Good News....Bad News

Let's start with the good news.  The Federal Reserve today cut a key interest rates by 50 basis points.  Commercial banks quickly followed the Fed's lead and cut the Prime Rate by 50bp to 4.0%.  Hooray!

The news in student lending land however was not so positive.  Chase and Citibank followed Sallie Mae's lead and raised the pricing on their private student loans and in Chase's case also increased their underwriting standards.  What the Fed has giveth, the lenders have taketh away.  If there is any consolation regarding this news it's the fact that the peak borrowing season has passed, small consolation for those still scrambling to pay tuition bills. 

Let's go to the videotape:

• Here is the Chase announcement:  Download chase_select_pricing_announcement_102908.pdf
  • Will publish effective interest rates on a more regular basis given the volatile credit markets.
  • Increase school-certified private student loan interest rates by 2.5% across all credit tiers effective for all new Chase Select loans approved on or after November 15, 2008
    • A repayment example from the Chase website tonight indicated a range of Prime - .5% to Prime + 8% with no origination fees for Chase Select loans at undergraduate, graduate and health professions at a range of schools, which was in place since October 1, 2008. 
      
      • That would appear to make the new interest rate range Prime + 2% (7%) to Prime + 10.5% (15.5%)
      • Chase adjusts the index (the Prime Rate) on a quarterly basis, "as published in The Wall Street Journal on the first day of the month preceding each calendar quarter," so two 50 bp reductions in the Prime Rate will not take effect until January 1, 2009. 
        
  • "Will be required to make changes to our underwriting criteria as we react to a deteriorating consumer credit environment."

• The Citibank changes did not have an formal announcement accompanying it:
  • Effective November 17th, the new pricing and fee structure for CitiAssist loans will be
    • Interest rates will range from Prime + 1% (6.0%) to Prime + 7.5% (12.5%)
      
      • The previous range was Prime -0.50% to +6.75%, so Citibank is adding 1.5% on the low end and .75% on the high end.
      • Citibank has a similar policy to Chase in adjusting their interest rates so the recent rate cuts in October will not be felt until January. 
        
        • "The variable rate is determined quarterly on the first day of January, April, July and October based on the published Prime Rate 30 days prior to those dates."
    • Fees will range from 0% to 6%.
      • Previously, the range was 0-5%. 
  • Citibank also announced that they will be requiring that CitiAssist funds are disbursed using Citibank EFT to avoid the costs associated with disbursing through a 3rd party vendor.
    
    • Effective January 1, 2009 all Citibank private loan disbursements will be made via Citibank EFT.

I suspect we may be reading more editorials like this one if this trend continues:  Loans, Did We Say We'd Do Loans?

Comments

[Prime]

Looks like another 50 basis points is coming on December 16:

http://www.wsjprimerate.us/wsjprimerate/2008/10/futures-market-100-certain-fed-will-cut_31.html

[Jean B]

Very interesting to see how the rates have continued to go up. Found Discoverstudentloans.com offers a private student loan at Prime plus 1% to 7.75%. Zero orig, guarantor & prepayment fees. They have a 15 year repayment period, but DO offer a 2% Graduation Reward on the outstanding principal balance.