Student debt has tripled, according to new statistics about the federal government’s $1.2 trillion student loan portfolio released Thursday.
The figures, which also showed that delinquencies have doubled, shed new light on the status of the massive build-up of student debt in the U.S. over the past decade.
The good
• Total federal student debt held by the government rose $87 billion over the past year, according to the Department of Education data.
That’s a lot, but it’s the smallest increase in at least 10 quarters. Over the past decade, year-over-year increases in total student debt have averaged $180 billion.
It’s a sign that the explosion in debt associated with the recession, when more people sought refuge in higher education and fewer families could help students with tuition, may be passing.
• The share of borrowers who are late on their payments is dropping.
The share of Direct Loan borrowers more than 31 days late on loan payments dropped to 21 percent from 23 percent a year earlier. In the other big federal student loan program, the Family Education Loan program that was discontinued in 2010, the rate fell from 24.2 percent to 21.8 percent.
• Special plans for capping repayments as a share of income and offering forgiveness are taking off. These kinds of plans, which the Obama administration has pushed hard, have grown by more than 50 percent each of the past two years.
Under these income-based repayment plans, students can cap their monthly payments at as low as 10 percent of their monthly income, and have remaining debt forgiven in as short a time as 20 years.
There were 1.5 million borrowers in such plans in the third quarter of 2013. By 2014, there were 2.5 million. Now there are 3.9 million.
The bad
• 7.5 million borrowers had federally backed student loans in default in the third quarter, the most ever.
• Currently $111 billion in federal student loans is in default, up from $108 billion the quarter before.
The ugly
Putting the above numbers together, it appears that defaults are rising as more students are turning to the special programs meant to keep student payments affordable. With available income-based repayment options, which can ensure that monthly payments are within reach even if it means paying zero a month, defaults should be slowing.
For the first time, the Department of Education broke out how many users of income-based repayment programs were placed there because of financial hardship, and how many elected to join even without facing major difficulties paying their debt.
For the two major income-based repayment plans promoted by the Obama administration, there were 2.67 million recipients who had demonstrated “partial financial hardship.” That means that their monthly loan payments were going to exceed 15 percent of their discretionary income, defined as income over 150 percent of the poverty line.
Those people were far fewer than the number in default, even though they had more total debt — $150 billion. If the goal is to prevent defaults, there are a lot of people not being reached.
