College Costs Have Skyrocketed
Since 1980, the average published tuition and fees has risen
1,100%, or more than four times the rate of inflation . Federal
government loan programs are designed to provide access to
some loan capital for all who apply, regardless of means. They
are not designed to provide unlimited financing, so they
necessarily have caps that make them insufficient for the choices
of many families. Private student lending is necessary to fill that
very important niche.
Default Rate Overview
Private student loans have a very low default rate of 2.74% .
This is due to the importance placed by private lenders on strong
underwriting combined with the common use of cosigners and
superior customer service.
Private Student Loans Have an Ability-to-Repay Test
Private student loans have robust underwriting standards that
account for a borrower’s ability to repay. Underwriting helps
ensure responsible borrowers are issued responsible loans –
arguably the most important consumer protection available.
Nearly All Private Student Loans Are School Certified
In 2014, 95% of private student loans to undergraduates required the
school to certify the student’s need for financing. School certification is
now standard industry practice. In fact, the vast majority of “non-certified”
private student loans are for special circumstances, such as legal bar
preparation and medical residency. School certification verifies for the
lender that the borrower is in fact attending the school and that the loan
will be used for educational purposes .
Are Federal Repayment Assistance Programs Working?
Nearly three out of four private student loans are in active repayment
status, as opposed to deferment or forbearance, a high rate which again
illustrates that private student loan borrowers are successfully managing
their repayment obligations.
Conversely, 18.8 percent of Direct Loan borrowers are seriously delinquent or in default . Further, new research indicates more than 59 percent of all new federal loan borrowers owe more on their loans two years into repayment. The rate of negative amortization has grown significantly in recent years, rising from 6 percent for 1986 borrowers to 59 percent for the borrowers of today .
1 College Board, Trends in Student Aid 2013. https://trends.collegeboard.org/student-aid/figures-tables/growth-federal-and-nonfederal-loans-over-time
2 Measure One, Private Student Loan Report 2015. http://www.measureone.com/reports & College Board, Trends in Student Aid 2014.
3 Measure One, Private Student Loan Report 2015. http://www.measureone.com/reports
4 US Bureau of Labor Statistics. Compiled by Quartz.com. Available at: http://goo.gl/d4Ub6
5 Measure One, Private Student Loan Report 2015. http://www.measureone.com/reports
7 Federal Student Aid Data Center, Federal Student Loan Portfolio. Direct Loan and Federal Family Education Loan Portfolio by Loan Status.
8 Brookings Reports on Economic Activity, “A Crisis in Student Loans? How Changes in the Characteristics of Borrowers and They Institutions Attended Contributed to Loan Defaults."
The Department of Education (ED) disburses roughly $95-100 billion per year through the federal Stafford and PLUS programs, 91 percent of student and parent loans , compared to $7-9 billion disbursed by private lenders . Private loans only account for 9% of the market but they play a key role in providing the supplemental funding that makes college possible.
According to the independent data analysis firm MeasureOne, which surveyed the six largest private student lenders accounting for about 70 percent of the private loan market, only $91 billion of the $1.2 trillion in outstanding student loan debt consists of private loans .
Private Student Loan Facts
Brought to you by the Consumer Bankers Association
Private Student Loan Facts
Consumer Bankers Association © All Rights Reserved.