Sallie Mae, the nation’s largest student loan company, no longer offers private student loan consolidation services.
For those not familiar, consolidation is the process where a new lender pays off existing loans of the borrower and the borrower then repays the new lender. For most, it is an opportunity to lower monthly payments by either extending the repayment terms or lowering the interest rate.
After some extensive research, I was unable to find reasoning behind Sallie Mae’s decision to exit this market. In fact, it is not entirely clear when Sallie Mae stopped offering these loans. What is certain, is that as of this writing, Sallie Mae will not consolidate or refinance existing private loans.
Why would Sallie Mae not offer this service?
This is an interesting question. Without an official explanation, all that we can do is speculate. Sallie Mae has made huge profits on their student loan lending. With the lack of bankruptcy protection on student loans, student loan lending is pretty much a license to print money for big banks and lenders like Sallie Mae.
However, the obvious answer for Sallie Mae dropping out is money. Sallie Mae holds more student loans than any other company, and they have decided that this is a market segment in which they don’t even want to participate.
What does this mean for me?
If you are looking to consolidate your private student loans, it means there is one less company on the market. Basic economic principles would suggest that less competition in the market means you will have a harder time getting approved for a great private loan consolidation.This might also be a sign of good news ahead for current private student loan borrowers. Because Sallie Mae is the biggest lender, they have a huge interest in accurately projecting market trends as well as changes in the law. Not only has Sallie Mae decided not participate in consolidation, they have also made the decision to separate into two companies (one for federal loans and one for private loans). These actions together would make sense if restoring bankruptcy protection for borrowers was in the future. If borrowers could declare bankruptcy, these loans would be much less profitable and possibly even lose money. Sallie Mae has a huge presence in Washington, D.C., and they may see the writing on the wall for this particular issue. For many borrowers, they can only hope.
Another explanation could be that the marketplace is simply too competitive. With nearly two dozen lenders offering refinancing or consolidation, there might not be space for Sallie Mae to profit.