Much can be said about the intelligence of financial markets, and the ability of private firms to see trends before many others do.
In the student loan space, new lending criteria from the U.S. government have allowed the U.S. government to lend directly to students, providing loans largely without intermediaries, the bulk of whom were traditionally the largest U.S. financial institutions.
While many smaller, regional banks have continued to lend to students and grow their student loan portfolios, the percentage of lending from financial institutions has plummeted.
New loans from financial institutions typically cover the portion students need over and above their government loan allotment - loans which could prove to be riskier over time, and thus require a higher risk tolerance from a corporate perspective to carry out.
Mega banks such as Bank of America (NYSE:BAC) and JP Morgan Chase & Co. (NYSE:JPM) have eliminated their student loan lending programs, shifting the risk of student lending to smaller institutions that are willing to take on excess risk in exchange for higher potential return over time.
This shift, among other factors including aggregate student loan borrowing levels, suggests to many that a student loan bubble may be on the horizon. The percentage of Americans that have leveraged their future earnings via student loans is at an all-time high, as is the average amount borrowed, factors which may impact the economy in the future as consumer spend more on debt payments and less elsewhere.
Invest wisely, my friends.
