citigroup Curbs Foreign-Student Loans at Harvard, MIT
By Julie Ziegler
Citigroup Inc. is canceling loan programs that made it easier for international students at Harvard University, the Massachusetts Institute of Technology and the University of Michigan to obtain money for education, causing some borrowers to say they might have to go back home.
MIT and Michigan have learned of Citigroup’s intention to end some offerings in November before students begin borrowing for the 2009-2010 school year, and a similar program at Harvard already has ended, officials at the schools said in interviews. As many as 1,000 foreign students may be affected at the three schools combined.
The global financial crisis is prompting Citigroup to raise standards of creditworthiness. Other lenders are unlikely to pick up the slack, partly because international students have a higher probability of default than U.S. students and loan companies want to minimize risk when credit is tight, said analyst Mark Kantrowitz of Finaid.org.
“There’s nobody to gain market share in that segment,”‘ said Kantrowitz, the publisher at Finaid, a Cranberry Township, Pennsylvania-based Web site sponsored by Citigroup. Lenders “are all focusing on the most profitable loans, and international students are not the most profitable loans.”
The canceled loan programs, called CitiAssist, have been handled by Student Loan Corp., an 80 percent-owned unit of New York-based Citigroup, the fourth-biggest biggest U.S. bank by stock-market value.
“Current volatility in the capital markets continues to significantly impact student lending by increasing lenders’ funding costs, including ours,” Citigroup spokesman Mark Rodgers said in an e-mail. “This makes it difficult for us to offer certain private loan programs at prices that are affordable for borrowers and profitable for us.”
Effect on MIT
Citigroup declined to say how many schools will be affected by CitiAssist changes.
At MIT alone, more than 200 foreign students at the Sloan School of Management will have fewer options for borrowing, and tighter requirements that include getting a U.S. citizen or permanent resident to co-sign loans, said Elizabeth Hicks, executive director of student financial services at the school, in Cambridge, Massachusetts.
CitiAssist “did fill a very important role,” especially for foreign students, Hicks said. The program had been due to end next June and instead will close eight months early, she said. A new private-lending program will be in place by July, she said.
Citigroup informed MIT on Oct. 3 that it would discontinue its loan program, which has been available to all students at Sloan, where tuition, housing and expenses for this year add up to a sticker price of almost $76,000. Under the program being ended, students could obtain as much as $150,000 without a co- signer to assume responsibility for the loan should the borrower default.
Julia Mensah, 28, is in her first year of the two-year master’s of public policy program at Harvard’s Kennedy School of Government, also in Cambridge. Mensah, who is from Ghana in western Africa, took out a $10,000 loan this year, the maximum she could get without a co-signer. The loan was one of the reasons Mensah chose Harvard over two other graduate programs.
International students must show they have adequate financing before they are granted visas to the U.S. For Mensah, who received a scholarship from Harvard, the CitiAssist loan was vital to help complete the remaining $65,000 required for visa eligibility. Though Mensah has relatives in the U.S., she said doesn’t want to burden them.
“We have to go and ask people and it’s very hard because we know we are putting them in a difficult position,” Mensah said. “If I don’t get a loan, I will try to get a co-signer and if I don’t get a co-signer I will probably go back home,” Mensah said in a telephone interview.
Hong Xing Chang, a colleague of Mensah’s at the Kennedy School, said the loans that CitiAssist designed for Harvard students were a convenience.
“I tried to borrow more, but I couldn’t find a co-signer,” Chang, 29, said in an interview. Chang, a Chinese national, financed this year’s expenses through loans and savings.
Harvard officials will consider ways to keep money flowing to international students.
“We are going to be starting meetings to look at options to make sure there will be financing next year,” Harvard spokesman John Longbrake said in an e-mail.
Citigroup also notified the University of Michigan in Ann Arbor of the lender’s intention to end the CitiAssist program at the Ross School of Business, effective Nov. 2, said Bernie DeGroat, a spokesman for the university, in an e-mail.
Bank of America
Borrowing has become increasingly difficult for international students since Charlotte, North Carolina-based Bank of America Corp, one of the biggest providers of loans to international students, announced in April that it was ending its program.
U.S. students are less likely to be hurt by the credit contraction because, unlike the foreign students, they can get federal loans. In May, President George W. Bush signed a law aimed at averting a shortfall of loans for U.S. college students and aiding educational lenders led by Reston, Virginia-based SLM Corp., known as Sallie Mae. The market for student loans in the U.S. totaled an estimated $85 billion in the school year that ended in June, according to Kantrowitz.
The Bush administration is moving “aggressively” to support funding for student loans amid the credit crunch, Treasury Secretary Henry Paulson and Education Secretary Margaret Spellings said in a joint statement on Oct. 10.
Citigroup’s moves aren’t surprising, given the credit squeeze, said Daniello Natoli, an analyst at Matrix USA in New York.
“It makes sense for Student Loan Corp. to move away from riskier products such as loans to international students, whose creditworthiness is more difficult to assess,” Natoli said in a telephone interview.
“We are in an environment of massive deleveraging,” Natoli said. “Part of that deleveraging is an increase in credit quality of the underlying borrower.”
Conditions for all student borrowers are going to be more stringent, Tom Joyce, a spokesman for Sallie Mae, said in an interview.
“People are going to have to have very good credit or have a co-signer who has excellent credit,” Joyce said.