The latest numbers on student loans were all too familiar: Outstanding debt hit another record and delinquency rates spiked in the third quarter, according to Federal Reserve data.
What has changed, however, is who is doing the lending. Five years ago, big banks like JPMorgan Chase & Co. and Bank of America were players in the student loan business.
Today, the government now makes about 90 per cent of all student loans. Financial institutions in the S&P 500 have sliced their loans by US$22.5 billion, or 35 per cent, in the five years since 2013.
The switch was due to the financial crisis and a new law that allowed the government to directly lend to students. JPMorgan and Bank of America ended their student loan programs entirely, while banks such as Wells Fargo & Co. substantially cut them.
Private lenders haven’t disappeared. Regional banks like SunTrust Banks Inc. and Discover Financial Services have stepped up their activity, offering loan consolidation or financing to students whose borrowing needs surpass the federal limit.
“Local regional banks tend to be willing to take on more risk,” said Mark Kantrowitz, vice president of research at Savingforcollege.com. “For the big banks, it was a small piece of their business that was easy to give up.”
--With assistance from Nicholas Zambrio and Amanda English (Bloomberg Global Data).