Canary in a Coal Mine: JP Morgan Quits Student Loan Market

JP Morgan Chase & Company, the largest bank in the United States, has decided to stop accepting applications for new student loans. A company memo released on September 5th to colleges across the nation warned them that JP Morgan Co. would no longer be issuing new student loans after the peak borrowing season of this year. As Reuters reports:

“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 October 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, 2014.”

” “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…”

Up to now, students loans have been one of the most lucrative business sectors in banking. Young and naive students, often at the behest of their parents, have signed themselves into tens of thousands of dollars in debt with no option to declare bankruptcy. The banks are largely guaranteed to receive their money, because students cannot declare bankruptcy on their debt. Students becomes slaves to their own debt. I’m quite sure it is a soul-crushing situation to be in, especially for those highly-indebted students who have discovered that it is nearly impossible to get a job in their field of study.

JP Morgan understands the future of this situation: It cannot continue forever. The reason is simple: at some point, the money is going to run out. Students will stop paying their loans, whether they are allowed to declare bankruptcy or not. The last figure I heard on the total amount of student loan debt in America was somewhere near $1 trillion. In a job market like the one we have today, most of these students will never find employment that will allow them to fully pay their obligations off. I recently heard from an older couple I know that their son, who graduated a few years ago from a prestigious university with a degree in Architecture, is working hourly for a dog-grooming company. It is the best employment he can find. Meanwhile, he is apparently drowning in debt. Multiply this scenario by millions of students across the USA. It can never last.

JP Morgan is bailing. They understand what is happening, and I think they realize that the public is wising up to the student loan game.

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