Industry Analysis: The Student Loan Industry and History of Policy and Changes
Authors: O Dobson Genevieve 
Published: July 2019

From the beginning of their inception, Student Loans have been a powerful and many times necessary tool to allow middle and low-income families to send their children to college despite the increasingly higher costs (Collier, D. A., & Herman, R., 2016). These loans are highly regulated by the government under different policies that have changed over time based on the needs of the borrowers and government officials involved. The concern, however, is that the debt is becoming harder for some borrowers to pay causing defaults and other household burdens (Archuleta, Dale and Spann 2013).

There is significant importance to understanding the history of the student loan industry to learn the best way to manage student loan debt. There is much debate about which options are the most advantageous and the government has gone to great trouble of adding the new Income Driven Repayment programs to help assist in repayment. These programs came about due to the vast number of borrowers defaulting on their student loans because of a limited number of options. Unfortunately, Student Loan debt is the only debt that has extremely strict rules all but excluding bankruptcy causing some borrowers to default (Mohr, 2017). Consolidation options for borrowers also changed FFEL programs ended in 2007 taking away borrower benefits like 1% rate reductions after so many timely payments. Income Driven Repayment has been filling the gap and assisting in those who cannot afford a standard payment to make lower payments but also shown in Figure 1, only 28% of borrowers are taking advantage of the options. It is suggested the low participation is due to a lack of knowledge about the programs (Collier, D. A., & Herman, R., 2016).

My analysis is to shed light on the history of the industry, the current policies in place and how regulations and changes to regulations affect borrowers and the overall U.S. debt load. If we can take a good look at how some regulations have been ineffectively curtailing the debt boom we may be able to find more effective ways to manage student loan debt. I will be also discussing seven key effects causing the higher debt and default rates within the industry:

• The monopoly of having only The Department of Education in charge of disbursing and servicing Federal loan debt leaves no competitive advantages for borrowers
• The ineffective results of the Consumer Financial Protection Bureau which was once under Dodd-Frank and was created to help alleviate decisive practices against consumers including student loan borrowers
• The continued lawsuits against government hired servicing companies who are supposed to have the best interest of the borrower but rather have allegedly mislead borrowers purposely into higher payments and more debt. “The CFPB alleges that, among other allegations, Navient [one of the leading student loan servicing companies] ‘systematically and illegally [failed] borrowers at every stage of repayment’…” (Friedman, 2018)
• The lack of information provided to borrowers to make an informed decision about their options
• The higher Federal interest rates on student loan which do not coincide with the Libor or Prime rates that continue to be at a considerably lower rate than student loans
• The drastic increases in tuition costs at both public, private and for-profit school

Before tackling the problem, it is vital to understand the history of the problem and how we got here. There are many changes we can see that have occurred throughout history that started off with the hopes of bridging the gap between high income families and low-income families being able to get a higher education. From what can be seen the government shifted from grants and scholarships which provided for the social good of our society to a loan dominant scheme with huge reliance’s on student loans for an education (Collier, D. A., & Herman, R., 2016).