Typical Student Loan Interest Rate – Although every recession is different, the Great Recession of 2008 and the Pandemic Recession of 2020 were influential for student loan borrowers. This disparity is due in part to changes in public policy, such as the current federal student loan moratorium, but also to the wide range of student loan borrowers.
Compared to 2008, student loan borrowers today are older, carry more debt on average, are more likely to have moderate or high incomes, and benefit from more flexible student loan repayment policies. Federal student loan borrowers are less monolithic than ever, and that has implications for how we make public policy for borrowers.
Typical Student Loan Interest Rate
In recent work, we found that student loan borrowers had higher average first mortgage rates than non-borrowers during the pandemic. This finding is in stark contrast to evidence from 2008, which suggested a slowdown in home buying by borrowers. People who paid off their student loans before the pandemic are more likely to apply for a mortgage first. Distressed borrowers—those who have defaulted on their student loan debt—are less likely than their similar peers to take out a new home loan.
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From 2008 to 2020, the total number of federal student loan borrowers increased by 43%, and the average outstanding loan per borrower increased by 83%, from $19,300 to $35,400. The increase was likely due to higher enrollment after the 2008 recession and the launch of Graduate Plus loans in 2006, which replaced most private loans for graduate students.
A notable trend is the increasing age of student loan borrowers. The share of 35- to 44-year-olds with student loan debt nearly doubled, from 15 percent in 2007 to 34 percent in 2019. This may be due to an increase in the proportion of graduate student borrowers, in addition to some borrowers who carry debt for longer periods of time (PDF). More and more parents are taking out loans for their children’s education, with the amount of non-parent loans for public colleges more than doubling between 2009 and 2019.
The composition of student loan borrowers as a group has also changed in other ways. While the share of the U.S. population with student debt has risen regardless of race and ethnicity, black borrowers have seen the largest increase in average student debt, rising from $11,360 in 2007 (compared to white borrowers). (about $5,000 below the average) has risen from $30,000. $7,000) in 2019
In contrast to the pre-recession academic year of 2008, in 2015-16 first-year undergraduates from middle- and upper-income families borrowed at roughly the same interest rates (PDF) as their lower-income peers. This trend continues even after students leave higher education. When we look at the percentage of households with student loan debt in 2019, upper-middle-income households (between 40% and 90% of income) are about 8 times more likely to have debt than low- or high-income households. -9 percent is higher. Colleagues, this trend was less pronounced in 2007 (4-6 percentage point difference).
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In addition to accounting for changes in borrower demographics, new policies must also account for changes in payment patterns. During and after the 2008 recession, more generous income-based repayment (IDR) policies were introduced, such as income-based payments (2008, 2010). (as amended) and income-based payments (2012). Borrowers are increasingly using the IDR program. From 2010 to 2017, the percentage of undergraduate borrowers in the IDR program increased from 11 percent to 24 percent. The share of graduate borrowers in IDR increased from 6 percent to 39 percent during the same period.
This policy change not only increased the time it took borrowers to repay their loans, but it also forced a significant portion of borrowers (more than 75 percent, as assessed by the Congressional Budget Office in 2012) to pay off their loans. put in negative remission. As a result, the amount borrowers pay back does not include interest, and student loan balances tend to increase rather than decrease, even as borrowers make progress toward forgiveness.
Student loan borrowers are increasingly diverse, especially when it comes to financial need. A large number of low-income student loan borrowers struggle to repay their loans. Student loans hinder wealth acquisition, especially for black borrowers, and can dramatically widen the racial disparity in household wealth. But student loan borrowers are far more diverse in age and income than they were during the 2008 recession.
As they plan for the next recession, policymakers may want to examine the different circumstances of borrowers and focus their efforts on helping those at particular risk. For example, policymakers could focus on those already in arrears or default, or use dollars to cover the economic needs of all low-income households, such as Social Security. Through net-wide benefits or additional incentive payments. Addressing needs directly can help ensure better recovery.
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All the evidence from the study shows what is needed to create a society where everyone has the opportunity to achieve their vision of success. Between 1995 and 2017, the outstanding balance of federal student loan debt increased more than sevenfold, from $187 billion to $1.4 trillion (in 2017 dollars). In this report, CBO examines the factors that contribute to this growth, including changes in student loan policies and how they affect borrowing and payments:
Unless otherwise noted in this report, the years referred to are the federal fiscal year from October 1 through September 30, and are designated by the calendar year in which they end. . Some years are identified as academic years, which run from July 1 to June 30, also designated by the calendar year in which they end.
All loan amounts are in 2017 dollars unless otherwise noted. To convert to dollar amounts, CBO used the Bureau of Economic Analysis’s Personal Consumption Expenditure Price Index.
The primary source of historical information about disbursements, balances and payments is the National Student Loan Data System—the Department of Education’s central database for administering federal student loan programs. This dataset analyzed longitudinal data from a random 4% sample drawn in late 2017. Therefore, the data presented in this report may differ slightly from the data reported by the Ministry of Education based on the full administrative dataset.
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In addition, although the Department of Education cannot provide fixed rates for the specific categories of borrowers analyzed in this report, average fixed rate estimates are several percentage points higher than those reported by the Department of Education. . This may be a result of differences in how the Department of Education defines payment groups.
Over the past few decades, the number and size of federal student loans, which provide easy access to higher education, have grown. In 2017, the most recent year for which detailed information is available, $96 billion in new federal student loans were awarded to 8.6 million students, compared to $36 billion (in 2017 dollars) distributed to 4.1 million students in 19951. Between 1995 and 2017, outstanding federal student loan debt increased more than sevenfold, from $187 billion to $14 trillion (in 2017 dollars).
In this report, CBO examines the factors that have contributed to the increase in student loan debt and the impact of changes in student loan policy on borrowing and repayment. The impact of the Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted on March 27, 2020 is not included as the report focuses on the period 1995-2017. 2
Between 1995 and 2017, students could borrow through two main federal student loan programs, the Federal Family Education Loan (FFEL) program, which guaranteed loans from banks and other lenders until 2010, and the William Ford Federal Direct Loan Program, through which loans are obtained. Distributed directly by the federal government since 1994. These two programs were running in parallel in 2010, guaranteeing or issuing loans to students under nearly identical terms and conditions.
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The Direct Loan program continues to offer a variety of loan types and payment plans. Loans have a maximum amount limit (varies by loan type) and are extended at a specific interest rate for the loan type and year. After the borrower completes his studies, the loan is repaid according to one of the available repayment plans. The required monthly payment depends on the loan amount, interest rate and repayment plan. Borrowers who consistently fail to make required payments are considered in default on their loans, at which point the government or loan providers may seek to collect the amount owed through other means, such as wage garnishments. