Are the private student loan lenders beginning to abandon ship? It certainly appears that way, thanks to JP Morgan Chase’s recent announcements that they will no longer be offering new student loans as of October 2013. As you read through this article, it’s going to look eerily like 2007 again, just before the sub-prime mortgage crash. It seems as if they have made their money, and want to sneak out the back door before everything collapses as defaulted student loans continue to rise.
This is actually JP Morgan Chase’s second change to their student program in the last two years. Previously, the bank restricted new student loans to existing customers. That change was implemented after President Obama signed into law cutting out the banks as middle men and allowing the federal government to lend directly to students.
Similarities With The Sub-Prime Mortgage Mess
Two weeks ago the bank released through a memo to the U.S.’s colleges that they will no longer accept applications for student loans beginning on the 12th of October 2013. This is the end of the application period for students to apply for this school year. JP Morgan Chase expects to distribute the final monies for existing loans by March 15th 2014. The reason given for dropping an entire division and their piece of a multi-billion dollar loan product seems rather disingenuous if not a direct falsehood. Thasunda Duckett is the Chief Executive for Auto and Student Loans at JP Morgan Chase and she stated in the memo that “We just don’t see this as a market that we can significantly grow”. The private student loan lenders are quietly trying to exit the market in the same fashion the banks exited the sub-prime mortgage mess
Given that student debt is now the largest debt amount in the US at over $1.2 Trillion and still growing, this does not seem like a good business decision. In terms of significant growth, ten years ago student loan debt was just over $240 Billion. That is 500 percent growth in a decade. No other source of debt has grown this much. If JP Morgan Chase can’t significantly grow this market, they probably need to find a new Chief Exec.
What it does seem like is the same way the big lenders started announcing how they were beginning to move out of the sub-prime loan market six years ago. “It’s no longer sustainable and not the right place to allocate capital in the future” was the quote from HSBC Holdings’ Michael Geoghegan when they announced they were shuttering their subprime loan unit. This statement from the Lehman Brothers press release was slightly more descriptive; “… Market conditions have necessitated a substantial reduction in its resources and capacity in the subprime space”.
First U.S Bancorp – Then JP Morgan
The first deserter of this possible student loan sinking ship was U.S. Bancorp. They closed up their student loan division in 2012. Now with JP Morgan Chase departing, this leaves Discover Financial Services, PNC Financial Services Group, Sallie Mae, Sun Trust Banks and Wells Fargo to carry the student loan population along with the nation’s credit unions. It shouldn’t surprise anyone though if at least one of more of these institutions gets out of this particular loan market as well. Even if the student loan bubble doesn’t pop, there is a question that no one seems to be asking. If the big banks get out, where does that leave students who have already reached the limits of their federal loans?
Private loans are still necessary for many students to cover housing costs, food and transportation. If the major, national lenders get out; then the smaller, regional banks and credit unions are going to be expected to try and pick up the students seeking financial support for their educational costs. The problem there of course is that if the big banks don’t see a profit in student loans, smaller lenders may not want to risk it either.
Does this mean the Federal Student Loan Programs will have to expand in size and scope? If private lenders abandon potential future customers, then the answer is yes. Since colleges already have no incentive to lower tuition and fees because of the availability of federal loans, this could mean that other costs will start to rapidly increase as well.
Sallie Mae To Benefit?
It could also mean that Sallie Mae will grow more and more powerful in what may soon become a much smaller loan market. In order to keep up, lenders who remain in the student loan industry may have to buy up or form their own collection agencies and begin to engage in the same collection practices that have gotten Sallie Mae so much bad press in the last few years.
In the end, it is going to be students and their families who will either continue to carry massive debts or make the decision to put off college or simply attend part-time while working to pay for their classes. Student Debt Relief is here to help those families with some very critical decisions and to find the best option for them.
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
College Ave Refi Education loans are not currently available to residents of Maine.
1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.