A new report revealed that taxpayers may be impacted from an increasing number of student borrowers struggling to repay their loans.
Many students aren’t getting out of school without being saddled with huge student loan debt – it’s the second largest type of consumer debt after mortgages. Currently, there is approximately $1.4 trillion in federal student loans yet to be repaid. A new study shows that a growing number of borrowers are struggling to pay off these high-balance loans, which creates problems for them – and, ultimately, also taxpayers.
The Challenges of Having Student Loans
The average debt load for students who graduated in the class of 2016 was around $30,000, and the average rises every year.
But some students graduate with far more debt than that, especially those who pursue graduate degrees or professional degrees. Nearly 17 percent of those who borrow for education costs will graduate owing more than $50,000, according to the recent study by the Brookings Institution. That is a much higher rate than in 2000, when five percent of new graduates owed that much money.
Today, many of those who graduate with more than $50,000 in debt aren’t the students who are pursuing highly-lucrative careers, such as becoming a doctor or a lawyer, but undergraduate students and their parents. On the other hand, more people who are pursuing a professional degree are graduating with well over $100,000 in student loans.
Some experts say not all debt is bad, especially the debts that might someday turn a profit or pay off in the long run. Traditionally, mortgages have been considered by many to be good debt. Student loans are also sometimes considered to be good debt because it’s an investment in a student’s future and will likely significantly increase their earning potential.
But student loans can become a problem when they reach high levels that aren’t easily repaid by a borrower. Students who rack up a large amount of debt and begin their careers in an entry-level position can be particularly at risk, especially if they owe larger monthly payments on high-interest debt, such as private student loans.
What Does That Mean for the Borrowers?
It’s no surprise that people who owe the most debt tend to repay their loans at a slower rate – and sometimes don’t pay them at all. Those who owe the larger balances are feeling the pinch of their debt load – many are racking up interest faster than they can knock down the principal on their loans.
Some are relying on forbearance and deferment just to get back on their feet again, to have a respite from the high payments. And others pursue income-based repayment plans which will add years to a student loan repayment plan.
The Brookings paper suggested that transferring some of the risk of the student loan repayments to the schools the borrowers attend could cut back on this problem. By putting educational institutions on the hook for the money student loan borrowers neglect to pay, it might give them a better reason to work toward seeing their students become a success.
While it would help students, it would also reduce the burden put on taxpayers who are ultimately paying the price for any delinquent loans, according to the study.