Student Loan Refinancing

Part
01
of three
Part
01

Student Loan Refinancing Market Size

In 2020, the student loan refinancing market in the United States is estimated to be worth $446.2 billion. On the other hand, the growth rate of the student loan refinancing market was estimated to be 16.16% over the last 5 years i.e. from 2015 to 2020. A detailed overview of the research findings follows below.

Market Size and Growth Rate

  • In 2019, student loan debt reached an all time high of $1.5 trillion that is owed by a collective of 45 million borrowers.
  • In 2020, the size of the student loan refinancing market was estimated to be $446.2 billion.
  • The $446.2 billion is divided into $360.1 billion in federal loans and $86.1 billion in private loans.
  • In 2015, Goldman Sachs estimated that $211 billion in student loans could qualify for refinancing at lower interest rates. This translates to an estimated market size of $211 billion for the student loan refinancing market in 2015.

Compound Annual Growth Rate Calculation

  • The CAGR/growth rate of the student loan refinancing market was calculated as follows (below) using this CAGR calculator.
  • Using a starting value of $211 billion, an ending value of $446.2 billion, and number of periods as 5 i.e. from 2015-2020, the CAGR/growth rate of the student loan refinancing market was estimated to be 16.16%
  • The above figure shows a significant growth in the value of the student loan refinancing market over the last 5 years i.e. from 2015 to 2020.
Part
02
of three
Part
02

Student Loan Metrics

Student loans are the fastest-growing source of debt for US households. As of September 2019, the total amount of outstanding student loan debt in the US was valued at $1.5 trillion. Below we have presented the requested metrics surrounding student loans in the US.

Number of Student Loan Originations

  • As per the latest data available from the Consumer Financial Protection Bureau (CFPB), the total number of student loan originations were 461,368 in April 2019.
  • This represented a 2.8% year-over-year (YoY) decrease.

Volume of Student Loan Originations by Age

  • As per the latest data available from the CFPB, the total volume of student loans originated by 'Younger than 30' age group was $2.713 billion in April 2019.
  • The total volume of student loans originated by '30-44 years' age group was $3.897 billion in April 2019.
  • The total volume of student loans originated by '45-64 years' age group was $2.825 billion in April 2019.
  • The total volume of student loans originated by '65 and older' age group was $196.33 million in April 2019.

Volume of Student Loan Originations by Credit Score

  • According to the latest data available from the CFPB, the total volume of student loans originated by 'Super Prime (720 and above credit score)' borrowers was $3.935 billion in April 2019.
  • The total volume of student loans originated by 'Prime (660-719 credit score)' borrowers was $2.564 billion in April 2019.
  • The total volume of student loans originated by 'Near Prime (620-659 credit score)' borrowers was $1.533 billion in April 2019.
  • The total volume of student loans originated by 'Subprime (580-619 credit score)' borrowers was $1.119 billion in April 2019.
  • The total volume of student loans originated by 'Deep Subprime (Less than 580 credit score)' borrowers was $1.828 billion in April 2019.

Volume of Student Loan Originations by Income Levels

Percentage Change in Volume of New Originations by State

  • As per the latest data available from the CFPB, the percentage change in the volume of new student loans originated in each state in Dec 2019 was ME (18%), WI (12%), VT (9%), NH (8%), WA (-3%), ID (15%), MT (16%), ND (123%), MN (68%), IL (27%), MI (7%), NY (-13%), MA (-24%), OR (35%), NV (88%), WY (16%), SD (-78%), IA (22%), IN (7%), OH (11%), PA (-8%), NJ (-39%), CT (-59%), RI (-57%), CA (3%), UT (16%), CO (-31%), NE (23%), MO (59%), KY (78%), WV (46%), VA (25%), MD (-1%), DE (-50%), AZ (39%), NM (59%), KS (47%), AR (-26%), TN (52%), NC (-6%), SC (-41%), DC (-69%), OK (52%), LA (32%), MS (21%), AL (-23%), GA (-4%), HI (-65%), AK (195%), TX (2%), and FL (-13%).
  • Positive changes mean that the volume of student loans originated in the state during the month are higher than they were one year ago, and negative values imply that the volume of student loans has declined YoY.

