President Donald Trump's plans to shift
"The landscape has changed," Steve Winnie, chief operating officer at Monogram LLC, a provider of customized private student loan programs, told American Banker.
"Signs point to consistent demand" among borrowers, Winnie said. With Congress and the Trump administration weighing changes to the student-loan program, there's the specter of a "vacuum" on the supply side for the loans, he said. "In this environment, private lenders are well-positioned to fill the gaps left by a supply reduction on the federal side."
It wasn't always that way. Prior to 2010, big banks and private lenders were major players in student loans, sharing the market with the federal government. After President Barack Obama was elected, the White House moved to widen the federal role.
Some of the bigger lenders left, citing the difficulty of making profits in the heavily regulated business.
While banks like PNC Financial Services Group in Pittsburgh and SoFi Bank in San Francisco have stayed in the business, Washington now dominates the market. The federal government has controlled upward of 90% of the student loan marketplace "for the past decade-and-a-half," Sara Parrish, president of CampusDoor, a private student lending platform, told American Banker.
Now, though, things appear to be trending in the opposite direction. "It's difficult to say where it's going to head," Parrish said of the government's level of participation. "Most of us who are close to it and are following it do not believe it's going to look the same as it does today — and I do believe [the government's loans are] moving in the direction of smaller, not bigger."
Trump signed
Private student loan debt totaled $138.5 billion at the end of 2024, according to the Education Data Initiative.
An SBA spokesperson said the agency was working with Congress, the White House and the Department of Education "to finalize a plan for the strategic transfer of responsibilities."
If the shift of lending responsibilities to the SBA results in a situation where demand outpaces supply for student loans, banks and credit unions could fill the gap. The benefits for financial institutions include underwriting terms that reduce the chance of delinquencies and the protection these loans typically have that make it difficult to discharge them in bankruptcy.
Private student loans are underwritten more rigorously, according to Winnie and Parrish. Their performance has held up well, even through the pandemic.
"This asset performs remarkably well when underwritten properly," Winnie said.
Parrish said private loans often outperform the federal options.
"The federal portfolio hasn't always repaid amazingly well," Parrish said. "Private student loans, they repay very well. They're solid loans."
One small lender that makes student loans, Manchester Municipal Federal Credit Union in Connecticut, has built a $3 million portfolio with no reported delinquencies. CEO Lori Herrick said Manchester's program is built on twin fundamentals, financial education and rapid repayment.
"Immediate repayment is a must," Herrick wrote in an email. "Accrued interest for 4 to 5 years can double the amount of interest paid on that loan."
Herrick said other credit unions and community financial institutions could replicate Manchester's results.
Private student loans have several safeguards other asset classes lack, Parrish said. They're certified by the schools, which ensures they go only to students and protects against overborrowing. And though private student loans, like public ones, can be discharged in bankruptcy, the process isn't automatic. Borrowers must demonstrate hardship in a special proceeding to win release.
It's also possible regulations on the loans will change as the federal program moves from the Education Department to the SBA.
On the demand side, growth in government-issued student loans has slowed after steady gains since 2004. Still, about 16 million people are enrolled in undergraduate studies at U.S. universities and about 3.2 million are in graduate school, according to the
There is also demand for bank partners on student loans from firms such as Monogram and CampusDoor, which design bespoke student lending programs ranging from referral programs, originations to hold in a portfolio or originations to sell into the secondary market.
"There is a demand for gap funding, and banks and credit unions can help fill that gap with well-underwritten products." Winnie said. "The hard part for us is finding partners. I want to find the right partners who are committed to the space and know their member base or customer base."
In all, there is potential for gaining new business and cementing existing customer relationships for banks and credit unions willing to take on student loans.
"There is this emerging opportunity that's really exciting and hasn't been there for a while," Parrish said.
