As of late 2021, American students are on the hook for approximately $1.75 trillion in student loans, according to data compiled by the Education Data Initiative.
1 43.2 million student borrowers owe an average of $39,351, up significantly from past decades. With that much money on the line, it's reasonable to be curious about who might ultimately receive all those principal and interest payments. While $1.75 trillion may be a significant liability for the borrowers, it can be an even bigger asset for creditors.
- Student loan debt in the United States totals $1.75 trillion, with the average borrower owing $39,351.
- Most student loan lenders are huge institutions, such as international banks or the government.
- Outside the government, most student loans are held by the lender, a quasi-governmental agency like Sallie Mae, or a third-party loan servicing company.
- The federal government fully guarantees almost all student loans.
The Maze of Student Loan Processing
It is possible for your student loan to have been originated by one institution, be owned by another, guaranteed by yet another, and possibly serviced by a fourth or even fifth agency. This can make it very difficult to track down who owns your debt and how. Much also depends on the type of loan you took out, although it is safe to say the federal government was involved in some way.
Most lenders are huge institutions, such as international banks or the government. After a loan is originated, however, it represents an asset that can be bought and sold on the market. Banks are often incentivized to move loans off the books and sell them to another
intermediary because doing so instantly improves their capital ratio and allows them to make even more loans.
Since almost all loans are fully guaranteed by the government, banks can sell them for a higher price, because default risk is not transferred with the asset.
Non-Government Owners
Outside the government, most student loans are held by the lender or a third-party loan servicing company. Originators and third parties can each perform in-house collection services or contract that duty out to a collection agency. Some of the largest private student loan companies include Navient Corp., Wells Fargo & Co., and Discover Financial Services.
Many student loans are also owned by quasi-governmental agencies or private companies with beneficial relationships with the Department of Education, such as NelNet Inc. and
Sallie Mae. Sallie Mae holds a lot of the loans made under the Federal Family Education Loan Program (FFELP), which was replaced by the federal government.
The Federal Government as Creditor
Outstanding consumer debt in the U.S. reached $14.88 trillion in 2020, according to data compiled by Experian.
2 That figure represents an increase of more than $3 million in 2010. The main culprit is student loans, which the federal government effectively monopolized in a little-known provision of the
Affordable Care Act, signed into law in 2010.
Prior to the Affordable Care Act, a majority of student loans originated with a private lender but were guaranteed by the government, meaning taxpayers foot the bill if student borrowers default. In 2010, the Congressional Budget Office (CBO) estimated 55% of loans fell into this category. Between 2011 and 2016, the share of privately originated student loans fell by nearly 90%.
Prior to the administration of Bill Clinton, the federal government-owned zero student loans, although it had been in the business of guaranteeing loans since at least 1965. Between the first year of the Clinton presidency and the last year of George W. Bush's administration, the government slowly accumulated about $140 billion in
student debt.
Those figures have exploded since 2009. In September 2018, the U.S. Treasury Department revealed in its annual report that student loans accounted for 36.8% of all U.S. government assets.
3
The cost of federal student loan programs is widely debated. The CBO provides two different estimates based on low discount rates and "
fair value" discount rates. If you rely on the fair value estimate, the government loses approximately $100 billion to $250 billion per year, including $40+ billion in administrative costs. In other words, the government does not recoup the value of the loans, putting present and future taxpayers in the position of the guarantor.
