Bank of America To Stop Making Private Student Loans

Bank of America, the nation’s largest bank and one of our largest student lenders, today announced that it would stop making private student loans and instead “do more lending under a federally guaranteed program,” says the Wall Street Journal.

More than 50 lenders have stopped making student loans in the past few months as the credit crunch continues to make student lending unprofitable. Sallie Mae recently warned that it could no longer make profitable student loans at all.

Bank of America to Direct Student Loans to Federal Program [WSJ]
(Photo:Meghann Marco)

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  1. Jon Mason says:

    This sucks for me personally. I am about to go back to school part-time and was about to start looking for private student loans. I have a good credit rating, good job, minimal debt- why does it have to be an either/or approach? Cant they just raise their standards of lending – surely at some point the customer is a low enough risk to be profitable?

  2. Heresy Of Truth says:

    That sucks. Seriously.

    I just got my husband through college. When he started, they offered enough financial aid for him to get through. Then, a year before he was done, the level of financial aid was cut back. He has one of those degrees that takes five years, so you can have a four year degree. Because of a few extra quarters demanded at a community college, it caused him to come up short. I had to sell my home to pay for it.

    I’m glad we managed to sell the place, because his education is more important than a home. We were lucky.

    Now, I don’t know how we will get me through to finish up my degree. Between paying his loans back, and everything skyrocketing, I don’t see it as a possibility to get my degree.

  3. Falconfire says:

    Yep we now see where this is going.

    All this is going to do is royally screw those students who have parents that make JUST enough to not qualify for any of the federal programs, but who also dont make enough to actually pay outright for their kids….

    Glad I finished school 3 years ago, otherwise I would have been dropping out.

  4. blitzcat says:

    @Heresy Of Truth: You had to sell your home to pay for community college? Sounds like there was a bigger problem there.

  5. Cerb says:

    This sort of thing sucks for a lot of people in medical school. Federal loans only guarantee us so much per year, which can make things really tight if you have a family, go to a private school, or live in an expensive city. I was lucky and ended up at a state school in a relatively inexpensive city. However, if I hadn’t gotten into this school I would have ended up at Temple which costs 40k+ a year for tuition alone!
    I’ve heard a lot of fear from Carribean students about being able to afford their tuition this year because their lenders have stopped making student loans. Considering we already have a doctor shortage, and a recently passed law requires us to start repaying our loans while in residency (when we get paid next to nothing), I can only see the problem getting worse unless the government decides to do something about it.

  6. MonkeySwitch says:

    This also sucks for wanna-be students like me who can’t get approved for a loan as it is. No credit is worse than bad credit! I’m slowly trying to build my credit so I can get approved for a loan and into school.. but by the time that happens, nobody is going to be offering loans any more!

  7. T-Bone (KoKo the Monkey) says:

    Major lenders like Sallie Mae have also stopped participating in the federal loan consolidation program, which means big trouble for graduating law students like myself who need to stretch out the payments.

  8. 44 in a Row says:

    I haven’t read the article, but when they say that they’re going to “do more lending under a federally guaranteed program,” I’m guessing that means they’ll continue with PLUS loans. For grad students, GradPLUS loans let you take out up to the full “cost of attendance”, including tuition, room and board, books, and personal expenses, and they’re backed by the federal government. If that’s the case, then it hopefully isn’t the end of the world for us grad students.

  9. Blinkman says:

    If companies don’t want to offer a product, they don’t have to.

    Maybe this will make Republicans adopt more liberal funding strategies for students, or maybe Med students will actually vote Democrat because you know, civil rights can actually be important and who really, really wants to identify with a party that had embarrassments like Trent Lott?

  10. Cerb, it’s similar for law students – my tuition for law school 8 years ago was $1000 more than the federal guaranteed loan limit, meaning all my living expenses, books and all had to be covered by private loans. But, if you don’t make enough money during your residency, you should qualify for loan abatement based on income — it kept me from paying my federal loans during my clerkship.

