Academic journal article ABA Banking Journal

Another Option: Private Student Loans: Banks Can Bring Both Funds and Facts to the Student Loan Market

Academic journal article ABA Banking Journal

Another Option: Private Student Loans: Banks Can Bring Both Funds and Facts to the Student Loan Market

Article excerpt

THE PAST FEW YEARS have brought significant changes to the student loan landscape, with the promise of more to come as the Higher Education Act expires this year and faces renewal. Most recently, interest rates on federally subsidized Stafford loans doubled to 6.8% in July and came down to 3.9% when Congress passed a compromise bill linking rates to the financial markets. But as the economy improves over the next few years, rates could increase to up to 8.25%.

The change that most affected banks: the passing of the Student Aid and Fiscal Responsibility Act in 2010, which made the government the sole lender of federal loans. This didn't take banks completely out of the picture, though, and many now offer private options. In fact, according to the Department of Education, 7% of student loans are of private origination.

The $4.3 billion-assets WSFS Bank in Wilmington, Del., is one bank that recently started offering student loans. The Private Student Lending Solutions program is a partnership with LendKey, a cloud-based technology company that will assist in the application, disbursement, and servicing of the loans--effectively freeing the bank's hands of much of the administrative work.

The program seeks to bridge the gap between scholarships, grants, and federal loans and the actual cost of education. It also serves to diversify the bank's portfolio of consumer loans. …

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