As we mentioned in Non-Sequiturs last night, JPMorgan Chase is getting out of the student loan business. The bank will stop accepting new student loan applications this October.
A spokesperson for the bank said: “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.”
My friends, this is a bad sign. JPM is just a minor player in the student loan game, but the fact that they don’t think lending money to students for education is a good business anymore should make us worried. The fact that the federal government has crowded out this private lender is not good.
It means that we’re one step closer to the whole student loan bubble bursting…
JPMorgan has been investing less in student loans over the years. USA Today reports that JPM issued only $200 million in student loans last year, down from $6.9 billion in 2008. The difference is that private lenders have been squeezed out by the federal government. From the American Banker:
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.”
That “government takeover” is terrible for the taxpayers who are in effect guaranteeing these loans. Hunt also reports that there is a rise in student loan defaults. So it’s not just that the government is crushing the private marketplace here, it’s that the government is crushing the private marketplace for the right to take on questionable debts.
Meanwhile, unfettered government money has allowed schools to abandon all manner of price restraint on tuition. Private lenders at least have to make a decision as to whether somebody’s loan application makes sense. The government doesn’t do that. You want to take out $200,000 to go to a bottom-50 law school? Sign here!
Trust me, this ends badly. It ends with the government owning a ton of “toxic” debts, and with taxpayers being on the hook as underemployed graduates crumble under their unreasonable debt loads. The student loan “crisis” is just beginning.