Many students will probably say, student loans are quintessential to getting through college, thanks to tuition. Like most other loans, they can be provided by a banking firm, as long as they can make money. Now, what if certain circumstances caused a bank to, at least temporarily, stop providing these? This did in fact happen to JPMorgan Chase & Co, but why did it happen?
As mentioned earlier, a bank still needs to make money, just like any other business in the United States. Naturally, this must mean the first reason that JPMorgan Chase has stopped, is because they are not making as much money as they used to from student loans. It has been reported that student loans gave JPMorgan Chase $6.9 billion back in 2008, and it has shrunk to a meager $200 million now.
To put this into perspective, the revenue JPMorgan received in 2008, was more than all the banks were receiving today (by $900 million), as has been reported. Some banks have bowed out of student loans, and after seeing this trend a lot more are likely to follow suit. Specifically, it has been reported that Bank of America, Citigroup, and US Bankcorp had left in 2009, 2010 and 2012 respectively. Of course the financial crisis very likely has something to do with all this, and there is another reason. This one has to do with Washington.
Student loans are very risky for lenders, as could be imagined with $1.2 trillion of unsettled student loan debt, as stated by the U.S. Consumer Financial Protection Board. Other than generally increasing interest rates, this has also caused institutions from Wall Street and Washington to put pressure on banks to try something else. It also does not help that college tuition keeps increasing, meaning they would probably have had to keep giving out more, if they had decided to stick with the student loan program(s). This is because, rising tuition also begets an increase in the cost of education.
From the 1980s until now, the cost of education has risen four times faster than the inflation of the time. In addition, some are concerned about student loans turning into a “bubble,” like the housing market did in the years before its crash. If this particular problem is unresolved, then JPMorgan would be doing the right thing, in the long run.
Despite all of this, there are still firms willing to give out student loans. They are Wells Fargo, Discover, and Sallie Mae among others (they are the top three firms). Also, there are still Federal student loans, as well as Federal/State Scholarships, so just because banks are withdrawing from student loans does not mean they are completely gone.
And yet, there must still be some caution here, and do not go for what looks too good to be true. We must be sure that history does not repeat itself with these student loans, and there is an old saying: “those who do not know their history, are doomed to repeat it.”
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