JPMorgan to exit student lending


Commuters are reflected in stone as they walk past the JPMorgan headquarters in New York. JPMorgan Chase will cease making student loans next month, according to a memo obtained Thursday by The Washington Post. (EDUARDO MUNOZ/REUTERS)
September 5, 2013

JPMorgan Chase will cease making student loans next month, according to a memo obtained Thursday by The Washington Post, a move that will leave the already shrinking private loan market in the hands of even fewer firms.

The decision follows a period of turmoil in education finance sparked by the overhaul of the federal student loan program in 2010. The government captured a majority of the market by choosing to lend directly to students, leaving a limited role for private lenders.

Since then, JPMorgan’s once- thriving student lending business has declined from $6.9 billion worth of loans made in 2008 to $200 million originated last year, according to the company. ­JPMorgan began to retreat from the business in July 2012 when it stopped extending student loans to customers without an existing relationship with the bank.

“We no longer see any meaningful growth in the private student lending market,” said Trish Wexler, a representative for JPMorgan. “We’ve just decided to invest our resources in our other businesses like auto lending, where we do see a lot of potential.”

In the memo, which JPMorgan sent Thursday to 2,000 colleges, the company said it would stop accepting new loan applications after Oct. 12. Schools must schedule all final loan disbursements before March 15.

“This is a troubling trend for students and taxpayers, meaning even less competition in the marketplace,” said Richard Hunt, chief executive of the Consumer Bankers Association, a trade group.

As it stands, Sallie Mae, Wells Fargo and Discover Financial Services dominate the market for private student loans, according to data from the Consumer Financial Protection Bureau.

This year, Sallie Mae split into two publicly traded companies — one servicing government-backed loans and the other making private loans — to strengthen its business. The company, like other education lenders, suffered when Congress eliminated a $60 billion program to support private student loans with federal subsidies three years ago.

The government’s decision exacerbated the pressure that private lenders were facing in the wake of the financial crisis. According to the College Board, private lending tumbled from $23 billion in the 2007-08 school year to $6 billion in 2011-12.

Private loans account for $150 billion of the $1 trillion in outstanding education debt and have come under increased scrutiny. They generally carry higher interest rates and fewer consumer protections than federal loans, and borrowers are rarely afforded wiggle room when they can’t afford to make their minimum payments.

“Until the private market is brought up to speed with consumer protections, students are better off taking out federal loans,” said Suzanne Martindale, a lawyer with Consumers Union. “If you take out a federal loan, you know that your interest rate will be fixed and you’ll have access to flexible repayment plans.”

In May, the CFPB issued a series of proposals to create more flexible repayment plans for private student loans, including allowing borrowers who pay on time to refinance their debt at lower interest rates. The bureau is encouraging lenders to provide borrowers who fall behind access to ­income-based repayment plans. The industry has said it is considering the agency’s suggestions.

JPMorgan’s decision to pull out of student lending comes nearly two months after the company announced plans to exit the physical commodities business. That decision followed a $410 million settlement with the Federal Energy Regulatory Commission to resolve charges of improper and manipulative trading.

In the past few months, the nation’s largest bank has found itself entangled in litigation and investigations into a wide range of its businesses. JPMorgan recently disclosed that it is the subject of separate investigations being conducted by the Justice Department, the Federal Reserve, the Office of the Comptroller of the Currency, Congress and British authorities.

Danielle Douglas covers the banking industry for The Washington Post.
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