New Federal Student Loan Volume Plunges 42 Percent Due To The Pandemic

New federal student loan volume in the fourth quarter of the 2019-2020 academic year dropped by a record 42 percent compared with the fourth quarter of 2018-2019. The fourth quarter runs from April 2020 to June 2020, coinciding with the start of the economic downturn due to the coronavirus pandemic.

Federal student loan volume is down by 9 percent for the full academic year as compared with the prior academic year, also a record. The drop in the fourth quarter accounted for 85 percent of the year-over-year decline in federal student loan volume. Parent loan volume dropped by 5 percent, while undergraduate and graduate student loan volume dropped by 10 percent.

The total federal student loan disbursements for 2019-2020, at nearly $83 billion, is the lowest since 2007-2008. Federal student loan volume has been decreasing since the 2011 start of the economic recovery, but by just a few percent per year.

Causes of the Drop in Federal Loan Volume

About half of the decrease in dollar loan volume during the fourth quarter is due to a decrease in the number of borrowers and about half is due to a decrease in the average loan amount, except for the Federal Direct Parent PLUS loan.

The average Federal Direct Parent PLUS loan amount did not change during the fourth quarter, remaining at about $10,000. The decrease in Federal Direct Parent PLUS loan volume was due entirely to a decrease in the number of borrowers.

Colleges told students to vacate the dormitories in the middle of the spring semester. More than two-thirds of colleges provided students with prorated refunds, which may have been returned to the lender.

The CARES Act cancelled the federal student loan debt borrowed during the spring semester for borrowers who permanently withdrew from the college because of the pandemic.

Job loss may have caused some families to become more cautious about borrowing to pay for college.

More Muted Impact of the Pandemic on Private Student Loans

The impact of the pandemic on private student loans has been much smaller. For example, Sallie Mae’s private student loan originations were down 7 percent in the 3-month period from April 2020 through June 2020, but up 4% for the 12-month period from July 2019 through June 2020, according to Martha Holler, a Sallie Mae spokeswoman.

Practical Tips for Borrowers

College students who are still in school should try to minimize their student loan debt. Keeping student loan debt in sync with income after graduation is especially important during the pandemic, when college students are graduating into one of the worst job markets ever. Aim to have total student loan debt at graduation less than annual income.

Borrowers whose federal loans are eligible for the payment pause and interest waiver should consider continuing to make payments on their student loans or other higher-interest debt. The payment pause and interest waiver has been extended through the end of the year.

Source Article