Student Loan Debt Doesn’t Scare Some Big Banks
While JP Morgan recently announced that they are officially getting out off the student loan debt business, other major banks like US Bancorp, SunTrust, and perhaps the biggest of private lenders- Wells Fargo- continue to provide educational loans. In fact, Wells Fargo is now the largest provider of student loans currently owning 25% of the business according to data provided by College Board Statistics. That puts them in the position to be the nation’s second-largest provider of privately funded student loans; Sallie Mae being the largest.
While borrower’s held over $1 trillion federally backed education loans at the end of 2012, private lenders held $6.4 billion in post-secondary loans. Currently that amount is about $8 billion. Most of the big banks are getting out of the student loan lending business for various reasons, perhaps a combination of a rise in default rates and the increasingly close attention paid by regulators who view these types of lending practices as”risky”. Meanwhile, Wells Fargo says they aren’t going anywhere. With student loan originations increasing by 50 percent since they acquired Wachovia, the bank plans on continued growth in the education loan lending industry.
Wells Fargo reports that they provide student loans primarily to consumers who have pristine credit scores (the average FICO score being 746) and most often have a co-signer to guarantee the loan. This is most likely why default rates with their student loan borrowers stay at a low 2 percent. Little more than 1% is charged off each quarter.
Although Wells Fargo seems to be doing fine, other banks feel that it’s just not worth it to continue lending for the sake of going to college. That’s OK because the majority of loans are held by the Federal Government who not only can handle the amount of outstanding debt, but is making billions in interest.
The price tag on student loan debt is currently toppled over $1 trillion. Borrowers are struggling to make their monthly payments while searching for viable jobs. Paying back student loans is not an opinion and certainly not something someone can walk away from; like credit cards, a mortgage, or a car payment. Student loan debt cannot be written off in bankruptcy nor will private lenders restructure your loans like they can with a house payment.
So where do borrowers turn when they need student loan relief? In the wake of defaults and late payments, the Department of Education has designed several repayment programs for borrower struggling to repay their loans. Student loan consolidation is on the rise as consumers find a way to lower their monthly payments through consolidating their federal loans (Private loans are not eligible). Income based repayment programs, “earn as you pay” and student loan forgiveness are all options for borrowers. The DOE is working to find ways to help college grads make their loan payments and find some relief from overwhelming student loan debt.