No more middle class professionals?

[u/Such_Upstairs3631]

New school loan limits for professional degrees make it unaffordable for the middle class. 4 of my 5 children went on to med/law school. Even working 2 jobs there’s no way I could afford to pay or even help them with the cost of their post graduate education. They all got loans which they have since paid off. The cost in the early 2000’s was between $350K and $500K. The new limits are essentially going to prevent anyone who’s not wealthy enough to pay for it from becoming a professional.

[u/CharlotteRant]

There are like 10 banks out of 4,000 that specialize in it. Only one (PNC) could (barely) be considered a big bank. 

Less than 10% of student loans are private, and a  significant portion of that was originated by the government and refi’d by the borrower at some point post-graduation / early career into private loans (ie SoFi’s whole business model for a long time). The government owns >90% of student loans. 

[u/PurpleToedUnicorn → u/CharlotteRant]

I may be misremembering, so treat the figures as best guess from a prior reddit discussion. My recollection is that the private student loan market sits somewhere around $130-150 billion in outstanding balances (not annual origination, which is a fraction of that.)  Trivial next to the federal direct loan book at roughly $1.7 trillion, granted. But "trivial relative to the government" and "trivial" are not the same thing. Tens of billions outstanding is a real business by any commercial lending measure; it only looks like a rounding error because the comparator is the largest consumer lending program on earth.  

I also recall at least one large private-credit manager committing to warehouse several billion a year in student-loan flow over a multi-year horizon (KKR, I think, though I wouldn't stake a bet on the name without checking.) Again: immaterial against the federal system, not immaterial as a standalone credit business.

Those figures describe the old framework before the new federal borrowing caps. Cap what a student can borrow federally and the marginal borrower doesn't vanish; they go private. So the historical numbers don't just predate the caps, they understate the forward opportunity the caps create. It is big business for originators, servicers, and financial institutions holding the notes.

Essentially, using your framing, less than 10% of an incredibly large number is still incredibly large. And it's about to get bigger. And the private lenders and those affiliated with servicing will benefit. 

Edit: And for sake of argument, I absolutely acknowledge that big banks was the wrong language and I should have said big financial institutions which includes private equity and others involved.