  11. azntg says:

    Bank of Opportunists… could they finally drop the mutilated flag since they do not intend to support those behind the flag? Geez.

  12. gqcarrick says:

    That blows, almost all of my school loans are private since federal loans only covered so much to go to private school. Why squeeze the students when you screwed up so badly in sub prime mortgages?

  13. gqcarrick says:

    @Falconfire: That sounds about right to me. My parents made just enough so I didn’t qualify for a lot of scholarships and federal loans, so they had to cosign for all my private student loans. Now I will be paying them off into my 30s for sure.

  14. 44 in a Row says:

    Bear in mind, too, that even “federal” loan programs like the Stafford and Perkins loans are still actually made by private institutions. My Stafford loans were through Citibank, for example. I imagine that those programs will be safe. Likewise, GradPLUS loans, even though made by a private bank, are still part of a federal program.

  15. littlemoose says:

    @David S: I’m a graduating law student too, and the prospect of being unable to consolidate my student loans is scary. It’s frustrating to feel like you’re financially screwed even though you have worked hard for a supposedly valuable education. You feel like you’ve done everything right.

    And yes, look into loan payment assistance programs that might be offered either by your university or your state. Some law schools offer LRAPs (Loan Repayment Assistance Programs), which helps graduates pay their loans if they make under a certain income and/or work in public interest, etc. Some states (Illinois, for example) also offer programs that pay off doctors’ student loans if they agree to practice family medicine, OB/GYN, or other needed specialties in underserved areas. For graduating students, do some googling and talk to your financial aid folks.

  16. littlemoose says:

    Sorry if this posts twice. I’m a graduating law student too, and the prospect of being unable to consolidate my student loans is scary. It’s frustrating — you feel like you’ve gotten a good education, done everything right, and yet you’re still financially vulnerable.

    I would recommend that graduating students look into loan assistance programs offered by their university and/or their state. Many law schools offer LRAPs (Loan Repayment Assistance Programs) for graduates who have accepted jobs that pay under a certain income level and/or are in a public interest field. Also, many states (Illinois, for example) will pay all or part of a doctor’s student loans if he agrees to practice a necessary specialty (family medicine, OB/GYN, etc.) in an underserved area. If you’re willing to make the commitment, that can provide some financial relief. Do some googling, talk to your university’s financial aid people, and see what your options are if you think you may not be able to pay back your loans.

  17. Heresy Of Truth says:

    @blitzcat

    Nope. There is nothing else wrong with us. We are just both from poor parents, and don’t have the luxury of a mailbox scholarship. Despite both being A students, myself getting a 4.0, there are no scholarships that weren’t in underwater basketweaving, or something weird like that.

  18. Skankingmike says:

    On a side note, when are they planing on changing Bank of America to the Bank of India.

  19. Zyzzyva100 says:

    @Luckwouldhaveit:

    Except the difference is that there is a serious over abundance of lawyers and there is going to be a serious shortage of doctors soon. As far as payments, the rule that allowed you to defer payments while in residency is about to expire. Sure doesn’t make me want to pursue a specialty that requires extended training and a long fellowship.

    When someone you know dies because there are no neurosurgeons in the sate (has happened to a friend of mine) remember to thank the government for screwing medical students and doctors.

  20. 12-Inch Idongivafuck Sandwich says:

    @44 in a Row: I took out one of these private loans, because my University “cost of attendance” was about 5k short of actual “living, school, and still having fun costs”…

    I’m sure the interest rate is going to suck when I start paying it off (in like 4 months), but it will be one of the first things paid off (along with credit cards)…

  21. MD4Prez2032 says:

    Before you know it, they’ll stop giving out cash.

  22. elislider says:

    this is the future of america and the companies are only worried about making it profitable. sigh

  23. Blinkman says:

    @elislider: And what would the companies do without profits? Be unable to expand or recover from an economic downturn? Eventually go out of business and cause job loss and a loss of service?

    So dumb.

    It isn’t the job of a private institution to provide education for American students.

