Seismic changes may be coming to the federal student loan program, and private lenders are eagerly preparing to profit. House Republicans have proposed a budget reconciliation bill that would slash billions from federal financial aid programs and the student loan system, eliminate two federal student loan programs, and impose new borrowing caps. Supporters of the bill claim it will reduce college costs and indebtedness, but in fact, students and parents will be forced to turn to expensive, high-risk private lenders—many of whom have a sordid history of exploiting borrowers. And private student loan lenders’ statements to investors show that the private lenders are rubbing their hands together in anticipation of the coming bonanza.
Under the proposed Student Success and Taxpayer Savings Plan, two types of federal student loans—Direct Subsidized Loans, which low-income students can use with zero interest while the student is in school, and Graduate PLUS loans, which students can use to cover up to the full cost of attendance for graduate and professional level education—would be eliminated. At the same time, new lifetime borrowing limits would be imposed on the remaining federal loan options: unsubsidized loans for students and Parent PLUS loans, which are available to parents of undergraduates. Additionally, the bill would cap the total amount of federal aid a student can receive—including both federal grants and loans—to the national median cost of their college program. That means that students in half of all programs will have unmet need even after receiving federal grants and Direct Loans. The new lifetime limits would also mean that some students would run out of federal Direct Loans and grant eligibility before they finish their program. To bridge these gaps, many will be forced to seek alternative financing in the form of private student loans. Ultimately, the proposed legislation would shrink the federal student loan program by tens of billions of dollars over the next decade, shifting a massive portion of loans to the private loan market.
The Risks of Private Student Loans
The private student loan market, estimated to be over $136 billion in currently held debt, is significantly smaller than the federal student loan portfolio’s whopping $1.6 trillion, but the impact it has on borrowers is outsized. While private student loans account for roughly 8 percent of all student loan debt, more than 40 percent of student-loan-related complaints submitted to the Consumer Financial Protection Bureau (CFPB) are about private loans. Of these private student loan complaints, roughly one-third are from borrowers who are struggling and can’t afford their monthly payment. This is because, unlike federal student loans, private loans lack critical safeguards for students and parents. Federal loan borrowers have access to Income-Based Repayment options; relief for those facing financial hardship; forgiveness for borrowers who become permanently disabled, are victims of predatory schools, or experience abrupt school closures; and relief after ten years of work in public service. Private student loan borrowers, however, have none of these protections. In addition, private student loans frequently have higher interest rates than federal loans, especially for students and parents with less than perfect credit. And, some private student lenders subject borrowers to deceptive or abusive servicing and debt collection practices.
For some students, private loans may not be an option at all. Low-income students, those with poor or limited credit history, and those entering lower-paying fields—such as teaching or social work—may be shut out of the private student loan market. Some private lending companies, including Navient, have already signaled that they will restrict lending to only the most financially lucrative borrowers—those with high credit scores—leaving others to seek financing from even less reputable lenders with higher interest rates and even more risky terms. And for some, no private loan options will be available at all, jeopardizing their ability to pursue their higher education plans.
Where private lenders have historically provided loans to low-income or vulnerable students, it has often been in partnership with predatory for-profit schools looking to evade the federal “90–10 rule.” (This rule, which is targeted for elimination in the House reconciliation bill, aims to ensure quality by requiring for-profit colleges to obtain at least 10 percent of their revenue from sources other than federal student aid.) Loans from these private lenders frequently come with extremely high interest rates and similarly high default rates. The CFPB found that nearly 80 percent of complaints it received about private student loans were about school misconduct discharges, and more than 81 percent of these complaints were about Navient loans.
The lenders who stand to benefit from the proposed Student Success and Taxpayer Savings Plan have not been subtle about their support for the changes. Private student loan giant Sallie Mae, whose former CEO once said, “If the borrower can create condensation on a mirror, they need to get a loan this year,” is actively looking to take advantage of the proposed reconciliation bill. For example, Sallie Mae recently paid to place an article in a major media outlet lamenting over-borrowing in the federal loan program and calling for policy changes to place additional borrowing limits on federal student loans. Sallie Mae’s diagnosis of “over-borrowing” in the federal system is misleading—in fact, Sallie Mae is not seeking to decrease borrowing levels, but rather, to shift borrowing from the federal loan program to the private market.
