Uncle Sam has pushed another bank out of the $1.2 trillion student loan sector.
JPMorgan Chase, which has been steadily backing out of the classroom over the past few years, said yesterday it would exit student loans on Oct. 12.
Since 2010, when Congress allowed Washington to lend directly to students, government loans have grown to dominate the business — owning an 80-percent-plus market share.
From 2011 to 2012, Uncle Sam wrote 93 percent of the $105 billion student loans originated, according to Consumer Bankers Association.
Reflecting that change, Jamie Dimon’s JPM has seen revenue from student loans fall from $6.9 billion in 2008 to a pedestrian $200 million, according to bank officials.
It is not clear how the exit of the country’s No. 1 bank from student loan will affect students.
JPMorgan has informed some 200 universities and colleges via memo that it was heading for the exits.
Last year, JPMorgan said it would no longer offer student loans to non-customers.
Government loans under the Direct Loan program come with lower interest rates and are guaranteed to all students.
Private bank loans require better credit scores.
With the pressure from Washington, Dimon views student loans as a marginal money maker.
The entire private lending industry has shrunk by nearly 75 percent, with student lending totaling roughly $6 billion in 2012 compared to a robust $23 billion in 2008, public data show.
Bank of America exited student lending in 2009, followed a year later by Citigroup. Last year, US Bancorp exited the game.
Student loans have grown 20 percent over the 17 months through May 2013, according to the Consumer Financial Protection Bureau, which in July estimated total outstanding student loan debt stood at $1.2 trillion.
In addition to pressure from Washington, banks could also be tempted to exit student loans because of risk.
Some industry observers have described student loans as the next bubble given the growing cost of college tuition and spiking rates.
“The biggest concern we see is loans are more restrictive while education has become more expensive,” said George Janas, president of Consumer Debt Counselors.
Indeed, since 1980, college tuition and fees have swelled by 1,100 percent — four times the rate of inflation, according to CBA.
Janas said that the decline of private lenders could make it more difficult for student loan borrowers to obtain a loan but also noted that a lot of borrowers aren’t understanding the risk associated with obtaining school debt.
JPMorgan told the colleges and universities it works with that it will still continue to service applications in the pipeline.
Sallie Mae, Wells Fargo and Discover are the top three lenders in the private student lending arena.
In the wake of JPMorgan’s announcement, Wells said that it would continue to be a student lender
“We are committed to the private student lending business and offering products and services that help customers succeed financially,” John Rasmussen,Wells Fargo head of Education Financial Services, asserted in a statement.