Banks Look to Break Government's Hold on Student-Loan Market - WSJ - 0 views
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Private lenders are pushing to break up the government’s near monopoly in the $100 billion-a-year student-loan market.
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The banking industry’s main lobbying group, the Consumer Bankers Association, is pressing for the government to instate caps on how much individual graduate students and parents of undergraduates can borrow from the government to cover tuition. That would force many families to turn to private lenders to cover portions of their bills. While that could mean lower interest rates for some, it could constrain funding to households with blemished credit histories.
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At stake is potentially billions of dollars in new business for private lenders, a group currently dominated by SLM Corp. , better known as Sallie Mae, Wells Fargo & Co., and Discover Financial Services .
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Private lenders pushed for legislative changes in previous years to no avail, but now they’re receiving a more welcome reception from congressional Republicans and the Trump administration.
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Private student lending has fallen in part because banks tightened underwriting standards after the 2007-2009 financial crisis. It also has dropped because of moves by Congress to allow students to borrow more directly from the government. Starting in 2006, most graduate students have been able to borrow unlimited amounts. Parents also face no restrictions on how much they can borrow under the Parent Plus program.
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Promoting Real Opportunity, Success, and Prosperity through Education Reform, or Prosper, Act—calls for limits on the total federal student-loan amounts certain borrowers can receive. Many graduate students wouldn’t be able to borrow more than $150,000 in total federal loans for undergraduate and graduate studies. Parents in many cases would be limited to around $56,000 per dependent.
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Critics say some of the industry’s proposals would hurt taxpayers and students who lack the credit to qualify for private-sector loans. Some schools and student advocates add that setting stricter dollar limits on federal loans would limit many students from attending schools of their choice.
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Pushing more students to borrow private loans from banks without consumer protections is a terrible idea.”
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What we don’t want to see is continued nearly unlimited lending that has been fueling a rise in tuition costs,
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Private student lenders target the most creditworthy borrowers. That includes parents of undergraduate students and graduate students with an established history of paying debts on time.
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Several private lenders are offering lower interest rates than what the federal government charges the most creditworthy borrowers. And unlike federal loans, most private loans don’t charge an origination fee when borrowers sign up for the loan.
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The government relies on interest payments from creditworthy borrowers to offset the money it loses on defaults from other borrowers and thereby keep the federal loan program solvent.