Trends in Student Loans

Sep 16, 2014

So what’s new in student loans?

  • Student loan by the numbers (Bloomberg):  One number that stood out for me is 93% of borrowers have balance under $30K

“Slok notes that 93 percent of student loans outstanding have balances of less than $30,000; 1.5 percent of the U.S. population has a student loan of more than $50,000; and only 4 percent of people between the ages of 20 and 39 have student loans in excess of $50,000.”

  • Good math problem for students to solve:  How can your student balance be higher after seven years (Denver Channel)?  Learn about forbearance, interest rates, interest accruals and choices.

“She borrowed $10,000 in 2004 to finish her bachelor’s degree, and she started repaying it as soon as she graduated in 2006, but like many consumers, she endured some financial hardship that made repaying the loan very difficult. Still, when she checked the loan balance in 2013, she was shocked to see it exceeded the amount she originally borrowed: She owed $11,060.”

  • How much student debt is too much?  USA Today weighs in:

Once you calculate how much your degree will probably cost, and research the average salary of your intended career field, you can determine how much student loan debt is too much.

“So long as your total debt at graduation is less than your annual starting salary, you should be able to pay your student loans back in 10 years or less and comfortably,” Kantrowitz said. “When you stretch it out beyond 10 years, it can start having an impact on other life events, like paying for your children to go to college.”

  • Parent PLUS loans that enable parents to pay for their child’s education may reduce their credit standards.  Will increase access in short-term but what are long-term effects of this debt burden (WSJ)?

“The Obama administration is moving to ease access to student loans for parents with damaged credit, a policy reversal that could saddle poor families with piles of debt but also boost college enrollment.”

  • Great reminder that you can pay your student loans while you are in school.  May seem far-fetched but if you have $5,000 unsubsidized loan, it accrues interest at about $20/month.  Helps build your credit too (!

“If possible, pay the interest on the loan while still in school,” said Megan McClean, managing director and federal relations for the National Association of Student Financial Aid Administrators (NASFAA).”

  • Cautionary tale for students taking out college loans:  Retirees still repaying their student loans.  Good reminder that once you sign that promissory note, you are committing to repaying that loan (New York Times)!

“She is among an estimated two million Americans age 60 and older who are in debt from unpaid student loans, according to data from the Federal Reserve Bank of New York. Its August “Household Debt and Credit Report” said the number of aging Americans with outstanding student loans had almost tripled from about 700,000 in 2005, whether from long-ago loans for their own educations or more recent borrowing to pay for college degrees for family members.”

  • Citizens now providing students with opportunity to refinance their federal loans into private student loans; beware of borrower protections lost when you make this decision (WSJ);

Citizens Financial Group announced on Tuesday that it is accepting applications from both parent and student holders of federal loans to refinance into private loans at the Providence, R.I.-based bank. Some borrowers who have good credit scores could get a lower interest rate than what they’re currently paying.

Here’s the warning:  “In converting federal student loans to private ones, borrowers will lose several repayment options. The federal government offers income-based repayment, for example, that allows borrowers to repay loans largely based on their income rather than the amount of debt that they owe. It also allows for principal forgiveness in which the remaining loan balance can be waived after at least 10 years of payments.  This relief isn’t available for private-student-loan borrowers who become unemployed or encounter another type of financial emergency.”

“The analysis took a close look at young consumers, who are frequently the subject of concern among the student debt community (though education debt affects people of all ages and can follow debtors into retirement, jeopardizing their Social Security). Among consumers with credit histories ages 18 to 34, with and without student loans, 13.1% have a mortgage, and the average income is $34,000. People in that age group with student loans have a higher average income of $41,800 a year, though that’s not too surprising, considering a college education is a proven path to higher earning potential.”

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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