With new fees, TSP loans decline

The number of outstanding loans at the Thrift Savings Plan has dropped in recent months after officials at the plan instituted new fees and regulations on borrowing.

Gary Amelio, executive director at the Federal Retirement Thrift Investment Board, said earlier this year that a small minority of plan participants were taking out most of the loans. Each loan costs about $50 to process and TSP officials said that financial burden was being distributed unfairly.

As a result, the TSP Board implemented a $50 transaction fee for each loan and simultaneously changed regulations to limit participants to one general purpose loan at any given time. Since those changes took effect earlier this year, the number of loans has steadily dropped.

The TSP, which operates as a 401(k)-style retirement resource for federal employees, has more than 3.2 million participants and more than $140 billion in assets. A little more than $5.2 billion is currently out in the form of loans.

"There's been a slow, steady, decrease in the number of loans," Amelio said Tuesday at a meeting of the Employee Thrift Advisory Council. "We're pleased to see the reduction." He did not provide specific figures for the decrease in loans.

Amelio said the reduction is improving efficiency at the TSP and would have "a multitude, a rippling, of positive effects."

Loans have traditionally increased sharply during some parts of the year, including late summer, as students return to school and federal employees take out general purpose loans to help cover tuition payments.

"We've noticed a significant decrease in those spike months," Amelio said.

TSP officials said that the decrease in loans is a stark departure from the year before the new regulations were put in place. Amelio said the number of loans in the year before the regulations "was going up significantly."

Although plan participants may no longer take out more than one general purpose loan, outstanding loans were not affected retroactively by the new rules. As a result, many federal employees still have more than one general purpose loan that have not come due.

As those are paid off, officials said, the overall number of loans will drop even further. Amelio predicted that it would take about five years for the number of loans to bottom out. He said that he expects the number of loans to decrease by about 40 percent during that period.