Too Big To Fail bank JPMorgan Chase will stop making student loans according to documents reviewed by Reuters. According to the documents the megabank is leaving the student loan business out of concern that competition with the federal government will reduce profit opportunities. But given the state of the student loan market the move will inevitably raise other questions.

JPMorgan Chase & Co will stop making student loans, according to a document reviewed by Reuters on Thursday, after the biggest U.S. bank concluded that competition from federal government programs limits its ability to grow the business.

The company will stop accepting new applications for private student loans on October 12, at the end of the peak borrowing season for this school year, according to a memo from the company to colleges. “We just don’t see this as a market that we can significantly grow,” said Thasunda Duckett, chief executive for auto and student loans at Chase, in an interview.

This will be the last cycle and it is worth noting that the bank had already diminished its exposure to the student loan market by limiting student loans to existing customers only.

The company’s student loan portfolio at the end of June held $11 billion – less than 0.5 percent – of JPMorgan’s $2.44 trillion of assets.

The portfolio includes $5 billion of private loans and $6 billion of loans backed by government guarantees that were granted under programs that have been discontinued. The portfolio has been shrinking by roughly $1 billion to $2 billion a year since mid-2010, when Congress acted to bypass the banks and lend directly to students.

Competition from the government may be a factor, another might also be that student loans are in a massive trillion dollar bubble. As the economy remains depressed for most Americans, those coming out of college are finding themselves unemployed and underemployed and likely remain so for the foreseeable future. This means paying back student loans will become ever more difficult, if not impossible.

Might we start seeing a wave of defaults? Did JPMorgan get out just in time?

Photo by Werner100359 under Creative Commons license.