Move over million-dollar bracket, student loans are now in the trillion-dollar bracket. At about $1.6 trillion, is it because more and more people have started borrowing money for college or is it because of the years of accumulated interest form student loan borrowers.
According to a report released from the credit rating agency Moody, their Investor’s Service has made a solid claim that loan borrowers have barely started making any progress towards their student loans. This slowdown in the payments is the primary cause of the increasing student loan balances. This current slowdown in payments made and also further increase the outstanding debt.
Coming into the year 2020 the world of student loans can expect to see a number of changes. Changes meant to be for the better, in fact, it was stated that the student debt crisis could play a decisive role in the upcoming 2020 presidential elections.
As per Moodys report the number of people who have enrolled for higher education has reduced and the costs of attending college have also reduced. This is because the costs of attending college have stabilized as per the national average income.
The net loan repayment rate has reduced, the number of existing balances that have been closed is averaging at 3%, as per the report.
Did people just forget to pay back their student loans?
Causes for the slowdown for student loan repayment
Here are the causes for the slowdown for student loan repayment –
1) The decline in job prospects for graduates
Those who are graduating from for-profit, two-year and non-selective four-year schools are finding it hard to land proper jobs. Without these jobs, they don’t have the income which is needed to start making payments towards their student loan debt.
In addition to the lack of jobs available, there is a large majority of those who haven’t completed their programs and haven’t received their degrees.
2) Rise in income-driven repayment plan options
Another important getaway from the report by Moody is that with the rise in the number of the repayment plan options borrowers have access to plans that can reduce the amount to be made as monthly payments. These plans make the payments more affordable as the amount is decided based on the borrower’s income and the size of the family.
It should be noted that with the reduction in the monthly payment to be made the outstanding loan balance is kept on much longer. The longer the term of repayment is lower will be the rate of repayment. The interest paid throughout the life of the loan is high.
3) Increase in the number of borrowers opting for extended repayment terms
With an extended repayment plan, you can pay back your loans on a longer schedule. With this increased term of loan repayment, we have reduced monthly payments to be made but according to the report, only a quarter of the balances are being repaid on a 10-year or shorter term.
How student loan debt affects a borrower as a whole
In the past decade, student loan debt has been the fastest-growing debt in the household category. Beating out other forms of debt such as home mortgages.
Student debt is so common among graduates that it was reported by the Institute for College Access and Success that two in every three seniors graduating from public and private nonprofit colleges (in 2018) had student debt. The average amount owed was $29,200.
It is safe to say that the growth of student loans in recent years has reduced as more students are enrolling at public colleges with state Governments investing more in public colleges. But millions of student loans still suffer from student loan debt. This has directly weighed down the household finances affecting the broader economy.
Having student loan debt hanging over your head can affect your eligibility for other forms of borrowing. Payments made towards this form of debt can also affect savings which can be used towards getting a mortgage or starting a small business that can help drive the economic growth of the country and wealth creation for the individual.