Democratic lawmakers and higher education stakeholders have long advocated for increased protections from private lenders, who tend to charge higher interest rates and offer less consumer protections than federal student loans. A new report from MeasureOne, a higher education data and analytics firm, claims private borrowers are repaying their loans successfully, and the market is modestly growing.
A compilation of key metrics, such as delinquency, default, and repayment, demonstrated “long-term improvement” since the economic recession nine years ago, and “historically low” levels of delinquency and defaults, according to the report.
“The MeasureOne Private Student Loan Report continues to confirm that students and families are responsibly using private student loans to cover college costs and are judiciously and effectively paying them back,” said Dan Feshbach, CEO for MeasureOne, in a statement. “The private student loan market remains stable and healthy.”
While federal loans account for the majority of the student loan market, private loans make up 7.75 percent of the outstanding balance — about $118.2 billion. The semi-annual report drew upon data from MeasureOne’s Private Student Loan Consortium, a coalition of private lenders and stakeholders accounting for nearly 63 percent of the private loan market, in the first three months of 2018.
The number of students taking out private student loans is growing overall, the report showed. The share of undergraduates in the private loan market has increased by approximately 8 percent since 2008, reaching nearly 90 percent of all private borrowers.
Brian Gunn, managing director of client relations for MeasureOne, said this growth is primarily driven by cost increases, since the process by which borrowers obtain a private student loan has not changed.
“As tuition continues to creep up, there’s an ongoing need for additional financing,” Gunn said.
Since 2008, the report has consistently found 74 percent of private loans in repayment. For the most recent data, 21 percent of loans were in deferment, 2.5 percent were in forbearance, and 2 percent were in a grace period.
The early stage delinquency rate, which measures loans 30 to 89 days past due, accounted for almost 3 percent of private loans in repayment, which is approximately 26 percent lower than it was five years ago. And the late-stage delinquency rate, representing loans 90 days or more past due, makes up 1.5 percent of loans in repayment, cutting the 2013 numbers in half.
Gunn attributed these low numbers to the way private loans are issued — which differs significantly from the allocation process for federal loans — and the economic growth since the 2008 financial crisis.
While the federal government awards loans based on need, private lenders determine eligibility through a number of factors related to the borrower’s capacity to repay. This process, called credit underwriting, assesses metrics such as the borrower’s credit score, existing debt, and income.
Since young borrowers typically don’t have strong credit profiles, Gunn said, a large portion of private loans are cosigned by parents. Of new undergraduate borrowers included in the report, 91 percent had parents who cosigned their loan. Having a cosigner is generally not necessary for federal loans.
Despite the positive outcomes exhibited in the report, Gunn noted the pathway to funding higher education still prioritizes federal funding.
Earlier this month, Democratic lawmakers in both chambers reintroduced bills that would require institutions to advise and inform students of their federal financial aid options before they can take out private loans.
Sen. Dick Durbin (D-IL) said in a statement that the bill was a “first step” to stopping fast-growing student debt, and would “help educate students about the dangers of private student loans.”
The bill, titled the Know Before You Owe Act of 2018, would also require institutions to fully certify private education loans in order to protect students from overborrowing. This practice is not currently mandated, but was included in a list of policy recommendations released by the Consumer Financial Protection Bureau (CPFB) in 2012.
All private lenders in the MeasureOne report already mandate school-certification for both undergraduate and graduate students.
“These lenders have gone to great efforts to help individuals and families understand all the different alternatives they should assess before taking out a private loan,” Gunn said.
Publication Date: 7/27/2018