5 Reasons for the Escalation of Private Student Loans Balances

With 1.5 trillion dollars in outstanding student loan balances, there is enough blame to go around. While politicians, universities, and government agencies argue about who is at fault and what new policies and laws they need to enact to solve the problem, students continue to graduate with more and more debt.

In 2019, the average graduate finished school with $31,172 in debt and will make payments averaging $393 each month. Even though the traditional loan repayment plan lasts ten years, it will take approximately 21 years for an undergraduate to pay off college debt.

One of the biggest challenges a growing number of student’s face is balancing debt across multiple lenders and loan types, including both federal and private loans.

In 2019, private student loans made up 7.63% of the outstanding debt, totaling 119.31 billion dollars. Here are the top 3 reasons why the number of students relying on private loans is growing fast:

  1. Gap InsuranceFederal loan limits had not changed since 2007 when maximum loan amounts for first-year students increased by $825, and 2nd-year students saw an increase of $1,000. Third- and fourth-year students had not seen an increase in loan limits since 1993 when they got a $1,500 per year bump. Low federal loan limits remain at $5,500 for first-year students, $6,500 for second-year student and $7,500 for each additional year for undergraduate students.
  2. When federal loan limits remain the same, and college costs continue to rise, students must look to other sources to bridge the gap. Private student loans do not have specific loan limits. A private bank will grant loans up to 100% of the cost of attendance, minus any existing financial aid, which can include grants, scholarships, or federal loans. Private loans are a popular choice for students who have maxed out their federal student loans.
  1. The rising cost of tuition – The cost of attending college is rising faster than the rate of inflation. When comparing costs from 1988 to 2018, students saw a 163% increase, when adjusted for inflation. Combining a freeze on federal loan limits and rapidly rising tuition, it is not surprising that students rely more heavily on private loans to make up the difference.
  2. Higher Enrollment – Despite the high cost of attending college, enrollment continues to climb. In 2018, 19.9 million students enrolled in college, an increase of 4.6 million students over the 2000 enrollment figures. Students from lower-income families rely more heavily on loans to pay for school, which increases balances at graduation. Due to the lack of savings and parental assistance, the first-generation student has a heavy reliance on private loans to bridge the gap between cost and financial assistance.

Private student loans can help students pay for school, but they do not offer the same benefits as federal student loans.

Private lenders may include benefits such as deferred payments while in school and deferment options in the event of financial hardship after graduation. However, they do not have the abundance of repayment options, loan forgiveness programs, or other benefits found with federal student loans.

Private student loans also abide by different debt collection rules, which can give students struggling to keep up with loan payments more options for negotiating private student loan debt balances.

About Titan Consulting Group

Titan Consulting Group helps consumers evaluate various debt relief options and choose the right program that best fits their short-term and long-term financial goals. We work with consumers seeking debt consolidation loans, or who may be considering options like debt negotiation or bankruptcy. Through our network of partners, we can help you find the right solution to reach your goals and get back to living a life free from high interest credit card debt.

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