The United States’ student loan market has long been dominated by federal government-issued direct loans, which are broadly accessible and do not incorporate traditional credit risk pricing. In new research, Director of Fiscal Policy Jordan Haring compares the student loan lending patterns of federal, for-profit, and nonprofit/state-based lenders to highlight borrowing options for higher education financing.

Key points:

• The federal student loan program creates repayment risk and subsidy costs, leading to the enactment of reforms that expand the market for for-profit and nonprofit/state-based lenders with different underwriting standards and pricing structures.
• The One Big Beautiful Bill put new limits on the federal student loan program, increasing attention on for-profit and nonprofit/state-based alternatives that may offer borrowers lower rates and lifetime repayment costs.
• This study finds that unlike federal loans, both for-profit and nonprofit/state-based lenders consider borrowers’ credit risk, concentrating lending disproportionately to those with strong credit profiles; moreover, nonprofit/state-based lenders issued a substantially larger share of loans at lower interest rate tiers than for-profit lenders, including 88 percent of loans between 5.00–8.99 percent and only 8 percent at 9.00 percent or higher.

Read the analysis.