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Eight Charts to Guide a Response to the Growing Problem of Student Debt

Although the Department of Education acted quickly at the beginning of the pandemic to automatically suspend interest and loan payments on Direct Loans for six months, that time is winding down, and conversations about supporting student borrowers in the long term have been renewed on Capitol Hill. As policymakers consider what further action may be necessary, these eight charts provide important context for the status of student loan debt today.

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1. Outstanding Federal Student Loan Debt Is Increasing

Since 2007, the balance of federal student loan debt has more than doubled in real terms—from $658 billion to $1.54 trillion. At the same time, the number of loan recipients has grown from 28.3 million to 42.6 million, a 51% increase.

Federal Student Loan Debt Over Time

Source: National Student Loan Data System, Federal Student Loan Portfolio, 2020 Note: Loan debt is measured in 2020 dollars and includes outstanding principal and interest balance for all federal student loans. Fiscal Year 2020 data are from Q2. All other years use Q4 totals. Recipients are an unduplicated count of recipients of federal student loans. In most cases, this is the borrower, except in the case of Parent PLUS loans where the parent is the borrower and the child the recipient.

2. Several Types of Federal Student Loans Exist—With Varying Levels of Protection for Borrowers

The majority (83%) of outstanding federal student loan debt is lent directly by the federal government. These Direct Loans stand in contrast to Federal Family Educational Loans, which are generally held by banks or other private financial institutions and backed by the federal government, and Perkins Loans, which are subsidized by the federal government but generally held by colleges and limited to borrowers with exceptional financial need. FFEL and Perkins loans have been discontinued, meaning that all new federal student loan issuance takes the form of Direct Loans.

Federal Student Loan Debt by Loan Type

Source: National Student Loan Data System, Federal Student Loan Portfolio, 2020 Note: Total does not equal 100% due to rounding. Data are most recent available (2020 Q2).
Direct Loans 83
Federal Family Education Loans (FFEL) 16
Perkins Loans 0.36

Direct Loans carry the most robust protections for borrowers, including access to multiple income-driven repayment plans and Public Service Loan Forgiveness. These protections have been expanded during COVID-19, as Congress suspended interest accruals and monthly payments on loans held by the federal government until September 30, 2020. Unfortunately, this support was not offered to the more than 8 million FFEL and Perkins Loan borrowers whose loans are owned by private lenders and schools. While some private lenders are offering loan relief, most students with private loans will continue to see their interest accrue.

3. Most Borrowers Owe Less than $20,000

Despite large increases in total cumulative lending, most borrowers (55%) owe less than $20,000, with 76% owing less than $40,000.

Distribution of Federal Student Loan Debt

Source: Enterprise Data Warehouse, Federal Student Loan Portfolio, 2020 Note: Cumulative debt includes outstanding principal and interest balances. Data are most recent available (2020 Q2).

At the other end of the distribution, 7% of borrowers have balances of $100,000 or more and collectively hold 37% of total outstanding debt. These high-balance borrowers tend to have debt from expensive graduate programs. Graduate students often rely more heavily on borrowing because they are ineligible for need-based federal grant aid and are not subject to annual borrowing limits

4. Undergraduate Borrowing Varies by Sector

Student debt varies considerably across sectors. Among those who borrow, average cumulative undergraduate borrowing is unsurprisingly the lowest among students who attended public two-year institutions ($13,304), due to the fact that these programs are shorter in length and tend to be among the most affordable. Average borrowing tends to be higher at for-profit institutions ($23,085), which often have higher prices. Students at for-profit institutions are also the most likely to borrow (82%), compared to private four-year (68%) and public four-year (64%) colleges. At public two-year schools, only 37% of students borrow.

Average Undergraduate Borrowing by Sector

Source: National Center for Education Statistics, National Postsecondary Student Aid Study, 2016 Note: Average cumulative borrowing for degree-granting institutions is measured among those who borrowed for undergraduate study. Averages include those who did not finish, as well as full- and part-time students, but exclude students who attended multiple institutions. The figure includes federal and private loans but excludes Parent PLUS loans.
Cumulative
Public Four-Year 20065
Private Four-Year 22901
Public Two-Year 13304
For-Profit 23085

These differences in borrowing can lead to adverse equity impacts. For example, students of color disproportionally enroll in for-profit institutions, many of which fail to provide students with a positive return on their investment.

5. Low-Income Borrowers Face Disproportionate Debt Burdens

Among those who take out loans, average cumulative undergraduate borrowing does not differ greatly across income levels. The average borrower in the bottom income quartile borrows $17,401 for undergraduate education, compared to $20,014 in the top quartile. Moreover, borrowing rates are relatively consistent across income quartiles, between 50-60%. The burden of this debt, however, is vastly different across these groups. Among borrowers in the bottom income quartile, average borrowing equates to 225% of their average annual income, compared to 64% among lower-middle income borrowers and 32% among upper-middle income borrowers.

