The new numbers come from a Consumer Financial Protection Bureau analysis of Department of Education data, released Monday, which also shows that new, generous repayment plans are not being widely used by struggling graduates. Two-thirds of the 15 million borrowers currently repaying their loans are on track with the 10-year repayment plan that is typical for student loans, but most of the remaining 5 million borrowers repaying their loans on a non-traditional schedule are making payments that are not tied to their income.
Just 40,000 borrowers are enrolled in the “Pay As You Earn” program, which allows borrowers to pay 10 percent of whatever they make above the federal poverty line, and then have the balance of their debt forgiven after 10 or 20 years depending on whether they work in the public or private sector. Part of the problem may be that the program is available only to students and graduates who took out a federal loan after October 2011. But that doesn’t explain why other repayment plans hitched to earnings are so underrepresented among borrowers who are current on their college debt.
Those programs should be taking a substantial bite out of the default rate. “If borrowers were aware of and able to easily enroll in income-based plans through their servicer, many federal student loan defaults could have been avoided,” the CFPB’s Rohit Chopra wrote. The bulk of the loans in default were made before 2010 reforms that pushed private lenders and servicers out of the market.
The sheer size of the outstanding student debts in the country is eroding graduates’ future wealth and sapping money that could buy 155,000 new homes. It’s also costing the country as a whole hundreds of billions of dollars in lost economic activity. The CFPB looked at a trillion dollars in outstanding federal student loans to nearly 51 million individuals (leaving aside $200 billion in private educational loans). The total balance of the defaulted federal loans, including interest, is $89.3 billion.
The consumer agency’s website features a simple interactive guide to a variety of student loan repayment questions, including how to get out of default.