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Default Private Student Loans – Domino Media: Student Debt Blog How to Improve Racial Inequality in the Student Loan Market

Nationwide, approximately 45 million people have $1.7 trillion in student loan debt, including more than $140 billion in private student loans. Private student loans – made by banks and other private lenders without federal government involvement – are playing a larger role in the loan market as of students, and hence the student debt crisis. The private student loan market grew rapidly in the years following the Great Recession, outpacing the growth rate of the mortgage, auto loan and credit card markets. of credit. Despite industry assurances that the private student loan market is free of borrower distress, a closer look at the results indicates that some segments of the Lenders struggle with private student debt – namely black and Latino borrowers.

Default Private Student Loans

These differences are particularly blurred in the private student loan market. Although less than half as likely to take out private student loans, black students are four times more likely to have trouble repaying private student loans than white students similar to him. This disparity is alarming, especially considering that private student loans carry additional risk for borrowers. Unlike federal student loans, private student loans have fewer safeguards to ease defaults when borrowers face economic hardship. Borrowers who are in trouble have fewer options to seek help if they default, as the default loan program is left at the discretion of the lender.

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In addition, students attending for-profit institutions may use high-cost private student loans to finance their education, including student loan debt—a portion of loans and loan products are unregulated and often opportunistically aimed at profit-seeking students. school. The main features of these products often include high interest rates, deceptive sales and risky compensation. Because these institutions are overrepresented in black students, the consequences of this predatory debt fall heavily on the black community.

The burden of the student debt problem is not borne equally – blacks and Latinos bear some of the most severe debt consequences of legal discrimination that extends to the stock market in our country. Policies of economic exclusion and racial discrimination have contributed to racial wealth in which the median white household has 13 times the wealth of the median black household and 10 times the median Hispanic household wealth. Thus, the typical white student loan borrower will pay off nearly 95 percent of his loan within 20 years of college, while his black counterpart will.

95 percent of their home state after the same period. Debt-based higher education only reinforces and exacerbates these systemic barriers, further driving the performance of private student loan borrowers in the private student loan market. indicates a similar trend.

The underdevelopment of the private student loan market raises concerns about disparate loan outcomes and repayment problems, as well as the targeting of black borrowers. Very little data is available on the private student loan market and the results of internal borrowers, in part because efforts were abandoned in 2017. the Consumer Financial Protection Bureau under the Trump administration to gather comprehensive information from companies operating in the space. With this in mind, the racial disparity seen in the market through the limited statistics available today should be a call to action for regulators to strictly monitor private lenders for practices that may disproportionately affect black borrowers. Without the CFPB’s strict oversight, states can continue to fill this gap through independent oversight and the establishment of new safeguards at the state level.

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The student debt problem is a civil rights crisis. As policymakers seek to improve economic mobility for disadvantaged communities, it is important that they take action to address the role of private student loans in reducing financial hardship and wealth inequality. Disparate repayment results in the private student loan market with for-profit institutions targeting black borrowers with loans for Private students require more protection from private lenders.

Borrowers need affirmative action protections against harmful practices in the private student loan market that exacerbate racial barriers within Black and Latino communities . Higher education should open the door to economic mobility, not the debt-ridden borrowers who are exacerbating racial inequality.

Kat Welbeck is a Civil Rights Advisor at the Student Borrower Protection Center. She is a Communications and Engagement Specialist in the CFPB’s Office of Public Affairs and Community Engagement. Federal student loans are made by the government after the student or their family completes the FAFSA. The terms are set by law and include special protections (such as fixed interest rates and income-based repayment plans) that are not usually associated with personal loans. Unlike federal loans, private loans are made by private companies such as banks or credit unions. Private loans have terms set by the lender. Private student loans are more expensive and offer fewer benefits and protections than federal student loans.

Information on federal student loans can be found at www.StudentAid.gov. If you don’t know the name of your lender or servicer, and you can’t find your loan information on StudentAid.gov, you likely have a personal loan. You can find information about your personal loan by checking your credit report.

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All student loan information available on your www.StudentAid.gov account is federal loan information. Borrowers often have federal and private loans. If you have a loan that is not listed on your www.StudentAid.gov account, it is important to check your credit report to see which private loan company you belong to.

Federal loans have fixed interest rates that are often lower than personal loans. Private student loans can have variable or fixed interest rates. Interest rates on private student loans can be higher or lower than interest rates on federal loans.

Only federal student loans have a government repayment plan. If you have private student loans and are struggling to make your monthly payments, you should contact your loan provider to inquire about the repayment plans they offer. According to a report released by the Federal Reserve Board, 43 percent of college-educated Americans had student loan debt, and 93 percent of that was in the form of student loans. student loans. Between 2006 and 2018, student loan debt tripled, while annual tuition increased by nearly $10,000 over the same period (

In the first quarter of 2020, the outstanding balance of student loans was estimated at $1.67 trillion, with private student loans accounting for 8 percent, or $131.81 billion, in the market. Although private loans are only a small portion of private student debt, they have grown dramatically over the past decade. While the amount of federal loans decreased by more than 25 percent between the 2010-11 school year. and 2018-19. school year, at the same time the volume of private student loans increased by nearly 78 percent annually. In fact, between 2008 and 2019, growth in personal loan balances was greater than growth in almost all consumer finance products, including home loans. car loans, credit card balances and mortgages. At the end of 2019, private student loan debt was 71 percent higher than a decade ago.

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Students can get loans through federal loan programs or private loan providers. Often, federal lenders use personal loans as a way to cover expenses that exceed the federal loan limit. Unlike federal student loans, private student loans often require a credit check during the application process. Private student loan lenders generally have more flexibility and discretion than federal agencies and can offer terms and rates based on their credit history.

Using the Survey of Consumer Finances, we calculated the distribution of private and federal interest rates for 2019 (

). Although both federal and private student loans in this sample have similar interest rates, it’s worth noting that federal student loans have fixed interest rates for the life of the loan. -money, but private student loans can have variable rates.

In the private student loan market, there are many lenders such as Sallie Mae and Navient, which mainly focus on student loans (

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). Other active players in this market include banks such as Wells Fargo and Discover, which include private student loans in their portfolio of consumer financial products. However, a large part of the market consists of small companies such as fintech companies and private bank lenders, among others. Together, these small entities hold about one-third of the private student loan market, as measured by outstanding loan balances.

Private student loans are included in the student loan savings account (“SLAB”). SLAB helps diversify credit risk through collateralized lending and provides diversified investment opportunities for investors with different risk appetites. Figure 4:

Shows that the largest supplier of

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