ALL NEWS

The student loan debt is $1.6 trillion and people are struggling to pay it down

Jan 19, 2020, 4:48 PM
piggy bank with graduation cap next to money student loan debt...
Borrowers will be able to provide their financial information once an application is launched in the coming weeks. (Getty Images)
(Getty Images)

WASHINGTON (CNN) — The student loan burden in the US is about $1.6 trillion and rising, mostly because people have barely made a dent in paying down their loans.

That’s according to a report released Thursday from credit rating agency Moody’s Investors Service. While higher college enrollment rates and rising tuition costs used to the main reason for growing student loan balances, the report states that slow loan repayments have recently become the primary driver.

“Over the next few years, the combination of slow repayments and elevated, if no longer growing, levels of new borrowing will likely fuel further increases in outstanding debt,” the authors of the report write.

In recent years, the number of students enrolled in higher education has declined and the cost of attending college has stabilized relative to people’s incomes, Moody’s analysts said. But borrowers have been slow to pay back their debt, meaning student loan balances will keep growing over the years.

Over the past decade, the aggregate annual net student loan repayment rate — meaning the number of existing balances eliminated each year — has averaged about 3%, according to the Moody’s report.

Only 51% of federal borrowers who were scheduled to start paying back their loans in 2010 to 2012 had made any progress after five years, the report said. Students who attended all types of institutions have struggled with loan payments, although people who attended for-profit or two-year institutions have had a particularly tough time. Many of them haven’t paid down their balances at all.

Why repayment has been slow

There are several reasons that people have been slow to repay their student loans.

For one, the job prospects for many graduates of for-profit, two-year and non-selective four-year schools aren’t great, making it hard to earn the income needed to pay back loans and otherwise stay afloat. Some students don’t complete their programs or receive degrees.

Another reason that Moody’s cites for slow repayment is a rise in income-driven repayment plans, which can lower monthly loan payments based on their incomes and the size of their families and make paying back those loans more affordable.

“As you can imagine, the monthly payment will be lowered to reduce their monthly obligation but at the same time that keeps the loan outstanding for much longer and the repayment rate is going to be much slower,” Nicky Dang, senior vice president/manager at Moody’s, told CNN.

Finally, more people are opting for extended repayment plans, meaning that they plan to pay back their loans on a longer schedule. Only about a quarter of balances are currently being repaid on 10-year or shorter terms, the report said.

Many people are on longer repayment plans because they cannot afford traditional loan payments, although analysts believe others are opting to pay back loans on a longer schedule by choice, Warren Kornfeld, senior vice president at Moody’s, told CNN.

Student loans affect other areas of life

Student debt was the fastest-growing type of household debt in the US in the last decade, and it’s now the second-largest household debt category after home mortgages, according to Moody’s.

About two in three college seniors who graduated from public and private nonprofit colleges in 2018 had student debt, according to the most recent data from the Institute for College Access and Success. Those borrowers owed an average of $29,200.

“The growth in student loans has slowed in recent years as states have invested more in public colleges, but millions of students continue to struggle with their debts,” Debbie Cochrane, executive vice president of the organization, said in a statement at the time.

The student loan debt burden, Moody’s analysts said, is “weighing on household finances and the broader economy.”

Having student loan debt affects whether a person can access other forms of household credit, including whether they are able to save for a down payment on a home, qualify for a mortgage or start a small business — all of which drive economic growth and wealth creation.

Today’s Top Stories

All News

bomb...
Elizabeth Weiler

Man arrested in relation to Provo Towne Center Mall bomb threat

A Provo man was arrested after calling in a bomb threat to his former employer. The man was recently fired.
10 hours ago
police respond after i-15 was closed due to a car chase...
Samantha Herrera

Officer-involved shooting causes delays on I-15 in Davis County

I-15 is closed between mileposts 332 and 330 in Davis County, Utah. The Utah Highway Patrol said a police incident lead to the closure.
10 hours ago
Utah is known as bear country. Black bears can be drawn to the scent of food from miles away. Photo...
HUGO RIKARD-BELL

The DWR to update management of black bears

The Utah Division of Wildlife Resources will update its policy on black bear management in 2023 after 11 years.
10 hours ago
A US Soccer spokesperson told CNN in an email that Pulisic, who collided with the Iranian goalkeepe...
Kevin Dotson and Matias Grez, CNN

Christian Pulisic is day-to-day after being taken to hospital with pelvic contusion suffered scoring winning goal for US

A US Soccer spokesperson told CNN in an email that Pulisic, who collided with the Iranian goalkeeper after scoring his goal, went for medical scans but "was not hospitalized."
10 hours ago
At Bingham High School, three seniors made a Cathedral Gingerbread House for extra credit which is ...
Waverly Golden

Bingham High students build intricate gingerbread cathedral

At Bingham High School, three seniors made a Cathedral Gingerbread House for extra credit which is now on display at the high school.
10 hours ago
A 78-year-old man is in critical condition after the vehicle he was driving struck a TRAX train Tue...
Mark Jones

Man injured after vehicle collides with TRAX train

A 78-year-old man is in critical condition after the vehicle he was driving struck a TRAX train on Tuesday afternoon.
1 day ago

Sponsored Articles

Happy joyful smiling casual satisfied woman learning and communicates in sign language online using...
Sorenson

The best tools for Deaf and hard-of-hearing workplace success

Here are some of the best resources to make your workplace work better for Deaf and hard-of-hearing employees.
Team supporters celebrating at a tailgate party...
Macey's

8 Delicious Tailgate Foods That Require Zero Prep Work

In a hurry? These 8 tailgate foods take zero prep work, so you can fuel up and get back to what matters most: getting hyped for your favorite
christmas decorations candles in glass jars with fir on a old wooden table...
Western Nut Company

12 Mason Jar Gift Ideas for the 12 Days of Christmas [with recipes!]

There are so many clever mason jar gift ideas to give something thoughtful to your neighbors or friends. Read our 12 ideas to make your own!
wide shot of Bear Lake with a person on a stand up paddle board...

Pack your bags! Extended stays at Bear Lake await you

Work from here! Read our tips to prepare for your extended stay, whether at Bear Lake or somewhere else nearby.
young boy with hearing aid...
Sorenson

Accommodations for students who are deaf and hard of hearing

These different types of accommodations for students who are deaf and hard of hearing can help them succeed in school.
Young woman receiving laser treatment...
Form Derm Spa

How facial plastic surgery and skincare are joining forces

Facial plastic surgery is not only about looking good but about feeling good too. The medical team at Form Spa are trained to help you reach your aesthetic outcomes through surgery and through skincare and dermatology, too.
The student loan debt is $1.6 trillion and people are struggling to pay it down