Private student lenders’ communications with investors also have made it clear that they see the proposed federal changes as an attractive opportunity to increase their profits: The CEO of Navient recently told its investors that the company was confident it could “take our fair share” of the expanded market for student loans that would result from the House reconciliation bill. Similarly, private student lender SoFi Technologies recently told investors that if the federal government “backs away from” providing student loans, the company would “be very happy to step in for the government” and would “absolutely capture that opportunity.”
Companies with a Troubling Record Are Poised to Cash In
The very companies poised to benefit from this change have long histories of harming borrowers.
Sallie Mae—once the largest provider of student loans—has faced multiple enforcement actions:
- In 2007, it entered a $2 million settlement with the Office of the Attorney General of the State of New York in response to allegations that Sallie Mae violated New York state law prohibiting deceptive practices, including by staffing college financial aid offices and operating call-centers with Sallie Mae employees that represented themselves as college employees.
- In 2014, the U.S. Department of Justice and the Federal Deposit Insurance Corporation ordered Sallie Mae and its spin off, Navient, to pay nearly $100 million after illegally overcharging nearly 78,000 servicemembers.
- Consumer groups have also alleged that Sallie Mae made misrepresentations to borrowers about their ability to discharge private loans in bankruptcy.
Navient, the Sallie Mae spin-off that operates as both a private student lender and servicer, has “a long history of regulatory violations”:
- In 2022, Navient settled an investigation by thirty-nine state attorneys general to resolve allegations of “widespread unfair, deceptive, and abusive student loan servicing practices and abuses in originating predatory student loans.” Navient was required to pay $1.85 billion in relief.
- In 2023, Navient paid $198 million to settle a class action lawsuit alleging that the company illegally collected on student loans by falsely telling borrowers that their loans were not discharged in bankruptcy.
- In 2024, in response to what was called Navient’s “years of failures and lawbreaking,” the CFPB permanently banned the company from servicing federal student loans and required it to pay $120 million in restitution and penalties following allegations that the company steered more than one million borrowers away from affordable loan repayment options, costing these students billions in unnecessary interest charges.
- Also in 2024, a congressional investigation found that Navient may have been improperly denying thousands of borrowers who attended fraudulent for-profit colleges relief from predatory student loans. A recent class action lawsuit has been filed by some of these former students.
- Navient has more complaints filed against it than all other private student lenders combined.
SoFi, another student lender that is poised to benefit from the proposed federal policy changes, has also faced accusations of deceptive practices:
- In 2018, SoFi settled a Federal Trade Commission action to resolve allegations that the company had falsely advertised the amount of savings that borrowers could receive by refinancing their student loans with the company.
- More recently, SoFi brought a lawsuit to try to force the Biden Administration to end its pause on federal student loan payments, arguing that the moratorium, which alleviated economic distress resulting from the COVID-19 pandemic, had cost the company millions of dollars in profits. The company later withdrew the lawsuit, but not after launching a year-long lobbying blitz on Capitol Hill to garner opposition to the federal payment pause.
A Dangerous Shift Amid Weakening Oversight
Making matters worse, Congressional efforts to expand the private student loan market are occurring just as the Trump Administration is dismantling regulatory oversight over private lending. Since Trump took office this past January, his administration has gutted the CFPB, firing 90 percent of its staff and “deprioritizing” supervision and enforcement in the student loan industry. Even before these changes, private lenders enjoyed an extremely opaque market where they could operate in the shadows. In 2020, it was estimated that nearly one third of the private student loan market fell outside of the only regular, publicly available reporting structure for this market; just four years later, that estimate has increased to roughly half. Now, without oversight from the CFPB as a federal consumer watchdog, deceptive and abusive practices will flourish, further endangering borrowers and making the private market even more risky for students and families.
With millions of students and families across the country struggling to cover the high costs of college, the crushing burden of student debt is a legitimate concern, but the House reconciliation bill will only add further fuel to the fire. Rather than curb excessive borrowing, House Republicans are simply forcing students and families into the riskier private market where they will have fewer protections if they fall behind. If the House Republican bill passes, private lenders, including some of the worst offenders of the student loan crisis, will be poised to rake in the profits.
This piece was co-published with the Student Borrower Protection Center.
