At a time when the credit crunch is prompting private lenders to dramatically cut back their student loans, L.A. vocational colleges have embarked on a bold, costly and risky solution: financing their own students.

Though acting as lenders to consumers can be chancy, the schools say the potential loss of enrollment from not doing so could be far more damaging to their bottom lines.

Corinthian Colleges Inc., one of the nation’s largest vocational educators with eight campuses in Los Angeles County, has gone from zero student financing to about $100 million in less than a year.

And North-West College, a West Covina-based allied health care school with six campuses countywide, reports that the percentage of students for whom it finances has increased markedly in recent months to about 10 percent.

“It’s affected everybody,” said Robert Johnson, executive director of the California Association of Private Post-Secondary Schools, a state trade group.

With the cost of training ranging from $8,000 for a six-month auto mechanic course to upwards of $70,000 for graphic arts, Johnson said, most students need help “unless their family can write a big check.”

The credit crunch, which started with the failure of scores of subprime housing lenders more than a year ago and spread throughout the economy, has hit higher education hard. Many banks and other private lenders have stopped lending to students, except for providing loans backed by the government, leaving students with a smaller pool of available funding.

The problem is particularly acute as the cost of higher education has outpaced available government funding. The volume of private student loans has multiplied in recent years to 24 percent of all student lending last year. That’s up from just 6 percent a decade ago, according to a study by the College Board, a Washington, D.C.-based non-profit that monitors educational costs.

Earlier this year, Congress increased borrowing limits and loosened credit standards for federally insured loans, but so far it’s unclear how effective that will be. All Student Loans, a Los Angeles-based company that is one of the state’s largest non-profit lenders, stopped providing private loans earlier this year when a partner company pulled out of the business.

“With everything going on in the financial market, it became more difficult for them to finance these loans,” said Joseph Booth, managing director of corporate affairs for All Student Loans, which still offers federally backed loans.

The problem of bankrolling students is particularly difficult for vocational schools. Private four-year colleges typically have endowments they can tap to help finance their students, but few vocational schools have those kinds of reserves.

In fact, some can’t afford to do it.

“I wish we were able to give loans,” said James Warwick, president of the American Academy of Dramatic Arts, which has 230 students in Los Angeles and an additional 250 in New York. A two-year program at the academy costs students about $20,000. “I wish we had the resources, but unfortunately we don’t.”

Still, many have figured out ways to finance their students.

Twenty-five percent of the 1,250 accredited members of the Career College Association now finance their own students at interest rates equal to or lower than traditional federally backed loans compared with only 5 percent just 12 months ago, according to the Washington, D.C.-based association.

On campus lenders

Jeffrey Silber, an analyst at New York’s BMO Capital Markets who follows vocational schools, sees it all as the cost of staying in business. If, for instance, a program costs $10,000 and a student can get only $9,000 from a federal grant, “by not funding that extra $1,000 you risk losing everything,” he said. “But it changes the business model for the schools. Now they are financial aid offices.”

At Corinthian Colleges, as many as half of the 5,100 students in Los Angeles County studying criminal justice, automotive technology and a host of other specialties receive some kind of college-financed aid.

The publicly traded vocational educational company based in Santa Ana expects to provide about $100 million in loans to students in fiscal 2009, averaging $2,000 to $2,500 each at “competitive” interest rates. That’s up from none just nine months ago, according to Anna Marie Dunlap, senior vice president of corporate communications.

The $100 million figure represents 10 percent of the company’s projected annual revenues and may add a cost of about 20 cents per share, or $17 million after taxes, for setting up, underwriting, administering and servicing the internal loans.

Still, the loan program, which began in March, is expected to pay off.

“Even with the added cost,” Dunlap said, “the economics makes sense to us because it prevents us from losing enrollment momentum due to the lack of gap funding.”

John R. Shivley, a 30-year-old Iraq War veteran studying to be an electrician at Wyotech, a Corinthian-owned campus in Long Beach, is benefitting from a company loan.

After 10 years in the Marine Corps, Shivley said, “I wanted a real career,” though federal funding was short and private loans expensive, if available at all.

His solution: a nine-month $22,000 program fully paid for by a Corinthian loan at less than 5 percent. “This really made it possible for me to attend school,” said Shivley.

Many smaller schools, however, are harder pressed to come up with such funding including the Make-Up Designory, a Burbank-based makeup school serving the entertainment and fashion industries. The school, which has a second campus in Manhattan, has a total enrollment of just a few hundred students and isn’t publicly traded like Corinthian.

It has given out 30 to 40 loans since February of about $12,000 each at interest rates of 10 percent to 11.5 percent. Terms are four to 10 years and no one has yet defaulted.

“We’re just carrying it ourselves,” said Stephen McCallum, the school’s administrator.

North-West College offers classes in vocatnursing, dental assistance and other health care fields sees self-financed funding as critical.

About 10 percent of the student body now receives company-financed loans ranging from $10,000 to $27,000 with terms of eight to 16 months.

“That’s the business we’re in; making sure we have students,” said Mitchell Fuerst, the school’s vice president.