The current total debt for student loans has surpassed $1 trillion with the average student borrower in 2017 holding more than $30,000 in student loan debt. As of March 2019, more than 43 million American had student loans.
According to a recent study by Pew Trusts, one-fourth of those borrowing default on their loans within five years of entering repayment.
“Most who defaulted had previously suspended their payments, using tools such as deferment and forbearance,” the study suggested. “Those who had suspended their payments showed potential signs of distress almost immediately: At the median, they experienced a delinquency in the second month of repayment, but they typically defaulted later in the study period. By comparison, those who defaulted without ever suspending payments did so quickly: 89 percent defaulted by the end of the second year in repayment.”
Additionally, the study found that more than 20 percent of borrowers who owed more than the original balance frequently missed payments.
“Heavy use of deferment, forbearance, and delinquency—and related interest accrual and capitalization—appeared to make it difficult for borrowers to keep pace with growing balances: Among borrowers who owed more after five years in repayment, a third had balances of 125 percent or more of their initial principal,” the study suggested.
Despite the amount of debt accrued and those who defaulted, the study found some good news. Nearly half of borrowers paid some of the principal balance after five years of repayment. The study also found that only 22 percent of those who participated in the study had never missed a payment or paused their payments. The data, which looked at student loan borrowers in Texas, suggested that many borrowers that defaulted were less likely to graduate from college. Additionally, the data found that 60 percent of Texas student loan borrowers paused payments before defaulting on their student loans.
The study suggested that the Department of Education should take three actions to better help borrowers entering student loan debt:
“Identify at-risk borrowers before they are in distress—in particular by using risk indicators such as borrowers missing payments early, repeatedly suspending payments, having previously defaulted, and churning in and out of school,” the study suggested. “Provide servicers with resources and comprehensive guidance on how to prioritize interactions and engagement with high-risk borrowers. Eliminate barriers to enrollment in affordable repayment plans, such as program complexity, which make it difficult for at-risk borrowers to make payments based on their incomes.”
Related Questions
What is student loan debt?
Student loan debt is debt that is accrued when students are looking to pay for their education. This could be debt accrued for undergrad as well as postgrad studies.
What is the average student loan debt?
The average student borrower in 2017 held more than $30,000 in student loan debt. As of March 2019, more than 43 million American had student loans with numbers estimated to be s high as 25 million Americans.
How much student loan debt is there?
The current total debt for student loans has surpassed $1 trillion and is hovering near 1.5 trillion, per Forbes.