Tags: federal student loans, private lendors, private student loans
Private Lenders Would Cash In on Congress’s Student Loan Changes
Seismic changes may be coming to the federal student loan program, and private lenders are eagerly preparing to profit. House Republicans have proposed a budget reconciliation bill that would slash billions from federal financial aid programs and the student loan system, eliminate two federal student loan programs, and impose new borrowing caps. Supporters of the bill claim it will reduce college costs and indebtedness, but in fact, students and parents will be forced to turn to expensive, high-risk private lenders—many of whom have a sordid history of exploiting borrowers. And private student loan lenders’ statements to investors show that the private lenders are rubbing their hands together in anticipation of the coming bonanza.
Under the proposed Student Success and Taxpayer Savings Plan, two types of federal student loans—Direct Subsidized Loans, which low-income students can use with zero interest while the student is in school, and Graduate PLUS loans, which students can use to cover up to the full cost of attendance for graduate and professional level education—would be eliminated. At the same time, new lifetime borrowing limits would be imposed on the remaining federal loan options: unsubsidized loans for students and Parent PLUS loans, which are available to parents of undergraduates. Additionally, the bill would cap the total amount of federal aid a student can receive—including both federal grants and loans—to the national median cost of their college program. That means that students in half of all programs will have unmet need even after receiving federal grants and Direct Loans. The new lifetime limits would also mean that some students would run out of federal Direct Loans and grant eligibility before they finish their program. To bridge these gaps, many will be forced to seek alternative financing in the form of private student loans. Ultimately, the proposed legislation would shrink the federal student loan program by tens of billions of dollars over the next decade, shifting a massive portion of loans to the private loan market.
The Risks of Private Student Loans
The private student loan market, estimated to be over $136 billion in currently held debt, is significantly smaller than the federal student loan portfolio’s whopping $1.6 trillion, but the impact it has on borrowers is outsized. While private student loans account for roughly 8 percent of all student loan debt, more than 40 percent of student-loan-related complaints submitted to the Consumer Financial Protection Bureau (CFPB) are about private loans.1 Of these private student loan complaints, roughly one-third are from borrowers who are struggling and can’t afford their monthly payment. This is because, unlike federal student loans, private loans lack critical safeguards for students and parents. Federal loan borrowers have access to Income-Based Repayment options; relief for those facing financial hardship; forgiveness for borrowers who become permanently disabled, are victims of predatory schools, or experience abrupt school closures; and relief after ten years of work in public service. Private student loan borrowers, however, have none of these protections. In addition, private student loans frequently have higher interest rates than federal loans, especially for students and parents with less than perfect credit. And, some private student lenders subject borrowers to deceptive or abusive servicing and debt collection practices.
For some students, private loans may not be an option at all. Low-income students, those with poor or limited credit history, and those entering lower-paying fields—such as teaching or social work—may be shut out of the private student loan market. Some private lending companies, including Navient, have already signaled that they will restrict lending to only the most financially lucrative borrowers—those with high credit scores—leaving others to seek financing from even less reputable lenders with higher interest rates and even more risky terms. And for some, no private loan options will be available at all, jeopardizing their ability to pursue their higher education plans.
Where private lenders have historically provided loans to low-income or vulnerable students, it has often been in partnership with predatory for-profit schools looking to evade the federal “90–10 rule.” (This rule, which is targeted for elimination in the House reconciliation bill, aims to ensure quality by requiring for-profit colleges to obtain at least 10 percent of their revenue from sources other than federal student aid.) Loans from these private lenders frequently come with extremely high interest rates and similarly high default rates. The CFPB found that nearly 80 percent of complaints it received about private student loans were about school misconduct discharges, and more than 81 percent of these complaints were about Navient loans.
The lenders who stand to benefit from the proposed Student Success and Taxpayer Savings Plan have not been subtle about their support for the changes. Private student loan giant Sallie Mae, whose former CEO once said, “If the borrower can create condensation on a mirror, they need to get a loan this year,” is actively looking to take advantage of the proposed reconciliation bill. For example, Sallie Mae recently paid to place an article in a major media outlet lamenting over-borrowing in the federal loan program and calling for policy changes to place additional borrowing limits on federal student loans. Sallie Mae’s diagnosis of “over-borrowing” in the federal system is misleading—in fact, Sallie Mae is not seeking to decrease borrowing levels, but rather, to shift borrowing from the federal loan program to the private market.
Private student lenders’ communications with investors also have made it clear that they see the proposed federal changes as an attractive opportunity to increase their profits: The CEO of Navient recently told its investors that the company was confident it could “take our fair share” of the expanded market for student loans that would result from the House reconciliation bill. Similarly, private student lender SoFi Technologies recently told investors that if the federal government “backs away from” providing student loans, the company would “be very happy to step in for the government” and would “absolutely capture that opportunity.”
