Student Loan Blog : JPMorgan Chase, college

Private Student Loans: Proceed With Caution

Student Loan Girl — Mon, 04 May 2009 21:07:00 GMT

Although the government has taken steps to bolster the federal student loan program by expanding Pell Grant awards and raising the maximum award amount of federal Stafford student loans, federal financial aid will still not be enough for many families to pay for college this year.

Grappling with stock market losses that have negatively affected 529 college savings plans and with declining home values that have essentially made home equity loans nonexistent, families of college students will likely have to rely more on private student loans, in addition to federal aid, this year to help pay for their education expenses, reports The New York Times (“Students’ First Lesson: Beware Loans’ Fine Print", May 2, 2009).

But the Times warns that private student loan borrowers need to be particularly cautious when applying for loans.

Private student loan lenders can set their own loan terms and aren’t required to inform their borrowers of the loans rates, fees, and terms. Citing data compiled by Student Lending Analytics, a company that helps schools analyze lending programs, the Times advises families applying for private student loans to weigh their options carefully and to take a close look at the fine print.

Interest Rates Vary From Lender to Lender

Unlike federal student loans, which have fixed interest rates, private student loans carry an average interest rate of 11 percent, according to Student Lending Analytics. However, lenders charge interest rates higher than 11 percent and, in some cases, won’t disclose the interest rate a borrower will be charged until after a borrower signs a promissory note.

Banks offer fixed-rate loans ranging from 7 percent to 12 percent, with big banks charging the highest rates. But at times, banks — particularly JPMorgan Chase, PNC Financial, and SunTrust Bank — hike up the rates on these loans by two to three percentage points if a borrower misses just one loan payment.

The variable-rate loans that private lenders offer can be tied to a specified interest rate index, like the prime rate, and their rates can vary depending on the changes to rate index. Chase, for example, charges interest as high as 13.5 percent on these loans.

Lenders Should Disclose All Fees

Tim Ranzetta, the founder of Student Lending Analytics, says lenders should be required to disclose any adjustments they make to an interest rate when a borrower misses a payment or when any other negative activity takes place on a borrower’s account.

Currently, lenders don’t disclose all the possible fees borrowers may be charged in the servicing and collection of their student loans, and lenders’ loan contracts don’t always inform borrowers of the borrower benefits promised in the lender advertisements, including the possibility of a borrower being charged a lower interest rate after graduation.

Ranzetta says, in addition to demanding that lenders fully disclose their loan terms, lenders should also be required to list their advertised benefits in the promissory note in order to contractually obligate lenders to offer their benefits.

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Harvard Inks Custom Loan Deal to Help International Graduate Students

Student Loan Girl — Tue, 03 Mar 2009 23:47:00 GMT

At a time when large numbers of lenders exiting the student loan marketplace has made it more difficult for international students to find college and graduate school funding, Harvard has announced an exclusive agreement with JPMorgan Chase that will allow the school’s international graduate students to borrow up to the full cost of attendance without a co-signer, reports The Harvard Crimson (“Harvard Strikes Loan Deal,” March 2, 2009).

Considered the first deal of its kind for the banking giant, the new private loan agreement may make it easier for international students — who are ineligible for U.S. federal financial aid — to get the money they need for school.

The JPMorgan deal was arranged after Citibank announced it would no longer offer loans to Harvard’s international graduate students in October of last year, citing the frozen credit markets and higher loan default rates among international students compared to their American counterparts.

Citibank also cancelled similar arrangements with MIT and the University of Michigan, The Harvard Crimson reports.

Harvard’s arrangement with JPMorgan is part of the school’s pledge to maintain its current levels of graduate student aid for the next school year even at the expense of other programs, says Harvard President Drew Faust — a commitment she deems one of the university’s top priorities.

The university has also unveiled several expanded financial aid programs, including those for Harvard Law School and Harvard Medical School, as part of its renewed commitment to meeting student need.

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Student Loan Snapshot: Who Wins, Who Loses?

Student Loan Girl — Fri, 06 Jun 2008 23:02:00 GMT

College administrators, students, and parents have expressed concern over the last few months that students may not be able to readily get the funds they need for college this fall in light of the $21 billion cut in government subsidies to federal lenders and the effects of the sub-prime mortgage crisis causing over 103 lenders to leave the Federal Family Education Loan Program.

In response to these concerns, Congress passed the Ensuring Continued Access to Student Loans Act last month to help stem the exit of lenders from the FFEL program and increase access to student loans.

