Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Jul 22, 2021

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JPMorgan Chase, the largest bank in the U.S., announced that it will stop originating private student loans for non-customers beginning on July 1, 2012, according to Bloomberg.

Customers must have a relationship with JPMorgan in the form of a deposit, loan or credit card if they hope to secure a private student loan from the bank. This means Chase would have direct access to information on some assets, debts, etc. While no new non-customers will be given student loans, those with existing financing from the bank will continue to be serviced. If you want to get a student loan through Chase Bank and you are not a current member, you would simply need to open an account of some type. Why is this change being made?

Why Is Chase Limiting New Student Loan Applications?

“The private student loan market has continued to decline and government programs have expanded to help more students and families,” said Steve O’Halloran, a spokesman for JPMorgan, told Bloomberg in an email, hinting that the industry is losing its profitability.

Private loans have their benefits and downsides. Many times, they have lower interest rates than government loans. Private companies also don’t necessarily take things like the parents’ income for younger students into account. When you consider that many parents don’t actually pay their children’s tuition in whole or part, this makes sense. Private loans also aren’t forgiven or reduced when federal students loans are.

The company’s student financing portfolio shrank 15 percent from 2009, all the while doubling their bad debts. Uncollectable loans rose 72 percent, and JPMorgan’s profits declined significantly. Repayment terms cannot be changed unless the loan itself is refinanced. So unfortunately, Chase got stuck with a lot of this bad debt.

In 2009, the bank made $4.2 billion on student loans. In 2011, they’re profits dropped to $300 million.

The rising default rate on college loans has raised concern in more than just the banks losing money. Some experts fear this trend is leading to yet another economic bubble, which, if burst, could hinder our already weak recovery.

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Are Non-Federal Student Loans Creating An Economic Bubble?

The Consumer Financial Protection Bureau (CFPB) reported student loans are now the largest source of unsecured consumer debt in the nation, surpassing $1 trillion.

That number is growing not only by new originations, but by students who are unable to make timely payments on their borrowing.

As graduates enter one of the weakest job markets in the United States’ history, our nation’s youth is unable to make adequate enough pay to satisfy their high monthly bills. Consequently, their student loans are growing at exponential rates due to the interest accruing.

Banks and credit unions are reassessing their lending policies in many areas, not just student loan debt. While federal loans in arenas like mortgages provide some sense of security, these types of trends determine what security policies come into play and who lenders lend to.

If you’re concerned about your monthly payment or repayment options, one of the best options is to talk to a loan officer about refinancing now.

Factors like your credit score, the amount you want, and your schooling will determine what you’re eligible for. If you wait until you’re in default, even with federal student loans, you’ll run into a lot more complications.

In the words of Rohit Chopra, the CFPB’s student loan ombudsman, “It seems that this market is too big to fail.”