Sen. Tim Johnson (D-S.D.), the chairman of the Senate Banking Committee, urged regulators on Tuesday to monitor growth in the private student loan market that could be the result of changes to the federal student loan market.
The cost of education has risen substantially, and student loan debt now totals more than $1 trillion, second only to mortgage debt as the highest form of debt in the nation. Since 2004, student loan balances have nearly tripled and approximately one-third of borrowers are delinquent on loans.
“These rising debts reach beyond individuals, and impact many sectors of the economy,” Johnson said. “High levels of student loans mean many put off buying a home, or never become homeowners at all. Student loans make it harder to start small businesses. Student loan payments often take priority over retirement savings. And rising student loan balances in states like South Dakota make it harder for graduates to stay in rural communities. While most student loans are federal, private loans make up $150 billion of the market. Private lenders allow many students to attend college who would not otherwise be able to afford it, and may sometimes offer better terms than federal loans. However, nearly one million borrowers are in default on their private student loans. And while federal loans offer flexible relief during periods of hardship, most private student lenders do not offer the same options for struggling graduates.”
Beginning July 1, student loan rates are set to double, from 3.4 percent on subsidized Stafford loans to 6.8 percent, meaning lawmakers would have to come to a retroactive agreement after the July 4 holiday recess.
“It is critical that regulators respond quickly to marketplace changes, and that consumer protections are safeguarded when demand rises,” Johnson said.