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Two years after the federal government largely took over the student loan market, the remaining banks in the industry are preparing for another shakeup.
April 9 -
U.S. Bancorp is pulling out of the private student loans market, as banking regulators step up their scrutiny of the products. JPMorgan Chase is also cutting back on student lending.
March 30 -
Educational lenders, led by Sallie Mae, are feeling a bit of a tailwind from the economy. But the industry remains on fragile footing.
February 14
JPMorgan Chase (JPM) is getting out of the student loan business.
The $2 trillion-asset company will stop accepting new student loan applications on Oct. 12, the company said Thursday. Stiff competition from federal lending programs led the bank to conclude that private student loans held limited future potential.
"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."
New of the bank's decision to exit student lending was first
JPMorgan Chase has been
Competition from the federal government has prompted other big lenders to exit the private student loan market. U.S. Bancorp (USB)
The Consumer Bankers Association issued a statement Thursday shortly after JPMorgan Chase's decision was reported. Without naming the bank by name, CBA President and Chief Executive Richard Hunt said, "This is a troubling trend for students and taxpayers, meaning even less competition in the marketplace. 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."
Particularly troubling, Hunt said, is a rise in defaults. "This is especially concerning since federal loans, unlike education loans made by banks, do not involve an ability to repay assessment. The [Consumer Financial Protection Bureau] and the Department of Education should make college affordability and the federal student debt crisis a top priority."