While the extent of the act’s effectiveness in increasing the availability of student loans remains to be seen, many students may have a more difficult time getting the money they need for school this fall according to an article in The Washington Post (“Loan Programs Will Leave Some Students Behind,” May 25, 2008).

Community college students and those students attending other two-year institutions, may face the most challenges getting student loans now that some of the largest student loan lenders like JPMorgan Chase and Citibank no longer offer loans to these types of schools.

Independent students with low or moderate credit scores and no co-signer will have a harder time securing private student loans, as lenders now enforce more stringent credit requirements and demand credit scores of 650 or higher to qualify.

Dependent students, especially those returning to school, that have decent credit will likely be able to find enough federal financial aid. Chances are, though, they’ll pay higher fees than the previous year and may have to find new lenders to replace those that have withdrawn from the FFEL program.

Parent borrowers with minor financial delinquencies will still be able to qualify for credit- based PLUS loans. However, those with "adverse credit histories," or those who have a foreclosure or bankruptcy on their credit history, may have to wait up to five years before they can borrow again.

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Bear Stearns Takeover Leaves Business-School Students Scrambling

Student Loan Girl — Mon, 14 Apr 2008 19:13:00 GMT

BearStearns CEO, Jimmy Cayne, seems to have been the only former Stearns employee to make it out of the JPMorgan Chase buyout relatively unscathed — at least in non-CEO terms — walking away with $61.3 million in sold shares. Even though, in his own high-priced executive world, Cayne took his buyout at a massive loss: Just a year ago, his entire Stearns portfolio was valued at almost $1 billion.

Former Bear Stearns employees, along with Cayne, saw the value of their shares plummet 85 percent in the buyout to a mere $10 a share. Bears Stearns shares were trading at about $67 two weeks before the buyout and as high as $170 a year ago.

Now add to the list of people adversely affected by the Stearns debacle, business-school students whose full-time job and summer internship offers from Bear Stearns have recently been rescinded, according to a BusinessWeek article by Alison Damast (“Bear Stearns Rescinds Job Offers,” April 3, 2008).

A spokesman from JPMorgan Chase won’t disclose how many job offers to soon-to-be college graduates and MBAs have been affected by the dissolution of the firm, at least 12 students at New York University’s Stern School of Business have already received their unhappy phone calls from the company.

According to The New York Times, the final count of rescinded job and internship offers will tally in the dozens (“J.P. Morgan Said to Withdraw Bear Job Offers,” April 3, 2008).

Students Left Out in the Cold

When JPMorgan announced its takeover of failing Bear Stearns on March 16, the status of the student jobs and internships was still uncertain. It wasn’t until April 2 that students who were offered positions in the investment banking, sales, and trading and research units of the former company were notified about the fate of their job and internship positions.

Over the next few weeks, as the school year draws to a close, these students will be frantically trying to nail down offers for replacement positions.

“I’m not sure what we are all supposed to be doing now with the few weeks before start-dates, but I would imagine that, like me, the other 25 or so students who were to start as associates are all in a mad scramble to figure out what the future holds,” one student told BusinessWeek.

In the meantime, students who had their full-time job offers rescinded will be allowed to keep their signing and relocation bonuses and will also be able to use JPMorgan’s career-service resources.

And for those students who will no longer be interning with the company this summer, JPMorgan has offered a full 10 weeks’ pay if they find a new summer position with a nonprofit organization instead.

To Fear or Not to Fear the Economy

Although Bear Stearns is the only investment firm so far this recruiting season to withdraw already-extended job offers, fears about the current state of the economy and its effect, in particular, on the financial-services sector have left business-school students and administrators wondering about the security of jobs and job offers with other firms.

To some, the rescinded Bear Stearns offers recall the results of a similar economic downturn in 2001, Damast writes, when several companies that had hired students were forced to scale back.

Tom Kozicki, board president of the MBA Career Services Council, says he believes the Bear Stearns situation doesn’t necessarily foreshadow what lies ahead for the financial industry, but is definitely something business students need to keep in the back of their mind as they prepare for this particularly shaky job market.

“It sounds like the shoe has dropped. I think it’s unfortunate, but I don’t think it comes as a surprise to most people,” Kozicki told BusinessWeek. “The economy is shaky, [Fed Chairman Ben] Bernanke has indicated that he thinks we are going into a recession and I think that students need to be prepared for some uncertainty in the market.”

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