Federal loan gross commitments of Stafford (subsidized and unsubsidized), PLUS and Grad PLUS loans, grew by 10.9% in 2007-08 to $77.6 billion, according to data received from the Department of Education (through a FOIA request made on August 25). Federal loan commitments had grown by 6.6% in 2005-6 and 6.9% in 2006-2007, so the 2007-08 figures represent an acceleration in growth (Note: A gross commitment is an origination with a signed Promissory Note). Given that the 2007-08 data is current as of July 30, 2008 I am checking with the Department of Education to ensure that it is atypical to see major adjustments in these figures after the reporting dates.
Here are the highlights of our analysis:
- The Federal Family Education Loan Program (FFELP) increased market share in 2006-07 by 1.7% to 81.1% and saw just a slight increase to 81.2% in 2007-08. The recent dislocation in the student loan market will is expected to increase the Direct Lending market share for 2008-09.
Percentage of Federal Loan Market (Stafford and PLUS loans)
| Year | FFELP | DIRECT |
| 2004-05 | 77.8% | 22.2% |
| 2005-06 | 79.4% | 20.6% |
| 2006-07 | 81.1% | 18.9% |
| 2007-08 | 81.2% | 18.8% |
- While the number of schools participating in Direct Lending increased by 10.1% to 1,184 in 2007-08 and their loan volume increased by 10.3%, DL's share of the market dropped slightly (.1%) as FFELP loan volume grew at a 10.8% clip during this same time period.
So what might explain this increase? In the two years previous to 2007-08, the growth rate had averaged 6.76%. If the trend growth had continued in 07-08, total federal loan volume would have been $74.9 billion. The actual 2007-08 volume of $77.6 billion is therefore about $2.7 billion above trend growth.
Now back to the reasons for the jump. Here are a few top of mind thoughts. Please feel free to share your insights in the comments section below:
- The Grad PLUS program, which provides loans up to the cost of attendance for graduate students, kicked off on July 1, 2006. As a new program, I would anticipate that Grad PLUS loan volumes were quite a bit higher in 2007-08 as compared to 2006-07 as news of the program became more widely disseminated.
- As the credit crunch hit in late summer 2007, families may have already been turning to Federal loans as other sources of financing were harder to come by (e.g., home equity lines, alternative loans). I have had several financial aid administrators mention anecdotally that they had seen an upsurge in PLUS loans last summer as their credit situations had deteriorated.
- According to the College Board, average published rates increased across all school types for the 2007-08 academic year. These increases ranged from 4.2% increases in tuition and fees at 2-year institutions to 5.9% increases in average total charges (room and board, tuition and fees) at four-year non-profit institutions. Proprietary schools saw a 6.2% increase in tuition and fees.
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