April 15, 2008

Chase Confirms That It Will Stop Making Loans to Students at Some Institutions

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

Comments

1. It was beyond wishful thinking for anyone to think that JP Morgan Chase was going to be the lender of last resort, somehow immune from the horrible economics in FFELP created by Democrats.

   — Alex Hamilton    Apr 16, 12:08 AM    #

2. Replacing FFELP’s fatcat corporate welfare with more aid to needy students is “horrible ecomonics?” This is just another example of the lenders going on strike, trying to get their outrageous level of taxpayer-supplied subsidies back.

   Chase’s move is just one more example of how hollow these “we make dreams come true” marketing slogans employed by FFELP lenders really are. This news is even worse than the redlining that lenders have been banned from practicing, where students at some schools were getting higher interest rates…but somehow it’s OK to just cut those students off completely?

   — DS    Apr 16, 08:41 AM    #

3. Not too long ago, institutions were criticized for recommending specific lenders to incoming students. Yes, there were instances of financial collusion, but that’s not the point. Now the shoe is on the other foot: students will find themselves asking lenders which institutions they should apply to in order to receive that lender’s aid. There is something really wrong with this picture.

   — ET    Apr 16, 08:47 AM    #

4. Tuition prices at most of our institutions are a result of the cheap credit that was created by our Federal Reserve. Just like housing this bubble is bursting and Universities will have to cut their fat, eliminate wasteful spending and make tuition affordable with “real“money and not debt. The fantasy that we deserve to charge this enormous tuition amounts to pay for our drunken sailor type spending will quickly come to an end.

   — Nedi Goga    Apr 16, 09:14 AM    #

5. Of course lenders will change their business models to fit the unreasonable constraints put on them by Congress. First, Congress allowed lenders to profit considerably and competitive forces created decent benefits to students, including access to private loans. Now they won’t let them make a reasonable profit to keep FFEL strong and viable. And they did so in the name of robbing from the rich and giving to the poor, but in reality students aren’t really much better off as all their benefits are being taken away, especially access to private funding. All the focus on PLL regs have sure become meaningless. Congress needs to fix this by undoing some of the lender cuts, and make these bills to increase loan limits a reality. Congress beat their chest over the CCRA, but in reality, the students are paying for a good chunk of this along with the lenders.

   — John    Apr 16, 09:30 AM    #

6. What’s the difference between a lender choosing to selectively make loans to certain schools and the schools selectively choosing certain lenders? Schools are criticized because of accepting “incentives” while banks have similar “incentives” called profit.

   — KF    Apr 16, 09:34 AM    #

7. I think this is a good development. Chase is not lending to the schools that give students the worst return on investment. We know who those schools are: for-profit institutions that recruit heavily, promise students the world, and fail to deliver. In this case, the market system is actually working and doing students a favor by not saddling them with huge debts they cannot pay off.

   — Fred    Apr 16, 10:02 AM    #

8. KF(#6) – the difference is that no one should be trusting the lending companies to act in the students’ best interests, whereas the same does not hold true for the school a student attends (excepting, of course, for-profit schools)

   — a different Dan    Apr 16, 10:13 AM    #

9. Why is anyone surprised that as soon a a particular program becomes UNprofitable a FOR-profit company chooses to cut the program? A FOR-profit business’ goal is to make as much money as possible, otherwise the company would be a not-for-profit.

   — Surprised? I'm not.    Apr 16, 10:27 AM    #

10. DS—WRONG AGAIN! You have misread history and jumped to indefensible conclusions. Seems to be a pattern here…

    Student loan providers stayed in the buusiness last year after CCRAA was passed even though the proft margins were cut drastically. The problem was that the profits were cut so dramatically that the credit crsis has not simply made it unprofitable for many lenders to stay in the business but impossible! Securitzations have stopped, secondary markets aren’t buying and the cost of warehouse lines is astronomical.

    The issue is not corporate fat-cats crying foul but the government passing short-sighted, poorly crafted legislation as punishment to an entire industry in response to wrongdoing by a handful of executives—and school officials by the way. You have given them a free pass!

    Where there is wrongdoing, there should be prosecution. When taxpayer dollars provide excessive profts, there should be reductions in premiums. But when government passes draconinan legislation in order to promote another government program that is corruption of a different flavor, but corruption just the same.

    — Reality Check    Apr 16, 10:28 AM    #

11. To Fred, post #7:
    The schools mentioned in the article are community colleges, not for-profit schools, (although it is likely that students from many different types of institutions are affected.)

    I work at a college with a 90% graduation rate, a 100% placement rate, and a miniscule default rate. We are for-profit. We serve our students well at a tuition that compares favorably with the tuitions of many non-profits. We, like you, are concerned about students’ debt burdens upon graduation. We are your colleagues, not your enemies. We are professional educators, regionally accredited, degree granting.

    This crisis affects all of us, and we are prepared to work together to solve it proactively. We hope you are, too.

