JPMorgan Chase Exits the Private Student Loan Market
NEW YORK ( MainStreet)Growth in federal lending and the rising tide of defaults have led JPMorgan Chase to quit the student loan business.
"Students and their families are increasingly relying on government-backed loans rather than private student loans, and as a result the market has declined by 75% in the last five years," JPMorgan Chase spokeswoman Trish Wexler told American Banker . "We no longer see growth potential in this market. We're planning to focus our resources in other businesses where we do see room for growth, like auto lending." If recent studies by the New York Fed are any indication, the pickings may be slim among people who took out student loans.
Among private lenders left standing are Sallie Mae , Discover, Wells Fargo and PNC Bank .
"This is a troubling trend for students and taxpayers, meaning even less competition in the marketplace," Consumer Bankers Association president Richard Hunt said in a statement issued yesterday, which didn't mention Chase. Hunt added, "Unfortunately, since the near government takeover of most about 93% of the student loan program in 2010, federal student debt has exploded to the tune of over $1 trillion."
JPMorgan Chase already had one foot out the door, largely because of the growth of federal loans. "JPMorgan Chase stopped making private loans to new customers in 2012," said Mark Kantrowitz, Las Vegas-based senior vice president and publisher of Edvisors Network, who noted that the bank continued making new private student loans to current customers. "It was inevitable that they'd stop that too."
The seeds were sewn with the end of the Federal Family Education Loan (FFEL) program in July 2010, when the 2010 Health Care and Education Reconciliation Act - which is divided into two titles, one addressing health care reform and the other addressing student loan reform - cut banks out as middle men in origininating federal student loans, which are made through the Department of Education Direct Loan program.
"The cause probably has more to do with the ending of [the FFEL program] than with anything else," said Kantrowitz. "Lenders like Chase made federal loans through the FFEL program in addition to their own private student loans. When the FFEL program ended in July 2010, so that all new federal education loans were made through the Direct Loan program, it left them with just a private student loan program."
"That's a lot less loan volume to exercise their origination and servicing machinery," Kantrowitz continued. "Some banks decided that private student loans were too small a segment of their business to continue. Increased regulation was also a factor, although probably not a dominant factor. Banks still dominate the private student loan business, however, since the credit crisis made it much more difficult for non-bank financial institutions to raise the funds needed to make new loans through the capital markets."