Myths vs. Facts: Recent Report on Private Student Lending Fundamentally Misrepresents the Facts and Misunderstands How Market Works

WASHINGTON, D.C. – Recent claims about private student loans misrepresent how the market works, who uses these products, and the protections that already exist for borrowers. A 2024 Brookings Institution report found the price of master’s programs has increased 158 percent since 1993. Americans now owe $1.83 trillion in student loan debt, 90 percent of which are federal government loans. To address this flawed system, Congress included provisions in H.R. 1, a major budget reconciliation package passed last year that will implement federal reforms to the GRAD PLUS lending program. These changes mean that new graduate and professional students won’t be able to borrow these larger federal loans after July 1, 2026.

As policymakers and families debate how best to finance higher education, it’s critical that decisions are grounded in evidence, not political narratives. Below, the Consumer Bankers Association (CBA) addresses several common myths reflected in a recent Senate report and explains the facts.

Myth: Critics incorrectly assert that private student loan growth is “rapid” and reflects opportunistic behavior.

Fact: Federal loans comprise more than 90 percent of the student lending market today. Private student lending remains a small share of the overall student debt market, and private lenders have demonstrated a commitment to financing borrower student lending needs in a competitive and sustainable way. 

Today, more than 90 percent of outstanding student loan debt stems from federal student loans. Even as private lending volumes have increased modestly in recent years, they remain small relative to the federal portfolio.

• Future loan growth from private lenders reflects their willingness and ability to meet new consumers’ needs after the elimination of Grad PLUS loans, which crowded out and distorted the market, not opportunism.

Myth: Risk-based private student lending is harmful to borrowers. 

Fact: The federal student loan program is more predatory than private lending. Federal lending does not have similar borrower underwriting standards, such as ensuring a borrower has an ability to repay their loan, often leaving students saddled with student debt that they would never have been able to pay. 

• 27 percent of borrowers with federal student loans are 90 or more days past due on their payments (after considering six months of deferment).
• 1.71 percent of borrowers with private student loans are 90 or more days past due on their payments.

Private loans are subject to risk-based underwriting, including ensuring borrowers have an ability to repay – as well as extensive disclosure, pricing, and consumer protection requirements, making them the opposite of predatory lending.

If we are looking to define “predatory” in the student lending space, we should start by taking a hard look at federal loans that offer debt to borrowers without regard to their ability to repay, often trapping them in debt they cannot reasonably service.

• Unlimited federal Grad PLUS lending allowed students to accumulate debt far in excess of expected earnings. That structure enabled unsustainable borrowing, trapping students in lifelong debt for 20 or more years. This has contributed to delinquency and default rates on federal loans that are more than ten times higher as compared to private loans.

Importantly, the private education loan market is highly regulated. Banks must comply with consumer protection laws, including prohibitions on unfair, deceptive, or abusive acts or practices; the Equal Credit Opportunity Act; as well as the Truth in Lending Act and its disclosure requirements.

Myth: Critics allege that Consumer Financial Protection Bureau (CFPB) complaint data proves systemic abuse in private student lending.

Fact: The CFPB is currently considering structural changes to its Complaint Database because it has significant flaws. In this instance, raw complaint counts do not measure market-wide harm without context or normalization.

CFPB student loan complaints often reflect servicing or policy-related confusion and are not scaled to loan volume or borrower population. The CFPB itself advises that “this database is not a statistical sample of consumers’ experiences in the marketplace” and that “when looking at complaint volume about a company or product, consider company size and/or market share. For example, companies with more customers may have more complaints than companies with fewer customers.”

• As a result, complaint share does not establish that a smaller market segment is more abusive, particularly in a system where federal and private loans are serviced by the same entities, and borrowers frequently hold both.

Further, data from a recent CFPB Education Loan Ombudsman report reveals that a vast majority of recent complaints revolve around confusing federal loan changes as COVID-era policies started to end, and repayment began. By contrast, private lender complaints remained relatively stable (see chart below).

Myth: Private student lending is mischaracterized as lacking borrower hardship protections.

Fact: Private lenders do offer hardship options for borrowers within clear regulatory constraints.

Private lenders regularly offer assistance to borrowers in need of help, including options such as shorter-term forbearance, disability discharge options, co-signer release, and school-closure relief mechanisms. These programs are governed by safety-and-soundness requirements, risk management, and accounting standards for restructuring.

• Furthermore, when underwriting private student loans, lenders apply market-based discipline designed to ensure that borrowing aligns with a student’s expected outcomes. As CBA has noted, improved access to school- and program-level performance data can help lenders better assess risk and avoid extending credit where the cost of education is likely to exceed its value.

Myth: Critics contend that private lenders will no longer have to compete against federal loans for borrowers.

Fact: Federal loans eviscerate competition.

Instead of fostering competition, federal loans crowd out competition and deeply distort the market. This flawed system has led to unchecked loan amounts given to students –and ultimately universities – who have little incentives to control student costs because the federal government is writing the check. Sadly, this ultimately burdens students with debt they cannot repay while doing little to place checks on the rising cost of tuition.

• Federal student loans are fully backed by the government, meaning when a student does not pay back their federal loan, the U.S. taxpayer covers 100 percent of the loss. Further, interest rates are set by Congress and subsidized by the government, with taxpayers picking up the tab for interest accrued while students are in school and right after they graduate.

• Private student loans are NOT subsidized by the government. Interest rates are set through risk-based pricing, and lenders are on the hook for losses. Accordingly, lenders have to underwrite prudently to ensure students can repay their loans—something federal loans are not required to do.

CBA Advocacy

Last week, CBA released a new white paper, Recent Graduate Student Lending Reform: Analysis and Recommendations, that outlines the forthcoming changes to the student lending market with the implementation of H.R. 1, and specifically changes to the GRAD Plus lending market by the federal government, set to take effect in July 2026. Specifically, the white paper makes the following recommendations:

Improve federal data availability and enhance loan reporting.

• The federal government can provide greater transparency by producing data on school and program performance and existing federal loans held by students. This could enable private markets to more efficiently and accurately underwrite education loans.

Fair-lending clarity is necessary to ensure lenders can use data responsibly and compliantly.

• Greater clarity around the permissible use of program-level data would help ensure that private lenders can responsibly incorporate information that protects students – informing borrowers about specific outcomes of university programs while also supporting more affordable, competitive credit options.

Encourage states and schools to address affordability directly.

• States and schools can continue to explore opportunities to address the rising cost of higher education – particularly for programs and students deemed to be most in need of support. These may range from new approaches to grants and tuition assistance/reduction, as well as risk-sharing agreements and loan forgiveness.

To read the full white paper, click HERE.