    — Tad Graham-Handley    Apr 16, 11:04 AM    #

12. Credit Issues, Control Issues, Goverance Issues, Etc., Etc., —— Let us momentarily stop looking at the structures and start looking at the Foundations —— Just like President Kennedy did when he issued Executive Order 11110 —— All are STRONGLY URGED to go to google and type in 11110 for search and the READ the same, it has profound implications vis-a-vis the FINANCIAL/CREDIT CRISES in FOUNDATIONAL TERMS. —— And, Yes it is still in effect legally (according to many), but since its working reversal by President Johnson, —— it has lies dormant —— ignored by both the Republican and Democractic Presidents, for …

    Apropos, on to the surface issues —— Are, variable interest rates the next step?

    MIT Computer Engineering Majors are charged 4% ——- MIT Civil Engineering Majors are charged 5% ——- MIT Physics Majors are charged 6% ——- MIT History Majors are charged 10% ——- Mount Holyoke Premed Majors 2% ——- Mount Holyoke Business/Economics Majors 1% (they help us and are our future need) ——- Mount Holyoke French Majors 21% (We don’t care much for the French anyway) ——- Reed College Chemistry Majors …..

    — zahid    Apr 16, 11:22 AM    #

13. Reality Check – From your posting: “When taxpayer dollars provide excessive profts, there should be reductions in premiums.”

    And that was done by CCRAA.

    You continue: “But when government passes draconinan legislation in order to promote another government program that is corruption of a different flavor, but corruption just the same.”

    In which case I would like to hear your assessment of the legislation passed by the Republican-controlled House while Boehner and McKeon, presiding over the Education Committee, received enormous contributions from the FFELP industry, which gave borrower benefits such as origination fee reductions only to FFELP borrowers.

    Put your taxpayer hat on – FFELP became too expensive a program for the government to run. Something had to change, and if it results in fewer participating lenders and more schools going to DL, so long as students can get what they need, then so be it.

    — DS    Apr 16, 12:03 PM    #

14. DS, the Democrats had a chance last fall to authorize the Direct Loan program to offer the same kind of borrower benefits offered by FFELP lenders, but they didn’t. Gee, was it because of the $$$?

    The government makes a profit on unsubsidized and Parent loans. How fair is that?

    — Oh My    Apr 16, 01:26 PM    #

15. Can somebody please post the list of so-called experts who previosuly said there would be no student loan access crisis?

    — George    Apr 16, 02:09 PM    #

16. The government is supposed to govern, not be in the lending business. The entity responsible for supplying regulation should not be in the business also, it’s an obvious conflict of interest. They changed the laws and put cuts into place on their competition and now those agencies are in trouble. I think they are getting the exact result they set out to get, more business on their side.

    — John    Apr 16, 08:08 PM    #

17. I’ll state the obvious: when loans are no longer profitable because of cuts in government subsidies, lenders remind us that they are for profit businesses and couldn’t care less about helping students get an education. Profit is not a bad word, but helping those who want to learn is always good for the community and good for business.

    — Carol    Apr 17, 10:13 AM    #

18. We need to look into the mirror as an industry that has inflated the price of our product beacuse of availability of cheap debt created by the Federal Reserve. Let’s NOT ask for a Taxpayer subsidy that our Fed will finance by inflation but instead streamline our Universities, cut cost, eliminate waste, and lower tuition cost so that the private loans will not be necessary and families will not have to mortgage their futeure to educate themselves. Lets return to the foundamentals that made this country great. Self reliance and rugged individualism.

    — Nedi Goga    Apr 17, 01:03 PM    #

19. Put your taxpayer hat on – FFELP became too expensive a program for the government to run. Something had to change, and if it results in fewer participating lenders and more schools going to DL, so long as students can get what they need, then so be it.

    …remind me how exactly DL fills the gap these types of loans provide? Did I miss that Congress will be increasing federal limits to the cost of attendance??….

    — JD    Apr 17, 01:56 PM    #

20. …thought this was talking about private loans. You may return to your web browsing.

    — JD    Apr 17, 02:09 PM    #

21. In answer to #15, here is the list: Michael Dannenburg and the New America Foundation, Mark Kantrowitz of FinAid, Barmack Nassarian, Sen Tom Harkin, Sen Ted Kennedy, Rep George Miller, the Cosumer Bankers Association and Secretary Spellings.

    — Bubbles    Apr 17, 04:04 PM    #

22. After 15 years of increasing the benefits to student lenders, why is one effort in the other direction “draconian”? The level of interest subsidy to lenders is still higher than what the lenders themselves had at one point proposed.

    — Craigie    Apr 17, 07:30 PM    #

23. Profitability… lenders do it for profit? Geez, I thought they were in it to help the poor to be educated. Funny, a year ago they were all advertising incentives, rebates and discounts to their rates to lure borrowers and schools, basically a profit sharing model. When the CCRA reduced the payments for a lesser percent than the incentives, they pulled the incentives from the borrowers and then cried they were all going broke. Am I missing something in all this?

    — AMD    Apr 24, 08:00 PM    #

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