Top Ways Lenders Can Prepare for Student Loan Peak Season 2022
Jeff Fritz is Anovaa’s Head of Business Development. He is a 25-year veteran in student lending, working for some of the largest providers of federal and private student loans in the country such as Discover Student Loans, CitiBank, and Wells Fargo. We recently sat down with Jeff to discuss his insights on the 2022 Student Loan Peak Season.
How will the trends in student admissions for the 22-23 school year impact the need for student loans?
Jeff Fritz (JF): Believe it or not, according to the National Center for Education Statistics, enrollment in degree-granting institutions has actually been slightly declining since 2010. However, in 2019 and 2020, the combined two-year enrollment decline has been the largest two-year decline in at least the last 50 years. There are a few factors contributing to this:
- First, you have the pandemic, which altered the way colleges and universities were able to educate and gave some students pause about whether this different, mostly online, education experience is really for them. We are seeing that impact now. While many schools have re-opened and returned to some semblance of normalcy and Freshman fall enrollment has somewhat stabilized from 2020 to 2021, overall fall enrollment is still down nearly 500,000 students again in 2021.
- Second, you have near-record highs in job openings and opportunities. Major employers are now hiring students right out of high school and training them for specific fields and competing for these students in a way they never have before.
- Finally, you have the cost of college, which continues to increase every year and has gotten to the point where students are questioning the value of college. I would expect a similar drop in overall enrollment in ‘22-’23 based on the factors I described above, but not to the levels we’ve seen over the last three years.
From a student lending perspective, despite enrollment declines over the last twelve years, student loans have maintained steady and consistent growth over this time due to a greater percentage of students taking out loans as a way to pay for college and increasing loan amounts.
Has there been an impact in the cost of tuition over the last year and what does this mean for student lending?
JF: According to US News & World Report, in the last twenty years, average tuition and fees have increased:
- 144% at private National Universities
- 171% for out-of-state students at public National Universities
- 211% for in-state students at public National Universities
These tuition increases combined with a lack of corresponding increases in grant and institutional aid have led to an explosion in student loans. According to the Education Data Initiative, student loan debt outpaces the rise in tuition costs by 353.8%. Among today’s college students, 65% graduate with student debt. So while enrollment numbers may not be increasing, more students are turning to student loans as a means to pay for college and average loan sizes for private loans are increasing to help fill an ever-increasing gap between cost of attendance and aid.
The impacts of the pandemic have led to elevated levels of financial stress. How will this impact student lending?
JF: When families have financial stress around attending college, I think student loans become an easy and often used way to defer much of that stress until post-graduation. When you think of the process, the decision to attend college is an emotional one. Figuring out where to apply, the uncertainty of being accepted, and the excitement when you finally are accepted. More often than not, it isn’t until after acceptance that families start to try to figure out how they are going to pay for college. Student loans are a means to that end and, for many, are essential in fulfilling the dream and goal of college.
What are some of the main benefits that students look for when choosing a lender?
JF: I think that there are two different groups that we are talking about when it comes to what borrowers look for when choosing a lender. I believe that undergraduate students are focused more on ease of application, a streamlined experience, and good customer service. However, according to MeasureOne, 91% of undergraduate loans have a cosigner. So typically a parent is involved, and they are usually more interested in the best interest rates and repayment benefits. In my experience, this is generally the case with Graduate students as well.
What should lenders be prepared for when student loan relief ends in the spring?
JF: The Department of Education recently reported that the pause in student loan repayment will cost the government over $100B by the time it expires in May of 2022. So I think there will be some internal pressure to not extend it any longer. What that means is three things:
- Borrowers refinancing in unprecedented numbers. Those that have been holding off will be looking to refinance and reduce their payments.
- Borrowers will be defaulting in unprecedented numbers. Those that have been using that money to pay other obligations may find it difficult to re-insert student loan payments back into their monthly budgets.
- There will be tremendous stress on the federal loan servicers. Never in history has there been such a large population of student loan borrowers beginning repayment all at once. There will most likely be frustrations from borrowers and employees alike for several months until the process and flow begins to normalize.
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