More than 40 percent of student loan borrowers leaving college or trade school owe at least $20,000, double the number of borrowers a decade ago. In addition, more borrowers are taking out student loans later in life, and fewer borrowers are paying down their student debt in five years.
“The bureau’s research shows that people are taking on more student debt later in life and having a tougher time paying it back,” said Richard Cordray, director of the Consumer Financial Protection Bureau, the agency that conducted the research.
Record student debt and associated borrower stress is causing more employers to offer student loan repayment benefits to their employees, according to a separate bureau report, also released Wednesday. This report features recommendations to help employers and other companies that manage benefits programs ensure that borrowers receive the maximum value.
“Many employers have taken notice and are developing student loan repayment programs to assist employees in tackling their student debt,” said Cordray. “Our recommendations are aimed at helping employers ensure these innovative programs deliver their intended benefits."
Student loans are used to pay for college, trade school, or graduate education. The loans can be funded by the federal government, or privately through banks and other lenders. The student loan market has grown significantly in the last decade, with about 44 million Americans currently owing money. The combined total of outstanding federal and private student loan debt now exceeds $1.4 trillion – the majority of which are federal loans.
Student loans are usually “serviced” by third parties. These servicers are an important link between borrowers and lenders. They manage borrowers’ accounts, process monthly payments, and communicate directly with borrowers.
Borrowers taking on more debt
Based on an analysis of more of 1 million student loan borrowers’ credit reports, the bureau looked at groups of borrowers who began repaying loans from 2002 to 2014. It analyzed each group’s repayment experience through 2016. Through this analysis, the bureau identified key changes in the way consumers borrow and repay student debt. Specifically, it found:
- More than 40 percent of student loan borrowers leave school owing $20,000 or more.
- Half of student loan borrowers are older than 34 when they start repayment.
- Thirty percent of borrowers aren’t paying down their loan balances after five years in repayment.
- More than 60 percent of borrowers not reducing their balances are delinquent.
Employers offering student loan repayment benefits
Employers and others such as state governments have looked for new ways to help in managing student debt. This assistance is usually offered as an employee benefit where payments are sent directly to borrowers’ student loan servicers. Borrowers may use the employer contributions to prepay principal on their student loans or to replace all or a portion of their monthly student loan payment. Because student loan borrowers usually have more than one loan, each with different loan terms and repayment schedules, employers often outsource the administration of these benefits programs to third parties. These companies are often companies that issue third-party payments to student loan servicers.
The report highlights the increased interest in these programs as a positive development for consumers in a marketplace grappling with record debt levels, he said. Major findings of the report include:
- Growing number of employers offer repayment assistance to employees with student debt.
- Student loan repayment assistance can save some borrowers hundreds or thousands of dollars.
- Servicing problems can create roadblocks to providing and improving student loan repayment benefits.
- Employers and benefits administrators can tailor programs to better meet employees’ needs.
The bureau provides a Repay Student Debt tool, which helps borrowers get tips on how to navigate student loan repayment, along with sample letters they can send to their student loan servicers. More information is available at: consumerfinance.gov/students.
