Private student loans are growing modestly and now make up about 7.75 percent of the $1.5 trillion student debt market, according to the latest figures compiled by a data cooperative of the nation’s largest lenders and private student loan holders.
The outstanding private student loan balance of $118.7 billion recorded at the end of the first quarter is “fully underwritten to assess creditworthiness and ability to repay,” MeasureOne said in a report released July 24.
MeasureOne is a data cooperative for the six-largest private student lenders and loan holders. They include
The findings showing 6 percent growth in private loans come amid what many economists, politicians, judges and borrowers call a crisis around student lending overall. Federal loans comprise 92.2 percent of outstanding student debt.
There are complaints that student borrowing has gotten too large, that more and more people struggle to repay their loans, and that heavy student debt can crush consumer participation in the economy.
There has been special focus on the role student debt plays in bankruptcy, and easing barriers to discharging, or wiping out, that debt in Chapter 7 proceedings. Under pressure from Congress and the public, the Education Department is currently reviewing the criteria for eliminating student debt in bankruptcy.
Federal loans backed by taxpayers carry a default rate of about 11 percent, according to the latest government figures released in 2017. That compares to the MeasureOne report, which said late-stage delinquencies and gross charge-offs for private student borrowing are at historic lows, 1.49 percent and 1.77 percent respectively. Those metrics have held steady around or below 2 percent for more than two years, the report states.
“There is a healthy, robust, student loan market that is growing modestly,” Brian Gunn, managing director for MeasureOne, told Bloomberg Law.
Federal student loans are need based while private loans are based on credit-worthiness, Gunn said, noting that co-signed loans are used heavily for undergraduate borrowers.
Despite the appearance of a robust private student loan sector with low delinquencies, there is still congressional interest in improving that market’s transparency.
Sen. Dick Durbin of Illinois and five fellow Democratic co-sponsors introduced legislation earlier this month that would “educate students about the dangers of private student loans, which carry high interest rates and few consumer protections,” Durbin said.
The bill would require schools to counsel students before they sign on to what the lawmakers call expensive and often unnecessary private student loans, and inform them of any unused federal student aid eligibility.
Identical companion legislation was introduced in the House by Rep. Jared Polis (D-Colo.). Both bills have been referred to committee but neither has been scheduled for a hearing, and prospects beyond that are uncertain.
The Institute for College Access & Success, a Washington non-profit research and policy organization that works to make higher education more available and affordable, also promotes more transparency.
More than half of student loan borrowers could be using more affordable federal loans, and private loans aren’t eligible for deferment, income-based repayment plans, or loan forgiveness, which are all options with federal student loans, said Jennifer Wang, the director of TICAS’s Washington office.
Ira Rheingold, executive director and general counsel of the National Association of Consumer Advocates, which is dedicated to protecting consumer’s from unfair and deceptive business practices, said the Durbin legislation is really “non-controversial.”
“It’s unfortunate that Republicans are so adverse to these mild regulations designed to protect unsophisticated students and the overall integrity of the credit markets,” Smith said.
The banking industry sees it differently.
Durbin’s legislation is “misdirected,” according to the Consumer Bankers Association, which is the trade group for big retail banks. There is a need for federal, not private student loan transparency, they say.
Students who borrow from private lenders “fully understand the cost of their loans,” CBA spokesman Nick Simpson said.
Private lenders already undertake “robust underwriting,” he said.
The rules are “already in place for private lenders,” Gunn said. The legislation is “pointing fingers in the wrong direction,” he said.
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