JPM Decides to Drop Out

JP Morgan made comments today that they will no longer be participating in the student loan market.  They will continue to service existing loans but will not make new ones.  This is likely due to one or both of the following reasons: 1) Feds are crowding out private lenders; 2) risk profile of the loans getting too high.  Obviously it is the second reason that is cause for a concern given the sheer size of the student loan market.  This is a subtle but meaningful change in the outlook for student loans.  Many have pointed to the growing balance, but this may mark a turning point in that discussion.

A few other things to note.  First, the fact that the largest bank with the strongest balance sheet and “plenty” of reserves doesn’t want to make new loans is alarming. Second, the transition from student to household formation is stunted.  The weak job market and uncertain housing dynamic, compounded by excess student debt may be complicating and hindering chances at a housing recovery.  Lastly, student loans, since that are not taken against assets, are locked against the individual, there is not getting out of it…then again, it is a Federal loan in most cases…could make for a very interesting chess piece.