Ally’s student loans are about to go into default
Ally’s loan portfolio is in default and could go into receivership as early as next month, with the company announcing on Thursday that it would be ending its “borrower-to-borrower” loan program.
Ally’s program was designed to help borrowers with college loans get more of their money back from banks, but borrowers have reported experiencing trouble getting the money back.
As a result, Ally has had to shut down its loan portfolio, which had roughly $4 billion in assets when it began, and said it would not renew its current “borrower-to, borrower” loan.
Ally said it was “extremely concerned” about the situation and “cannot continue to serve our customers.”
It also announced it would no longer offer loans to borrowers who defaulted, and would be closing its “evergreen” loan portfolio.
“We are committed to our customers and our borrowers,” the company said in a statement.
“Our commitment to serving them is reflected in the actions we are taking to address the situation.”
In an effort to help students avoid a default, Ally began offering “covenant” loans to students last year.
This program was meant to help student borrowers get more money back in a case of default.
For a borrower to qualify for a “covenanted” loan, he or she would have to make payments for a period of at least six months.
Ally says it will continue to offer “covenants” until the company can resolve the situation with the banks that make them.
“While we do not have the funds to fully repay all borrowers, we are committed in the future to continue to support our customers,” the statement said.
“As we close our consumer loan portfolio in the coming months, we will begin the process of refinancing our existing loans and are confident we will be able to make all the repayments we need.”
Ally said that it will provide borrowers with “additional information and resources” in the near future.
“With the ongoing challenges we are facing, we have made a number of decisions to address our loan portfolio and to focus on our customer experience,” the Ally statement continued.
“These decisions will be communicated to our clients in the next few days.
Ally will continue working with our bank to ensure the solvency and stability of the borrower portfolio.”
Ally, which also provides student loan products for the federal government, was founded in 1967 and is the largest student loan lender in the U.S. It has more than $50 billion in total student loans and has about 5,500 employees.
Ally has also had trouble making loans for students with a history of loan defaults, and has had trouble selling its loans, according to a report in The Wall Street Journal.
In recent years, Ally was among the top borrowers in default rates, with more than 80% of its borrowers reporting a delinquency rate of more than 50%.