WASHINGTON—The Consumer Financial Protection Bureau has released a new data point finding that nearly half of student loan borrowers leave school owing at least $20,000 – double the share of borrowers a decade ago.
The Bureau also found that more borrowers are taking out student loans later in life, and fewer borrowers are paying down their student debt in five years, according to the study titled CFPB Data Point: Student Loan Repayment.
Record student debt and associated borrower stress is spurring more employers to offer student loan repayment benefits to their employees, according to a separate CFPB report.
“The Bureau’s research shows that people are taking on more student debt later in life, and having a tougher time paying it back,” said CFPB Director Richard Cordray. “Many employers have taken notice and are developing student loan repayment programs to assist employees in tackling their student debt. Our recommendations are aimed at helping employers ensure these innovative programs deliver their intended benefits."
The student loan market has grown rapidly in the last decade, with about 44 million Americans currently owing money. The combined total of outstanding federal and private student loan debt now exceeds $1.4 trillion – the vast majority of which are federal loans. Student loans are usually “serviced” by third parties. These servicers are a critical link between borrowers and lenders. They manage borrowers’ accounts, process monthly payments, and communicate directly with borrowers.
Borrowers Taking on More Debt
Based on an analysis of over one million anonymized student loan borrowers’ credit reports, the Bureau looked at groups of borrowers who began repaying loans from 2002 to 2014. The Bureau analyzed each group’s repayment experience through 2016. Through this analysis, the Bureau identified key changes in the way consumers borrow and repay student debt.
Specifically, the Bureau found:
- More than 40% of student loan borrowers leave school owing $20,000 or more: The study finds that the percentage of borrowers owing $20,000 or more at the start of repayment has more than doubled since 2002, from 20% to more than 40%. The percentage of borrowers owing $50,000 or more has seen even more rapid growth, tripling over this same period from 5% to 16%.
- Half of student loan borrowers are older than 34 when they start repayment: Since 2003, the percentage of borrowers starting repayment over the age of 34 has doubled, increasing from 25% to nearly 50%. The study also found the percentage of consumers beginning repayment under the age of 25 has decreased from 30% to 15%.
- Thirty percent of borrowers are not paying down their loan balances after five years in repayment: The percentage of borrowers who are not paying down their loan balances has nearly doubled, increasing from 16% in 2008 to 30% in 2016. “This means that even if borrowers are making payments, those payments are not enough to cover the interest on their loans. Therefore, the amount of principal is the same and the overall amount of debt is the same or more, depending on how much interest has accrued. The percentage of borrowers whose debt has grown while in repayment has increased from 8% in 2008 to 12% in 2016. The share of borrowers who have fully repaid their loans five years into repayment has fallen nearly 20% over the last ten years from 50% to 41%,” the CFPB said.
- More than 60% of borrowers not reducing their balances are delinquent: Income-driven repayment plans can allow borrowers to make small or zero-dollar payments and still remain current on their loans. “These affordable payments may not decrease their loan balance but can help them avoid delinquency. Despite increases in the availability of these plans, 60% of borrowers who are not paying down their balances five years into repayment are delinquent on their loans. Among these borrowers, those with less than $20,000 in student loans are even more likely to be in poor standing, with 75% delinquent on at least one of their loans,” the CFPB said.