Average Cumulative Undergraduate Borrowing as a Percentage of Income

Source: National Center for Education Statistics, National Postsecondary Student Aid Study, 2016 Note: Income refers to the total income used to calculate expected family contribution for federal student aid. For dependent students, this is parental income. For independent students, this is the student’s income plus spousal income, if applicable. Average cumulative borrowing is measured among those who borrowed for undergraduate study and includes those who did not finish, as well as full- and part-time students. Averages include federal and private loans but exclude Parent PLUS loans.
Percentage
Bottom 225
2nd 64
3rd 32
Top 14

6. Borrowers Struggle to Make Their Student Loan Payments

While the Department of Education has temporarily suspended interest and principal payments on most federal loans, the volume of loans either delinquent or in default was already on the rise before this crisis began. This is especially disturbing given the negative long-term impact of default on borrowers’ financial security. Since 2016, the volume of federally managed loans that are more than 31 days delinquent has increased by more than 10%, from nearly $86 billion to over $95 billion, but the cumulative volume of loans in default has increased by 55%, from $108 billion to nearly $168 billion.

Total Volume of Federal Student Loans in Default and Delinquency

Source: National Student Loan Data System, Federal Student Loan Portfolio, 2020 Note: Q1 data are used for Fiscal Year 2020 due to recent changes in borrower accounts resulting from executive action and the CARES Act. All other years use Q4 totals. All figures are measured using 2020 dollars.
31-90 Days Delinquent 91-180 Days Delinquent 181-270 Days Delinquent 271-360 Days Delinquent In Default
2016 38.98 25.04 12.96 8.93 108.02
2017 40.47 25.92 14.66 9.77 127.16
2018 43.40 33.62 16.76 9.05 146.02
2019 44.48 28.18 16.09 9.63 165.31
2020 42.60 27.70 15.00 10.00 167.70

When loan payments do resume, rates of delinquency and default are likely to increase even more. These figures are troubling, but they do not even fully capture the landscape of those who are struggling to repay their debt. Borrowers may pursue deferment, forbearance, or an income-driven repayment plan to avoid delinquency or default, though many remain unable to make substantive progress on paying back their loans.

7. Default Rates Are Higher Among Black Borrowers, Whether or Not They Earn a Degree

Enduring racial disparities in wealth accumulation and labor market outcomes contribute to disproportionately high rates of default among Black borrowers, regardless of degree completion. Among bachelor’s degree holders, Black borrowers are more than twice as likely to default on their loans than white borrowers.

Default Rates by Race and Completion Status

Source: National Center for Education Statistics, National Postsecondary Student Aid Study, 2016 Note: Income refers to the total income used to calculate expected family contribution for federal student aid. For dependent students, this is parental income. For independent students, this is the student’s income plus spousal income, if applicable. Average cumulative borrowing is measured among those who borrowed for undergraduate study and includes those who did not finish, as well as full- and part-time students. Averages include federal and private loans but exclude Parent PLUS loans. Numbers are percentages.
All White Black
Bachelor's Degree 1 % 1 % 3 %
Associate Degree 10 % 8 % 13 %
No Degree, Not Enrolled 41 % 33 % 55 %

Default rates are unsurprisingly much higher among those without a degree, with 33% of white borrowers in this group defaulting compared to 55% of Black borrowers. This disparity is especially troubling given longstanding differences in completion rates by race—64% of white students graduate with a bachelor’s degree within six years compared to 40% of Black students.

8. Borrowers Are Not Making Progress Repaying Their Loans

Five-year repayment rates represent the percentage of borrowers who have reduced their principal balance by at least a dollar within a five-year span. Borrowers who complete their degrees are more likely than non-completers to make progress paying down their principal, a phenomenon attributable to the earnings bump that generally accompanies a college degree. Average repayment rates, however, are lackluster across the board, and have declined over the past several years.

 

Five-Year Repayment Rates by Completion

Source: U.S. Department of Education, College Scorecard. Calculations by College Board. Note: Year indicates the year a borrower entered repayment.
Completers Non-Completers
2007-08 72 % 49 %
2011-12 67 % 41 %

Among borrowers who initially entered repayment in 2011-12, only 67% of completers and 41% of non-completers made progress paying down their loans. These figures represent a decrease from 2007-08, when 72% of completers and 49% of non-completers made a principal reduction within five years. The declines have been attributed, in part, to the increasing number of high-balance, low-earning borrowers enrolled in income-driven repayment plans. While these borrowers remain in good standing, their monthly payments are lower than the accruing interest on their loans. Similarly, borrowers may be in deferment or forbearance and not making payments toward their principal.

Charlotte Houghton contributed to this blog.

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