  24. ThomasD3 says:

    so, I’m waiting now for a republican to explain me how the market always regulates itself and how something as important as education is taken care of?

    education and medical services are not extras, they’re required to have a civilisation that doesn’t collapse.

    So, how is the market solving this and getting everyone an education?

  25. modenastradale says:

    @ThomasD3:

    Yeah, no joke. By the way, while we’re on the subject of complaining, and since we did just go through tax season…

    WHY THE F**K DOES THE TAX CODE PERMIT DEDUCTIONS OF MORTGAGE INTEREST FOR A FIRST AND SECOND HOME, REGARDLESS OF INCOME, WHILE SIMULTANEOUSLY DENYING A DEDUCTION FOR STUDENT LOAN INTEREST ABOVE A MODEST INCOME THRESHOLD?

    There. It was time for my weekly rant. Seriously, I don’t understand the priorities that gave rise to these provisions. The Tax Code will reward Madonna’s purchase of a summer pad in Malibu, but it won’t reward Bob Professional for going to med school? It’s seriously screwed up.

  26. Techguy1138 says:

    @Blinkman:
    That blindly pro-corporate thing on the site was an April fools joke.

    You can stop now.

  27. Techguy1138 says:

    @ThomasD3:

    Education through 12 grade is a guarantee in each of the 50 states.

    This education is,for the most part, sufficient for citizens to be educated and functional parts of society.

    Additional eduction as in advanced vocational school or college can be had at private expense to further your career.

    There are a large variety of inexpensive public colleges that provide an excellent education for a very modest price. In addition there are many state and federal programs to assist you in getting into those colleges.

    Now for the free market explanation of education…

  28. Techguy1138 says:

    @ThomasD3: The explination

    Like I said before the government at the state level covers basic education and subsidizes private education.

    One of the biggest problems with private education in the past decade has been the government intervention in credit markets.

    Educational institutions just like any business can only charge what the market can bear. By making a lot of cheap credit available the government changed this. Wanting a private education people took out loans for more than they could afford with the hope of making much more money in the future.

    Freely available education loans made allowed many more people to attend private institutions than normal. With the increased application rates the institutions charged more money. Many that I have seen used this extra money to build new facilities or attract better staff.

    The consumer fueled by irresponsible spending and borrowing behaviors drove up the price of an mostly elastic resource. Just the same as the housing bubble will pop so will the tuition bubble.

    As the amount of credit in the market constricts universities will have to alter their pricing to match the available funds for incoming students.

    And just as in the housing bubble people who over borrowed for a degree of less value then they can earn will get burnt.

    The market will go back to normalcy.

    If you borrowed 50k in student loans for a degree that will get you a job where you make 50k a year prepare for a decade of ramen fueled eating.

    There you go. The republican free market explanation of education.

  29. Blinkman says:

    @Techguy1138: You’re right. I’m completely ridiculous for not bashing on a company for dropping something that they can not make profitable.

  30. Techguy1138 says:

    @modenastradale:

    “WHY THE F**K DOES THE TAX CODE PERMIT DEDUCTIONS OF MORTGAGE INTEREST FOR A FIRST AND SECOND HOME, REGARDLESS OF INCOME, WHILE SIMULTANEOUSLY DENYING A DEDUCTION FOR STUDENT LOAN INTEREST ABOVE A MODEST INCOME THRESHOLD?”

    QFT!

    I had an opportunity dropped in my lap that helped me. I would up getting contractual employment where as a condition of my employment I had to take university classes to improve my skills.

    It wasn’t paid for but since it was a condition for my employment I was able to write off my tuition as a business expense.

    I couldn’t get my whole degree this way. I had to get a grant from my college to take care of the end.

    The IRS considers classes to be a business deduction but a degree as a take away that can be applied other places.

    I had to finish my degree on my own but when you make 30k a year writing off 15-20k in expenses makes grad school livable.

