Is It Really Smart to Exit the Student Loan Business?

Banking, finance, and taxes

Published: September 5, 2013 3:15 pm

Last Updated: September 6, 2013 6:47 am

With all of the concern about the cost of college followed with massive student debt, one has to wonder why anyone would still want to be in the student loan business. The government has dominated the regulation of student loans for some time now, and frankly it seems amazing that the major banks would have kept their toe in the water here. So how good is it that an exclusive report from Reuters indicates that J.P. Morgan Chase & Co. (NYSE: JPM) announced that it plans to exit the student loan market?

If JPMorgan is out of the student loan business, that basically leaves Wells Fargo & Co. (NYSE: WFC) and Discover Financial Services (NYSE DFS) as the remaining majors and many smaller lenders behind them. We have not seen the memo, but our own take is that this market is too much under the government’s control to matter very much for Jamie Dimon to care about. That being said, it is just one less arena of potential controversy down the road as the student loan business comes with much potential negative press.

While a lender gets to hold a student loan over someone’s head forever even if personal bankruptcy comes up, the reality is that it just creates bad blood trying to make people keep paying interest for a degree that might not even be helping someone any longer. Now JPMorgan can just deal with public controversy around its internal controls and procedures as well as ongoing negative press and lawsuits around the issues of mortgages, Mortgage securities, credit cards, and other fee-items.

The wild card by our take is how this will impact SLM Corporation (NYSE: SLM). If this is going to be a huge win for Sallie Mae it is not being reflected in the price of its stock as the stock was up only by one-cent at $24.21 late on Thursday. SLM is worth just over $10.5 billion and it is somewhat remarkable that it survived the government takeover of the industry.

It seems that the market likes JPMorgan exiting one non-core asset class like this. Its shares were up $0.35 at $52.22 in late Thursday trading. Wells Fargo & Co. (NYSE: WFC) was up $0.36 at $41.86 and Discover Financial Services (NYSE: DFS) was up $0.38 at $48.71 in late-day trading on Thursday.

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