JPMorgan Chairman and CEO Jamie Dimon called student lending in the U.S. a “disgrace” and said “it’s hurting America.”
Here’s what you need to know – and how it can impact you.
Student Loans: Jamie Dimon
In an interview with Yahoo Finance, Dimon, one of the most well-regarded leaders on Wall Street, criticized the current state of student lending and said the U.S. government “irresponsibly” issued $1 trillion of student loans since assuming control of federal student loans in 2010. He also called out colleges and universities, who Dimon said should take more responsibility for student loans that their students borrow. Dimon said that colleges and universities should “make good loans that people need to get them to where they’re going and get them good jobs at the end.”
What about student loan forgiveness? Presidential candidates from Bernie Sanders to Elizabeth Warren have proposed broad-based student loan forgiveness for America’s student loan borrowers.
“I think they should look at all parts of student lending, fix the broken parts, and then forgive those people [who] need forgiveness, and then help people get into school, and then make sure the schools are responsible in getting the kids out,” Dimon said.
In his annual letter to JPMorgan shareholders in April, Dimon addressed multiple issues related to JPMorgan’s business as well as his perspectives on the economy, including student loans.
“Irrational student lending, soaring college costs and the burden of student loans have become a significant issue,” Dimon wrote in his annual letter. “The impact of student debt is now affecting mortgage credit and household formation – a $1,000 increase in student debt reduces subsequent homeownership rates by 1.8%. Recent research shows that the burdens of student debt are now starting to affect the economy.”
Latest Student Loan Debt Statistics
The latest student loan debt statistics for 2019 show how serious the student loan debt crisis has become for borrowers. There are more than 44 million borrowers who collectively owe $1.5 trillion in student loan debt in the U.S. alone. According to personal finance website Make Lemonade, student loan debt is now the second highest consumer debt category – behind only mortgage debt – and higher than both credit cards and auto loans. Borrowers in the Class of 2017, on average, owe $28,650.
Jamie Dimon: Proposals To Address Student Loan Debt
To improve student lending, Dimon proposed four solutions in his annual letter:
1. Programs to improve burden of student loans
Currently, borrowers with student loan debt have several primary options to repay student loans:
- Refinance Student Loans
- Income-Driven Repayment
- Direct Loan Consolidation
- Student Loan Forgiveness
President Trump also has proposed a new student loan forgiveness program, which, would simplify income-driven repayment and provide student loan forgiveness earlier for undergraduate borrowers. Trump also supports ending the Public Service Loan Forgiveness program.
2. Better underwriting of student loans
Every federal student loan borrower, regardless of their credit profile, receives the same fixed interest rate from the federal government. When borrowers receive the same interest rate, but have different credit profiles, the default risk may be higher for the borrower with the weaker credit profile. This leaves the federal government potentially susceptible to student loan default, which is effectively borne by federal taxpayers. In contrast, private lenders underwrite student loans and provide different interest rates to borrowers based on certain criteria, which may include credit score, debt-to-income ratio, monthly cash flow and other factors.
3. Not all student lending been responsible lending
Proponents argue that irresponsible lending increases the risk of student loan default for certain borrowers, which can cost taxpayers money when borrowers default. Opponents argue that despite these risks, increased federal student loan borrowing is essential to expand access to higher education and to create more educational opportunities particularly for lower income borrowers.
4. More accountability and transparency needed
Dimon calls for increased disclosures for government student lending programs on par with banks. This not only helps create transparency for consumers, but also holds the federal government accountable for its underwriting and lending operations.
While the 2020 presidential candidates debate the future of student loans, you still need to repay your student loans. Evaluate the four primary options and choose the best path for you to pay off student loans faster.