Chase Education Finance, the seventh-largest originator of federal student loans, confirmed today that it would no longer make federal loans to students who attend certain high-risk institutions.
Thomas A. Kelly, a spokesman for the lender, the student-loan division of JP Morgan Chase & Company, said Chase had conducted a college-by-college review “based on the payment history of the alumni and other factors” and decided to stop lending at institutions that “don’t meet our profitability standards.” He refused to say how many colleges would be affected, or how big a role institutional default rates had played in the decision to drop those colleges. He said the institutions were “not necessarily” all community colleges.
The colleges were notified of Chase’s decision this week, he said.
Chase’s decision comes as something of a surprise. While more than 50 lenders have left the federally guaranteed loan program because of financing difficulties, Chase seemed until now to be immune from the effects of the credit crunch. Indeed, in November, it announced that it was hiring half of the workers laid off by Nelnet to expand its private-loan business. And in February, it announced plans to cut borrower rates and eliminate origination fees on all federally guaranteed student loans.
Asked why Chase would pull out of some institutions while increasing borrower benefits at others, Mr. Kelly said that Chase had chosen to “support schools where it made sense.”
“We’re making it as affordable as we can for students where it meets our profitability standards,” he said. He blamed the same factors that have led other lenders to leave the program — the declining profitability of student loans because of recent subsidy cuts and turmoil in the credit markets. —Kelly Field