Black, White and Green

Does debt have a color? Of course red symbolizes debt, but in borrowing, does it matter to minority students and their families whom they are borrowing from?

A new business announced Wednesday believes it may matter. Robert L. Johnson, the founder of the BET empire and the first black billionaire, has created a loan business that will focus on urban students and on those who attend historically black colleges and other institutions with large minority enrollments. An offshoot of Urban Trust Banks, the loan business will primarily be owned by Johnson, with a minority stake going to Goldman Sachs.

The new company will offer both guaranteed and private loans and believes that it may be able to reach minority students whose families have been hesitant to borrow to date.

Some aid experts are intrigued by the model. Many colleges have said that there are promising minority students who could benefit greatly from college, but who miss out on the opportunity because they won't borrow. Others, however, say that there is no real shortage of loan funds for students and that there is a real danger of some minority students borrowing more than they need (a danger that exists for all students). It's also clear that existing companies have no intention of ceding the minority market -- and may in fact be doing more to go after minority student borrowers.

UTB Education Finance, as the new loan business will be known, plans to start offering loans for the spring 2007 semester and is putting its ownership front and center of promotional materials, calling the company the "premiere minority-controlled" student loan business. At the same time, officials stressed that loans would be made available to all, and on largely the same terms provided by other lenders.

"We see 'urban' as an inclusive term, not an exclusive term," Dwight Bush, president and CEO of the company, said in an interview Wednesday. He said that many urban, minority students may have loan options today, but they don't have the "financial education" to understand their options. A big emphasis of the company, he said, would be reaching out to such students. Another focus will be students at historically black colleges and urban institutions that serve diverse populations.

Bush was able to graduate from Cornell University in 1979 with only $3,800 in debt, in part by working 35 hours a week. Today, he said, many minority students and their families find the sums it could take to finance a higher education too daunting, and they are also intimidated by financial institutions. In contrast, he said, his company will benefit from being seen as minority-owned and connected to various minority communities.

"We're going to be very sensitive to the needs of different communities," he said.

Bush declined to say how much money his company plans to lend, but he said that with Johnson and Goldman Sachs owning the operation, "capital is not going to be a problem at all."

While potential borrowers may be attracted to a minority-owned business -- which plans to have offices in major urban areas, as well as operating online -- they may be in for a surprise when it comes time to repay. Bush acknowledged that his company would sell loans -- especially those in the guaranteed-loan program -- just as other companies do. So those repayment coupons and checks probably would not be mailed in to a minority business, nor would any loan-repayment issues be handled by such a company.

Loan collection is its own business, with its own skill set, Bush said, so his company "would be doing a disservice to borrowers" if it didn't seek out third-party collectors. He said that only collectors with outstanding reputations would be considered.

Experts on student loans and low-income students said Wednesday that they did not know details about the new operation, and they had mixed reactions to it.

"I'm not aware of any problems with access to capital for these students, but there are some complicated issues related to consumer awareness of borrowing terms and making sure students are getting the best deals," said Jamie Merisotis, president of the Institute for Higher Education Policy. The institute works on policy issues with associations that represent black colleges, tribal colleges, and colleges with large Latino enrollments. To the extent a new entity has a good knowledge base about minority families, that could be a good thing, he said.

Merisotis also noted that many historically black colleges have worked hard in recent years to bring down their default rates on federally backed loans -- and might be wary of encouraging more borrowing than is absolutely needed. "There's nothing wrong with student loans. They are an important part of the equation, but the basic principle should be that students should borrow only when they have to," he said.

In the end, he said, aid officials will have to carefully review the details of the loans to see if the terms help students.

Robert Shireman, executive director of the Project on Student Debt, said he too wanted to see details about the new company's offerings. He has seen no evidence of a problem with the availability of loans, although he said it is true that many minority families are reluctant to borrow.

Shireman said he is more concerned about the private loans than the guaranteed loans. Generally, he said, students may be unaware that private loans have different terms -- and far fewer protections -- than do guaranteed loans. "We're entering a period when students aren't seeing enough of the distinction between these loans when they borrow," and they are quite different, Shireman noted.

A spokeswoman for Sallie Mae, the nation's biggest lender to students, said Wednesday that the company couldn't comment on its new competitor, but noted existing programs for historically black colleges and colleges with many Latino students.

The company has been studying minority groups and their awareness of students loans has found very low awareness among Latino families that borrowing for college is possible. As part of an effort to deal with that, Sallie Mae and USA Funds on Friday will formally announce a new service -- to be called 2Futuro -- that will feature a fully bilingual system for applying for student aid, with Spanish-language customer support. The program will also work with colleges to provide grants to Latino students and to reach out to prospective students and their families.

Other lenders as well are introducing Web pages and services for Latino students, such as this information provided by Citibank. Just as colleges compete for minority students, so now are lenders.