Research Strategy

The research team has procured all the data points from the Consumer Financial Protection Bureau (CFPB) website and various credible reports on the US student loan industry. All the data points can be corroborated by hovering over the graphs in the linked sources. All the presented metrics are seasonally adjusted by the CFPB in order to weed out any cyclical variations in the data.

The team was able to procure all the requested data, except the number of student loan refinancing originations. The team began with searching through various regulatory sources such as the CFPB, the Federal Reserve, the US Department of Education, etc but no specific data on the number of refinancing originations could be located. All the data found was for the overall student loan originations. The team also scoured through various media sources, including, Forbes, WSJ, Bloomberg, Live Mint, Business Insider, etc and several third party research reports from Goldman Sachs, Deloitte, Mckinsey, Super Money, Sallie Mae, etc but again no specific data around the number of refinancing originations could be found. The team came across a report from SuperMoney which stated that the estimated size of the student loan refinance market in 2020 is likely to be $446.2 billion, which includes $360.1 billion in federal loans and $86.1 billion in private loans. However, the report did not furnish any data regarding the number of student loan refinancing originations.

The team also tried to triangulate the data by looking for the percentage of refinanced student loans that form part of the overall student loans originated. Since the team had data on the total number of originations, we planned to use the percentage of refinanced loans in overall originations to compute the number of student loan refinancing originations. However, after thorough research through the above-mentioned sources, no related data could be located. All the information found was related to the overall growth in student loan originations and the total number of student loan originations. The team also tried to triangulate the data by searching through the websites and filings of some leading student loan refinancing companies in the US like Sallie Mae, Sofi, LendKey, Keybank, etc. The idea was to leverage the student loan refinancing originations of these companies along with their market share to triangulate the overall student loan refinancing originations in the US. For example, if the companies with X% market share originated Y million in refinancing originations, the overall refinancing originations could have been roughly triangulated as (Y/X*100). However, the various companies reported combined data on the originations (new+refinance) and did not specifically break out the refinance originations due to which the triangulation strategy was not successful.
Part
03
of three
Part
03

Student Loan Refinancing - Demographics

The mean age of the typical consumer who wants to refinance a student loan is 32.6 years, and the typical consumer who wants to refinance a student loan is a millennial.

Age

  • The mean age of the typical consumer who wants to refinance a student loan is 32.6 years, while the median age is 31 years.
  • Millennials make up a significant segment of people that want to refinance their student loans. "More and more" millennials often think of refinancing their student loans for multiple reasons.

Gender

  • Studies show that men are more likely than women to consider or want to refinance their student loans.
  • A 2018 survey report reveals that "fewer women than men [decide to] refinance" their student loans. In the past, 62% of men chose to refinance their student loans, while only about 39% of women did the same.

Income

Education

  • The population of consumers that want to refinance their student loans includes highly educated people. The "portion of the population" that has a graduate degree is 70%.
  • Most graduates are seeking out the best strategy to manage their student loan debts. A significant number of "graduates entering the work" force often consider if refinancing of their student loan is one of their best options.
  • Many graduates that consider various options of managing their student loans end up choosing to refinance because it makes dealing with their student loans smoother based on their understanding and also helps them stay on top of the process.
  • Due to college debts, about 70% of "bachelor's degree recipients" come out from college feeling they need refinancing.

Job Title

  • Those who decide or want to refinance a student loan hold various degrees and occupations, including lawyers (13%), MBAs (17%), MDs or doctors (5%), pharmacists (6%), as well as dentists (4%).
  • The Physician on Fire presents several cases of people in the medical profession wanting to refinance their student loan, including the case of a dentist and an orthopedic surgeon.


Research Strategy

The study examines the demographic profile of the typical consumer who wants to refinance a student loan. The study examines a recent publication on the student loan refinancing market by Natalie Bachas, among other resources. Natalie Bachas works with the Department of Economics at Princeton University. This strategy revealed some datasets that described individuals who decide (or want to) refinance their student loan in the private sector. It also included the "wider population of those" who have applied and have viewed "an initial interest rate quote." Although the resource titled "The Impact of Risk-Based Pricing and Refinancing on the Student Loan Market" does not include its publication year on its contents page, a review of the repository containing it shows that its publication year is 2018. Screenshots of the article authored by Natalie Bachas and published by Semantic Scholar have been utilized in some instances to display the actual pages containing referenced insights.


Sources
Sources

From Part 03