By David Henry
NEW YORK, Sept 5 JPMorgan Chase & Co has
decided to get out of the student loan business, after the
biggest U.S. bank concluded that competition from federal
government programs and increased scrutiny from regulators had
limited its ability to expand the business.
JPMorgan, which already restricted student loans to existing
Chase bank customers, will stop accepting applications for
private student loans on Oct. 12, at the end of the peak
borrowing season for this school year, according to a memo from
the company to colleges that was reviewed by Reuters on
Thursday. Final loan disbursements are expected before March 15,
"We just don't see this as a market that we can
significantly grow," said Thasunda Duckett, chief executive for
auto and student loans at Chase, in an interview.
Not making more loans "puts us in a position to redeploy
those resources, as well as focus on our No. 1 priority, which
is getting the regulatory control environment strengthened,"
JPMorgan's decision comes after Congress acted in mid-2010
to bypass the banks and have the government lend directly to
students. The federal government now issues 93 percent of
student loans. Banks and other private lenders have also come
under pressure from regulators and politicians to offer more
flexible repayment terms on student loans.
JPMorgan's portfolio has been shrinking by roughly $1
billion to $2 billion a year since then, and is a small fraction
of its assets. The company's student loan portfolio at the end
of June held $11 billion - less than 0.5 percent - of its $2.44
trillion of assets. Last year, Chase made education loans to
12,500 people for a total of about $200 million.
Hundreds of thousands of students, however, still look to
private lenders when they have exhausted their federal borrowing
limit. Richard Hunt, president of the Consumer Bankers
Association, said decisions like JPMorgan's show that the
government's direct lending policies are leading to "less
competition in the marketplace."
He said the government programs encourage students to take
on more debt than they can afford because the loans, unlike
those made by banks, do not require assessments of the ability
But many experts have said that the primary problem with
student lending lies in how much college costs and in the sheer
size of the debt taken on, not in who makes the loans and how
they are structured and how much they cost in
Moreover, others may fill in the gap. Other major lenders
that remain in the business include SLM Corp, known as
Sallie Mae; Wells Fargo & Co ; and Discover Financial
Services. Both Wells and Discover said on Thursday that
they would continue to make student loans.
Danny Ray, president of Discover Student Loans, said
although competition from the government has taken business from
lending for graduate studies, his bank found more demand from
undergraduate students who have already reached their government
borrowing limits and are still short of the money they need.
Credit unions could also use exits by banks such as
JPMorgan as an opportunity to do more business. Many entered the
market in 2010 and have made about $2 billion of student loans
since then, according to Paul Gentile, executive vice president
of the Credit Union National Association.
JPMorgan's decision follows a broader, ongoing review of
businesses amid new regulations, heightened scrutiny and capital
In July, the bank said it would exit physical commodities
trading, as Wall Street's role in the trading of raw materials
comes under political and regulatory pressure.
In June, the bank said its private equity unit, One Equity
Partners, would become independent, as it increased its focus on
client businesses. At the time, a source said the move was also
driven by the bank's decision to simplify its operating