In “No, student borrowers don’t need to worry about loan market turmoil,” published by the New York Times Upshot on September 29, 2015, Susan Dynarski explains why concerns that financial market turmoil will put student borrowers at risk are unfounded.
Before 2010, private banks funded federal student loans while the government “set the terms and guaranteed the loans,” writes Dynarski. Banks then packaged and resold these loans, much the way banks packaged and resold mortgages in the years leading up to the housing market collapse. Today, the secondary market for these loan packages is diminishing.
The difference, however, is that “private student loans require a borrower have a strong credit record or a co-signer,” says Dynarski. And they’re also a small and shrinking segment of the student loan market “down from 12 percent of undergraduate loans in 2007 to 7 percent today.”
Since 2010, explains Dynarski, the Department of Education provides all federal student loans. “Tumult in the secondary market,” she says, “has zero impact on the availability of federal student loans.”
Susan M. Dynarski is a professor of public policy at the Gerald R. Ford School of Public Policy, and a professor of education at the University of Michigan's School of Education. She is co-founder and co-director of the Ford School’s Education Policy Initiative, which engages in applied, policy-relevant research designed to improve educational achievement and outcomes.