Private Student Loan Debt Growing for College Students
(Bloomberg) -- In the pecking order of meeting college costs, consumers usually don’t turn to private student loan markets until they have exhausted all other means. And for good reason -- private loans are generally more expensive and more difficult to obtain.
While the private student loan debt market is just a sliver of the $1.6 trillion in outstanding student loans, it has grown to more than $100 billion with 1.4 million borrowers, according to a report by LendEdu.
Federal student loans, funded by the U.S. Department of Education, don’t require a credit check, proof of income, or a co-signer. The loans typically charge a lower interest rate than what private lenders offer.
Private student loans are offered by private lenders seeking a profit. Typically, interest rates are higher and a good credit score is needed to qualify. Private loans are by no means guaranteed. Only about a third of loans were approved with a co-signer this year, based on a Lendedu database of about 200,000 private student loan applicants. Fewer than one-in-10 applicants were approved without a co-signer.
The average interest charged by a private lender in both 2018 and 2019 was 10.2% -- about double the average prime rate during that time. Over a 10-year loan, this effectively turns a $25,000 tuition bill to $40,000.
- From 2016 to 2019, the approval rate for private student loans was 21%.
- For co-signed private loans, the approval rate was 40.5%, while the approval rate for not co-signed private student loans was 8.7%
- From 2016 to 2019, the average approved private student loan amount was $13,780
- There is a large divergence between credit scores for the average applicant and the average for approved loans
- From 2016 to 2019, the average applicant FICO credit score for private student loans was 644, while the average approved FICO credit score was 737
- The average applicant income for private student loans was $44,583, while the average approved income was $72,947
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