JPMorgan Exiting Student Loan Business

In an email to colleges across the nation provided to the Motley Fool, JPMorgan Chase  (NYSE: JPM  ) announced they would no longer be accepting student loan applications after October 12 of this year.

In 2012, the Huffington Post reported that JPMorgan would no longer extend student loans to customers who were not already existing customers of their consumer bank. The move announced today will end JPMorgan's parlay into the industry, as they hope better utilize their capital into other, more profitable, businesses such as auto lending.

These changes follow the 2009 Student Aid and Fiscal Responsibility Act (SAFRA), which removed the Federal government guarantee on student loans that were privately issued by banks. This has dramatically affected the dynamics of the student loan industry.

JPMorgan has seen its balance sheet on student loans decline from over $14 billion in the first quarter of 2011, to $11 billion last quarter, representing a decline of almost 25%. In addition, other lenders, like Bank of America and Sallie Mae, have seen their balances decline by 33% and 23%, respectively.

There was no discussion as to whether or not JPMorgan would maintain its portfolio of student loans, or explore selling it, as Citi did when they sold their portfolio to Discover and Sallie Mae in 2010.

The largest holder of student loans, the Federal Government, has seen its holdings of Direct Loans to students increase by over 500% since 2007, from $107 billion in 2007, to $553 billion in the most recent quarter.


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