Student Loan Shakeup Could Send Millions Looking For New Lenders
By CU Today Staff —
CHICAGO— New federal student loan rules that took effect July 1 are expected to reshape how millions of Americans finance higher education, potentially driving more borrowers toward private lenders while increasing the need for stronger underwriting, according to TransUnion.
Josh Turnbull, senior vice president of consumer lending at TransUnion, said the policy changes introduce tighter federal borrowing limits and fewer repayment options, creating funding gaps that private lenders may be able to fill. Student loan debt now totals approximately $1.6 trillion, with nearly 95% of that balance tied to federal loans, meaning changes to federal programs will have broad effects on borrowers and lenders alike.
"Demand for private student lending may be poised to grow, but so is the importance of getting underwriting right," Turnbull said.
He noted that roughly 30% of federal student loan borrowers in repayment are delinquent, warning that lenders cannot assume higher demand will automatically translate into profitable growth. Instead, institutions will need to identify borrowers with both the willingness and ability to repay.
TransUnion said the opportunity for private lenders is significant. More than 10% of federal student loan borrowers owe more than $100,000, suggesting some students and families could face financing gaps as new federal borrowing limits take effect. The credit bureau also expects refinancing activity to increase as borrowers reevaluate repayment strategies under the revised federal programs. The average federal student loan balance among borrowers in repayment has climbed to nearly $37,000.
The company cautioned, however, that elevated delinquency rates make careful risk management essential. While federal student loan borrowers and unsecured personal loan borrowers are both concentrated in below-prime credit tiers, TransUnion said the 90-day-plus delinquency rate is about 30% for federal student loans, compared with roughly 3% for unsecured personal loans. The firm said lenders should rely on broader consumer data and alternative data sources to better distinguish borrowers facing temporary financial pressure from those with longer-term repayment challenges.
For students and families, TransUnion said the new rules underscore the importance of carefully weighing federal and private borrowing options. Only about 7% of borrowers currently hold both federal and private student loans, but that mix could become more common as families seek to bridge funding gaps. The company said lenders that combine prudent underwriting with comprehensive consumer data will be best positioned to capitalize on changing market conditions while maintaining strong credit performance.
Originally reported by CU Today.