    THANK GOODNESS I got a cpa to help me out. This didn’t get me a full on IRS audit but I did have to answer an awful lot, at least to me, of questions. See if you can make a similar deal as a consultant in your field. A good honest cpa can also tell you the right way to go about this.

  31. Techguy1138 says:

    @Blinkman:
    No No No. You are completely ridiculous for a variety of other reasons also.

  32. BrockBrockman says:

    I think this decision hits the private colleges pretty hard too (not just students) – potential students will forgo expensive private schools in exchange for cheaper local state schools.

    The plus side of that is that private colleges have bigger lobbying power than students. Also, a ton of our most influential politicians went to private colleges.

    That means that private schools may take up the onus of helping to ensure that kids can be funded for going to their overpriced campuses.

    Otherwise, we’ll likely see a school-loan-credit-crunch, as students will be forced to take out loans with unfavorable rates as the student loan competition dwindles.

    The feds will step in – the question is whether it’ll help or exacerbate the problem.

  33. not_seth_brundle says:

    @modenastradale:

    “WHY THE F**K DOES THE TAX CODE PERMIT DEDUCTIONS OF MORTGAGE INTEREST FOR A FIRST AND SECOND HOME, REGARDLESS OF INCOME…”

    Itemized deductions, including the mortgage interest deduction, are not allowed regardless of income. There is a phase-out that begins at around $150,000 of adjusted gross income. Deductions are reduced by 3% of AGI above that threshhold, up to a total reduction of 80% or deductions. In other words, Madonna can only claim 20% of her itemized deductions.

    There is another benefit to the student loan deduction (if you qualify), which is that you don’t have to itemize deductions to claim it.

    This is just FYI as I definitely agree with your point that it’s absurd to value mortgage loans above student loans.

  34. Techguy1138 says:

    @BrockBrockman:

    My two cents is that the federal government will hurt more than help. Private colleges need to cut or at least freeze rates for many years to come. My institution was charging 12k a year when I started and 26~30k a year when I left.

  35. Blinkman says:

    @Techguy1138: Are you avoiding that point I just made? Because saying “other reasons” really doesn’t lend much to your argument.

    I know, as much as you hate companies (except the one you work for voluntarily), it’s hard to argue against private companies not having a role in providing funding for education at a loss to the company. Rough beats dude. Try again next time.

  36. Techguy1138 says:

    @Blinkman:
    I’m not putting much into my argument because you are trolling. You didn’t come here with something to add to the discussion.

    You called all the posters crybabies or some such thing and spouted a bunch of pro corporate nonsense that didn’t directly apply to the topic at hand.

    I don’t hate companies at all. I also don’t have a problem with BoA cutting it’s private educational loans.

  37. modenastradale says:

    @not_seth_brundle:

    Thanks for that clarification. You’re right; I guess I overlooked the $150k phase-out because my income isn’t anywhere in that shooting range. :-)

  38. Ben Popken says:

    Good riddance. Private student loans are a ripoff and most people don’t max out their federal loans first.

  39. modenastradale says:

    @Ben Popken:

    I have mixed feelings about the student loan credit crunch. On one hand, I think it’s a blessing: schools will be forced to rein in tuition increases, and many students will escape student loan slavery by virtue of its unavailability to them.

    On the other hand, it could be pretty devastating for individual students in the short run. My school (and all of its “peer” schools) charged nearly $40,000 per year in tuition alone. With room and board, textbooks, fees, and health insurance, I believe the total cost of attendance was $53,000 a year. Since the federal loan limits are just $18,500 per year for subsidized and unsubsidized combined, the program would have been unattainable without private loans (or wealth).

    Ultimately, I must admit that I now wish I hadn’t qualified for those loans. Even so, for some kids it was exactly the right choice.

  40. stinerman says:

    @44 in a Row:

    The loans are issued by private institutions, but are backed by the government. There is essentially zero risk for these institutions.

  41. Felix the Cat says:

    You need to really think about which band you want to use. To bad there are so many idiots working at this bank, here is my little problem FYI:
    [bankofamericageorgiasucks.blogspot.com]