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.

We want to hear from you.

Have a story idea or tip? Send it to the KSL NewsRadio team here.

All News

A photo taken on the Saratoga Springs shore of Utah Lake on August 21, 2021. State lawmakers are co...

Tammy Kikuchi

A bill could improve Utah Lake and get more water into Great Salt Lake

State lawmakers say the goal of SB270 is to improve Utah Lake and direct more water into Great Salt Lake.

51 minutes ago

Generic image of crime scene tape. A man and a woman were shot in a home in Naples, forcing the nea...

Michael Houck

Shooting near Naples Elementary School forces lockdown, two victims hospitalized

A man and a woman were shot in a home in Naples, forcing the nearby Naples Elementary School to lockdown Wednesday afternoon.

1 hour ago

Students walk to their buses after school at Rose Springs Elementary in Erda, Tooele County, on Thu...

Jessica Lowell & Devin Oldroyd

Application process for the Utah Fits All Scholarship now open

The application for the Utah Fits All Scholarship is now open. The scholarship will allow families to apply for up to $8,000 of state funds.

2 hours ago

texas wildfires...

Associated Press

Wildfire grows into one of largest in Texas history as flames menace multiple small towns

Known as the Smokehouse Creek Fire, the largest blaze expanded to more than 1,300 square miles and jumped into parts of neighboring Oklahoma.

3 hours ago

Ruby Franke stands with her attorney, Lamar Winward, at her sentencing on Tuesday. Her brother and ...

Jessica Lowell

Ruby Franke and Jodi Hildebrandt transferred to Utah State Correctional Facility

The two women will each spend one to 15 years at the facility for child abuse.

4 hours ago

FILE: Jerry Monson helps his grandson Logan Webb with his orange while in camp above the Strawberry...

Alexandrea Bonilla

Bill would reduce amount of orange Utah hunters must wear

A bill would reduce the amount of orange required by hunters.

4 hours ago

Sponsored Articles

overhead view of a few aisles in a department store...

Big Deal Outlet

There is a Big Deal coming to Midvale: Local discount chain opens 8th store

If you love the thrill of finding good deals, check out the grand opening of Big Deal Outlet in Midvale from February 29 - March 2.

Mother and cute toddler child in a little fancy wooden cottage, reading a book, drinking tea and en...

Visit Bear Lake

How to find the best winter lodging in Bear Lake, Utah

Winter lodging in Bear Lake can be more limited than in the summer, but with some careful planning you can easily book your next winter trip.

Happy family in winter clothing at the ski resort, winter time, watching at mountains in front of t...

Visit Bear Lake

Ski more for less: Affordable ski resorts near Bear Lake, Utah

Plan your perfect ski getaway in Bear Lake this winter, with pristine slopes, affordable tickets, and breathtaking scenery.

front of the Butch Cassidy museum with a man in a cowboy hat standing in the doorway...

Bear Lake Convention and Visitors Bureau

Looking Back: The History of Bear Lake

The history of Bear Lake is full of fascinating stories. At over 250,000 years old, the lake has seen generations of people visit its shores.

silhouette of a family looking over a lake with a bird in the top corner flying...

Bear Lake Convention and Visitors Bureau

8 Fun Activities To Do in Bear Lake Without Getting in the Water

Bear Lake offers plenty of activities for the whole family to enjoy without having to get in the water. Catch 8 of our favorite activities.

Wellsville Mountains in the spring with a pond in the foreground...

Wasatch Property Management

Advantages of Renting Over Owning a Home

Renting allows you to enjoy luxury amenities and low maintenance without the long-term commitment and responsibilities of owning a home.

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