“the Evolution Of Student Loan Borrowing: A Historical Perspective” – Media Domino: Blog About Student Loans Private Student Loans: New Report Sheds Need for Borrower Protection in Opaque $130 Billion Market

Private student loans: New report sheds light on need for borrower protection in opaque $130 billion market

“the Evolution Of Student Loan Borrowing: A Historical Perspective”

Today, the SBPC released a new report examining the private student loan market. The report provides a snapshot of recent trends and borrower outcomes in the space, pointing to a critical need for more stringent borrower protections at the federal, state and local levels.

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For years, the private student loan market has been overshadowed by the much larger federal student loan market. However, as our new report demonstrates, the private student loan market is growing rapidly but many vulnerable borrowers are struggling under the weight of their loans. Furthermore, since this market lacks many of the transparency and reporting requirements that exist in other consumer finance markets, borrowers face a significantly increased risk of harm. Significant liability and consumer protection reforms are needed to protect the millions of borrowers this market touches.

Students at for-profit schools are more likely to rely on private student loans and experience more student loan debt.

Dozens of private student loan complaints and ongoing lawsuits in court across the country point to widespread consumer harm in the private student loan market.

Private student loans lack the same transparency and public reporting requirements as many other consumer finance markets, which increases the risk of consumer harm.

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While policymakers and law enforcement officials work in the financial markets at every level to protect consumers, the private student loan market deserves attention and reform. No time will be wasted in advancing the oversight measures, transparency regulations, and robust enforcement mechanisms highlighted in this report to protect private student borrowers.

Ben Kaufman is a research and policy analyst at the Student Borrower Protection Center. She joins SBPC from the Consumer Financial Protection Bureau, where she worked as the director’s financial analyst on matters related to student loans. Between 1995 and 2017, outstanding federal student loan debt increased sevenfold, from $187 billion to $1.4 trillion (in 2017 dollars). In this report, the Congressional Budget Office examines the factors that contributed to that growth, including changes in student loan policies and how they affected borrowing and repayment:

Unless otherwise indicated in this report, the years referred to are federal fiscal years that run from October 1 through September 30 and are designated by the calendar year in which they end. Some years are recognized as academic years, which run from July 1 to June 30 and are designated by the calendar year in which they end.

All loan amounts are expressed in 2017 dollars unless otherwise indicated. To convert dollar amounts, the Congressional Budget Office used the Price Index for Personal Consumption Expenditures from the Bureau of Economic Analysis.

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The main source of historical information on disbursements, balances, and repayments is the National Student Loan Data System—the Department of Education’s central database that administers the federal student loan program. Longitudinal data were analyzed for a random 4 percent sample from that data set, drawn in late 2017. Accordingly, the numbers presented in this report may differ slightly from the numbers reported by the Department of Education based on purely administrative data.

Additionally, although the Department of Education does not provide default rates for the same specific category of borrowers analyzed in this report, the average default rate estimate is several percentage points higher than the default rates reported by the Department of Education. That’s probably the result of differences in the way the Department of Education defines repayment cohorts.

The amount and number of federal student loans that finance higher education has grown over the past few decades. In 2017, the most recent year for which detailed data is available, $96 billion in new federal student loans were issued to 8.6 million students, compared to $36 billion (in 2017 dollars) issued to 4.1 million students in 1995. Between 1 and 2015, outstanding federal student loan debt increased sevenfold. , from $187 billion to $1.4 trillion (in 2017 dollars).

In this report, the Congressional Budget Office examines the factors responsible for the growth in the volume of student loans and the effects of student loan policy changes on borrowing and repayment. Because the report focuses on the period between 1995 and 2017, it does not include the effects of the Coronavirus Assistance, Relief, and Economic Security (CARES) Act, which was enacted on March 27, 2020.2

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Between 1995 and 2017, students could borrow through two major federal student loan programs, the Federal Family Education Loan (FFEL) program, which guaranteed loans made by banks and other lenders as of 2010, and the William D. The federal government has offered loans directly since 1994 through the Ford Federal Direct Loan Program. The two programs operated in parallel through 2010, guaranteeing or issuing loans to students under nearly identical terms and conditions.

The Direct Loan Program continues to offer a wide variety of loans and repayment plans. Loans are limited to a maximum amount (which varies by loan type) and are extended at interest rates specific to the loan type and per annum. After the borrowers complete their schooling, they repay their loans according to the available repayment plans. The required monthly payments are determined by the amount borrowed, interest rate and repayment plan. Borrowers who consistently fail to make required payments are considered to have defaulted on their loans, at which point the government or loan provider may attempt to recover the outstanding amount through other means, such as wage garnishment. Under some repayment plans, qualified borrowers can get their remaining loan balance forgiven after a specified period of 10, 20, or 25 years.

The amount of student loans has grown because the number of borrowers has increased, the average amount they borrow has increased, and the rate at which they repay their loans has slowed. Some parameters of student loans—specifically, loan limits, interest rates, and repayment plans—have changed over time, affecting borrowing and repayment, but the biggest drivers of that growth are factors outside the direct control of policymakers. For example, both total enrollment and the average cost of tuition in postsecondary education increased substantially between 1995 and 2017.

The overall increase in borrowing is the result of a disproportionate increase in the number of students borrowing to attend for-profit schools. Total debt to attend for-profit schools has increased substantially, from 9 percent of total student loan disbursements in 1995 to 14 percent in 2017. (For undergraduates who borrowed to attend for-profit schools, the share rose from 11 to 16 percent; for graduate students, it grew from 2 percent to 12 percent.) Moreover, students who attended for-profit schools were more likely to drop out of their programs and fare worse in the job market than students who attended other types of schools. ; They are more likely to default on their loans.

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The parameters of federal student loans available to borrowers have changed periodically, and those changes affect borrowing and default trends. Between 1995 and 2017, policymakers introduced new types of loans and repayment plans (some of which allowed for loan forgiveness after a certain period of time) and adjusted the parameters of existing loan types and repayment plans. This report focuses on changes in loan parameters most relevant to borrowers—borrowing limits, interest rates, and repayment plans—and the effects of changes on borrowing and default.

There are two main federal student loan programs. The first was the federal Family Education Loan Program, which guaranteed loans made by banks and nonprofit lenders from 1965 to 2010. In 1994, Congressman William D. Ford established the Federal Direct Loan Program, which offered student loans directly. Treasury. The two programs will operate in parallel through the 2010 academic year, guaranteeing or issuing loans to students under nearly identical terms and offering a wide variety of loan types and repayment options. Federal student loans generally have more favorable terms for borrowers than loans offered by private lenders.

The Health Care and Education Reconciliation Act of 2010 eliminated new FFEL loans. In its last year, the FFEL program guaranteed 80 percent of new loans disbursed and about 70 percent of the total outstanding. Since then, all new federal student loans have been made through the Direct Loan Program.3 In 2020, Direct Loans accounted for nearly 80 percent of outstanding loan balances.

The Direct Loan Program offers three types of loans: Subsidized Stafford Loans, Unsubsidized Stafford Loans, and PLUS Loans. Loans vary from eligibility criteria, maximum loan size limits and interest rates and rules on how interest is earned:

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When borrowers complete their schooling, they are automatically assigned to a standard repayment plan, which amortizes the loan principal and accrued interest over a 10-year period. Other repayment plans, as well as various tools to pause or reduce payments, are available and have expanded over time. For example, borrowers can opt for graduated repayment

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