NEW YORK (MainStreet) The decision by JPMorgan Chase to exit the student loan market may say very little or speak volumes. The search for greener lending pastures may or may not include ones that their student loan customers can play in.
"The private student lending market has declined rapidly in the last five years," Chase spokesperson Trish Wexler said. "According to the College Board, what was once a $24 billion market in 2008 is now only $6 billion. For Chase specifically, we only originated $200 million in new student loans in the last year, down from $6.9 billion in 2008. In spring 2012, we stopped accepting applications from non-Chase customers, and offered this only to our existing Chase customers."
Wexler said Chase was recommending that they check out federal loans. Thasunda Duckett, who became head of both Chase Auto Finance and Chase Student Lending in February, could not be reached for comment.
The contraction in the private loan market was tied to the crash of the securitization market in general during the recession, which affected student loans as well as home mortgages. A flight to quality took place and a greater number of these loans included co-signers. The Consumer Financial Protection Bureau found in its June report that number of co-signed private student loans nearly doubled, from 55% in 2005 to 90.5% of the dollar volume in 2011.
While Chase has pronounced this a shrinking market, they are not getting out of the business anytime soon as they'll be collecting on existing loans. The Consumer Financial Protection Bureau has reported that $8 billion in private loans have defaulted. Unlike federal loans, the majority of private loans have variable rates linked to the prime rate or LIBOR.