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For-Profit Schools Facing Aid Crunch

A changing lending environment is hurting for-profit colleges but may help students by compelling them to use often-overlooked federal loans

Don't let those 30-second commercial spots offering a better life in 18 months fool you. The for-profit colleges making those promises may be easy to get into, but footing the bill for many of them just got a whole lot harder. In January, Sallie Mae (SLM), the largest student lender, pulled out of the subprime market, a development that leaves many prospective students with fewer options to help pay their tuition bills, and the colleges themselves in a financial bind.

On Jan. 23, in announcing a $1.6 billion loss for the fourth quarter of 2007, the Reston (Va.)-based Sallie Mae—formally SLM Corp.—said it won't make loans to students unlikely to graduate or attending schools with low graduation rates. Many of these borrowers have credit histories that put them in the subprime category, and they are a prime source of students for the for-profit schools.