Looking Backward or Looking Forward? Exploring the Private Student Loan Market

Abstract

Although federal loans dominate student lending, a small private student loan market still exists, comprising roughly 9 percent of the student loans disbursed in 2015. With the rise in delinquencies and defaults on federal loans, along with continued concerns about tuition inflation, some have argued that private student loans should play a larger role in financing students. This article employs a mix of data analysis and qualitative interviews with private student lenders and other industry experts. The findings suggest that the current private loan market appears to be largely backward-looking, relying on traditional underwriting models to make loans. The likely result is that many students with high potential but a thin credit history and no access to a creditworthy cosigner are not able to get a private loan.