Who Struggles Most to Repay Student Loans?

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Today, more than 40 million Americans hold student loans. During the past decade, the amount of outstanding debt from federal student loans jumped from more than $500 billion to over $1.3 trillion, surpassing all categories of household debt other than mortgages. This growth is not surprising, given the rise in college enrollment and decline in household assets during the Great Recession, the greater availability of student loans compared with other types of credit, and the increasing cost of attending colleges and universities.

The first of our expert conversations examined why some borrowers struggle to repay their loans. The second panel, which featured Jeff Webster of Trellis Co. and Fenaba Addo of the University of Wisconsin, Madison, discussed in greater depth which borrowers might be at risk for delinquency and default.

Addo indicated that communities of color face unique challenges in repaying their student loans. Her research and that of others demonstrates that African-American students rely on loans more than whites, have higher debt burdens, are more concerned about repayment and affordability, and are more likely to default. She echoed calls from the first panel to look beyond student debt and consider borrowers’ entire balance sheets.

Webster described the need for targeted, robust student loan counseling that incorporates the perspectives of both financial aid and academic advisers to help borrowers navigate the repayment system, particularly those who do not graduate in four years, are older, or have family or work obligations. He indicated that many students decide whether to take out student loans with “minimum understanding at a time of maximum distraction.”

Throughout the panel discussions, experts indicated that policymakers and the public may be surprised to learn which borrowers default on their loans more often. Borrowers with the highest balances do not necessarily have the most trouble repaying. This may be in part because some used their loans to obtain advanced degrees, resulting in high earnings after graduation. Instead, borrowers with lower incomes and volatile finances, who may also struggle with other bills, and those who owe the least, often because they did not graduate, may be at particularly high risk. For example, among borrowers who started repaying in 2011, 24 percent with loan balances under $5,000 had defaulted within three years, compared with 7 percent of those with over $40,000 in debt.

The final piece in this series explores potential solutions to help these and other at-risk borrowers avoid delinquency and default.

In January 2018, The Pew Charitable Trusts launched the project on student borrower success, a four-year initiative to promote successful repayment of student debt, especially among those borrowers at greatest risk for delinquency and default. This piece is the second in a three-part series reviewing an October 2016 series of expert discussions, hosted by Pew, on the state of student loans in America and outlining important issues in student debt repayment.

Sarah Sattelmeyer is a manager with The Pew Charitable Trusts’ student loan initiatives,and Brian Denten is an associate with the project on student borrower success.