Companies with a Troubling Record Are Poised to Cash In
The very companies poised to benefit from this change have long histories of harming borrowers.
Sallie Mae—once the largest provider of student loans—has faced multiple enforcement actions:
Navient, the Sallie Mae spin-off that operates as both a private student lender and servicer, has “a long history of regulatory violations”:
SoFi, another student lender that is poised to benefit from the proposed federal policy changes, has also faced accusations of deceptive practices:
A Dangerous Shift Amid Weakening Oversight
Making matters worse, Congressional efforts to expand the private student loan market are occurring just as the Trump Administration is dismantling regulatory oversight over private lending. Since Trump took office this past January, his administration has gutted the CFPB, firing 90 percent of its staff and “deprioritizing” supervision and enforcement in the student loan industry. Even before these changes, private lenders enjoyed an extremely opaque market where they could operate in the shadows. In 2020, it was estimated that nearly one third of the private student loan market fell outside of the only regular, publicly available reporting structure for this market; just four years later, that estimate has increased to roughly half.2 Now, without oversight from the CFPB as a federal consumer watchdog, deceptive and abusive practices will flourish, further endangering borrowers and making the private market even more risky for students and families.
With millions of students and families across the country struggling to cover the high costs of college, the crushing burden of student debt is a legitimate concern, but the House reconciliation bill will only add further fuel to the fire. Rather than curb excessive borrowing, House Republicans are simply forcing students and families into the riskier private market where they will have fewer protections if they fall behind. If the House Republican bill passes, private lenders, including some of the worst offenders of the student loan crisis, will be poised to rake in the profits.
This piece was co-published with the Student Borrower Protection Center.
Notes
This estimate was reached by using the most recent financial statements and Security and Exchange Commission filings from major lenders to update the market breakdown as illustrated in Figure 9 of Student Borrower Protection Center’s 2020 report, “Private Student Lending.” The major lenders’ portfolios, which now total $74.65 billion, make up roughly half of all private student loans. See “Private Student Lending,” Student Borrower Protection Center, April 2020, https://protectborrowers.org/wp-content/uploads/2020/04/PSL-Report_042020.pdf; “Private Student Loan Semi Annual Report Ending Q1 2024,” Enterval Analytics, August 22, 2024, https://www.enterval.com/media/files/enterval/psl/enterval-private-student-loan-semi-annual-report-march-2024.pdf?v=20240822T193044; Form 10-Q, SLM Corporation, U.S. Securities and Exchange Commission, October 23, 2024, https://slmcorp.gcs-web.com/static-files/2190a7fc-b062-4e4b-8353-68be17d0e794; Form 10-K, Navient Corporation, U.S. Securities and Exchange Commission, February 27, 2025, https://navientcorporation.gcs-web.com/static-files/f8ca0c30-c81e-4b30-9bf4-ff8e47e17eec; Hannah Levitt, “Wells Fargo to Sell Student Loan Book to Apollo, Blackstone,” Bloomberg, December 18, 2020, https://www.bloomberg.com/news/articles/2020-12-19/wells-fargo-to-sell-student-loan-book-to-apollo-blackstone; Form 10-K, Citizens Group, U.S. Securities and Exchange Commission, February 13, 2025, https://investor.citizensbank.com/~/media/Files/C/CitizensBank-IR/2024-citizen-financial-group-10-k_final030625%20web%20version.pdf; “Discover to Sell $10.1 Billion Private Student Loan Portfolio,” PYMNTS, July 17, 2024, https://www.pymnts.com/loans/2024/discover-to-sell-10-1-billion-private-student-loan-portfolio/; “National Impact Report,” Education Finance Council, September 2024, https://www.efc.org/wp-content/uploads/2024/09/2024-EFC-National-Impact-Report.pdf#page=6; National Credit Union Administration, “Quarterly Credit Union Data Summary: 2024 Q1,” 2024, https://ncua.gov/files/publications/analysis/quarterly-data-summary-2024-Q1.pdf#page=3; Form 10-K, The PNC Financial Services Group, Inc., U.S. Securities and Exchange Commission, February 27, 2025, https://investor.pnc.com/sec-filings/all-sec-filings/content/0000713676-25-000027/pnc-20241231.htm.
Tags: federal student loans, private lendors, private student loans