CBA's testimony notes the strong performance of the private student loan market, which according to a recent report from MeasureOne, private student loans have a relatively low default rate of about 3 percent, which appears to far outperform federal loan programs. Only .03 percent of private student loans received a complaint over the last six months according to numbers from the
In addition, the CBA testimony focuses on the issue of refinancing. While it is up to
Yesterday, CBA's President and CEO
The full testimony submitted for the record by CBA follows below.
Testimony Submitted by the
Subcommittee on Financial Institutions and Consumer Protection
For the Record of the Hearing "Student Loan Servicing: The Borrower Experience"
Chairman Brown and Ranking Member Toomey, thank you for the opportunity to submit testimony on behalf of the
CBA's Education Funding Committee is composed of ten of the most active participants in the private student loan market. Our members are proud of the products they offer to their customers, which is underscored by a low number of complaints to the
Today's Student Loan Market:
Understanding the borrower experience with student loans entails understanding the major changes in student lending made in the last five years. The most fundamental of these changes was the termination of new originations in the Federal Family Education Loan Program (FFELP) in 2010. As a result of this change, approximately 94 percent of all student and parent loans are made by the federal government today.
Private education loans make up a very small but nonetheless important part of families' means of financing college.
Although federal loans now make up 94 percent of all student and parent loans, private loans are essential to hundreds of thousands of students and their families seeking to attend the college best meeting their educational goals and career aspirations. Private sector organizations, including banks, make these loans. As of the end of 2013, there were
Private student loans mainly serve to supplement federal loans, or are made to people who prefer to deal with the private sector instead of the government. It is important to CBA's members to participate in this market in order to offer a full range of products to their customers. CBA members want their customers to achieve their life goals - making them better customers- and a great part of achieving success is a good education. Many studies have shown those who have graduated college earn substantially more than those who only finish high school.
Low Delinquency and Default Rates on Private Student Loans:
Data compiled in the MeasureOne 2013 survey of private student loan lenders shows a delinquency rate of 90 days or more of only about 3 percent for private student loans. Charge-offs also dropped to about 3 percent in 2013. Almost 75 percent of private student loans are in active repayment status, as opposed to deferment or forbearance, a high rate which again illustrates private student loan borrowers are successfully managing their repayment obligations. This represents a significant, across-the-board improvement over the past five years.
Importantly, private student loans carry no government guaranty, so if they are not repaid, the lender loses. For a lender to offer a sound private loan product, the lender must put loan applications through a robust underwriting process, where a determination is made based on a variety of financial factors as to whether or not the potential borrower is likely to be able to repay their loans. In most cases, private loan borrowers have also borrowed via federal loans, so lenders must carefully weigh the risk in making a loan.
Before making a private student loan, a lender must provide a long and thorough list of disclosures to the borrower at three different points in the application process. These disclosures include detailed terms and conditions as well as a notice to be sure and look into federal aid.
The vast majority of private student loans are co-signed, which results in a better interest rate and terms than a student would be able to get on his or her own. This also puts another practical check on a student's academic plans since a third party, such as a parent or grandparent, is highly likely to make sure their student is on a path to succeed at school before taking on the potential responsibility involved with co-signing a loan.
Nearly all private student loans made by the seven largest lenders for students seeking an undergraduate or graduate degree must be certified by the school to be attended before the lender will make the loan. (Ninety-six percent of loans made in 2013 were school certified.) The only exceptions are for a narrow group of students who need to borrow for expenses while studying for post-graduate purposes, such as to take the Medical Licensing Exam or the Bar Exam - situations where their former school is not directly involved. School certification is not required by law, but it is a sound lending practice and one which also helps ensure the success of the borrower in loan repayment. Private lenders work with schools to help them keep track of how much their students are borrowing, which reduces over-borrowing and the risk of fraud.
Private student loan lenders offer products geared to their customers' needs and strive to offer the highest quality level of service to their customers.
One of the main incentives for CBA member banks and other entities in the market to offer private student loans is to connect with customers and hopefully form a long-standing relationship to help fulfill their future financial needs. This means private lenders are strongly motivated to provide excellent service to their customers. According to the
The private sector continues to innovate, with new products, including refinancing and fixed-rate loans, being introduced thanks to consumer demand.
A few years ago, more customers began asking about fixed rate private student loans. Lenders quickly recognized the demand and began offering fixed-rate loans in addition to the traditional variable rate private loans. Competition among lenders quickly led to almost all of the major lenders offering consumers a choice of fixed or variable rate loans. Statistics differ between banks, but overall new loans are fairly evenly divided between variable and fixed-rate loans.
Like with other financial products, consumers have the choice of the security of a fixed rate, which will be higher since the lender absorbs the interest rate risk, or a lower variable rate which could change. Variable rate loans have been extraordinarily low for the past several years, making them a bargain by historical standards for those who expect to repay most of their loans fairly quickly.
Recently, we have heard much discussion about the need for refinancing both of federal and private student loans. While it is up to
CBA's member banks have asked their prudential regulators for more flexibility to work with borrowers who are having problems.
For example, in a
CBA member banks strive to comply with the Servicemembers Civil Relief Act (SCRA) but are concerned about conflicting requirements from the federal government.
Our members wish to ensure that every servicemember entitled to benefits under the Servicemembers Civil Relief Act receives them, without having to surmount unnecessarily burdensome documentation or other barriers that could preclude or delay their receipt.
Unfortunately, conflicting statutes and restrictive regulatory guidance on how federal student loans are to be handled under the SCRA have worked to obstruct full achievement of this goal. CBA joined with two other trade associations last month in a letter to Education Secretary
The letter notes our support for simplifying the documentation and notification process required so servicemembers may receive an interest rate reduction as well as other benefits they are due without unnecessary bureaucratic barriers precluding or delaying their hard-earned benefits. The letter also asks the government to allow greater flexibility in the documentation requirements in determining SCRA eligibility, assuring servicemembers receive their benefits, without undue burden or delay, while not penalizing lenders and servicers for complying with the government's previous guidance.
CBA members are proud of their record of responsible lending to make higher education possible for millions of students over many years. Our members are working in a competitive marketplace to improve their customer service, first and foremost by lending to students who are expected to be able to repay their loans. The private sector's flexibility allows it to offer products, like refinancing demanded by customers, but our banks are heavily regulated and constantly scrutinized by the federal government, so they must take great care to comply with regulatory mandates.
We believe our story is one of great success - in helping Americans achieve their dream of a higher education which leads to a successful and productive career.
Thank you for the opportunity to submit this testimony for the Record, and please feel free to contact CBA at any time if you have questions.
 The MeasureOne Private Student Loan Report 2013 - http://www.measureone.com/reports
 Daly, Mary, and
 Feshbach, Dan. "Private Student Loan Performance." MeasureOne.
 CBA Letter to
 CBA Letter to
TNS 24HariCha-140605-30FurigayJane-4756854 30FurigayJane
Most Popular Stories
- Fantasy Football Gambling Industry Facing Increased Legal Scrutiny
- As States Legalize Pot, Will Traffic Deaths Rise?
- NATO Plans High-Readiness Force to Counter Russia
- Obama Promoting Economic Gains As Elections Near
- 'Guardians of the Galaxy' Conquers the North American Box Office with $16.3M
- GE Capital and Petters-Related Fund in Legal Battle
- California Conservation Conundrum: Water Use Varies Greatly Across State
- Combating Online Abuse Not Easy for Gamers
- Even With Surly 2014 Electorate, It's 'Still an Incumbent's World'
- Feds Want Nuclear Waste Train, but Nowhere to Go