Citizens Bank, reversing course, is notifying community colleges in Pennsylvania that it will resume making federal loans to students at their institutions.

Officials from Community College of Allegheny County and community colleges in Westmoreland and Luzerne counties confirmed yesterday that Citizens notified them late last week that its earlier decision was rescinded.

It involves loans made under the Federal Family Education Loan Program, called FFELP, which includes Stafford loans.

At CCAC alone, the move means some 700 students who borrow about $3 million annually won't have to look elsewhere to finance their education.

"We're delighted," said CCAC President Alex Johnson.

The decision by Citizens follows May enactment of federal legislation aimed at giving struggling student lenders more ability to gather capital to make new loans. It also follows a June 6 letter from U.S. Rep. Paul Kanjorski, D-Luzerne, to Citizens Chief Executive Officer Ellen Alemany expressing disappointment at the bank's initial decision and asking it to reconsider.

Citing a Pittsburgh Post-Gazette article a day earlier that outlined the bank's initial decision, Mr. Kanjorski wrote that lenders participating in a government guarantee program "have an obligation to serve students of all types," including community colleges.

Mike Jones, a Boston-based Citizens vice president and director of media relations, yesterday said the bank's decision was based solely on U.S. Department of Education rules introduced Wednesday in response to the May 7 enactment of the Ensuring Continued Access to Student Loans Act.

The rules authorize, among other things, lenders to resell loans to the Education Department and to have their origination costs subsidized, "enabling us to resume lending" at schools cut from the bank's program weeks before, he said.

In addition to the legislation, Ms. Alemany's June 19 response to Mr. Kanjorski cited limited improvement "in the overall liquidity of the capital markets."

Citizens officials won't say how many schools are affected. Mary Kosin, Luzerne's financial aid director, said her understanding is both community colleges and other two-year business and trade schools are covered.

The bank's earlier decision was seen as one more manifestation of a credit crunch that has spread to the nation's student loan industry. The bank's move, and those of some other leading lenders in recent weeks, fueled fears that poorer students attending two-year schools could be impacted more severely as banks retreat from less profitable segments of the loan business.

The average amount borrowed by community college students is relatively small at $3,180 a year, the College Board said. That and higher default rates make it tempting for financially pressed lenders to target those schools and other two-year institutions, even while continuing to lend to students at higher-priced universities, experts said.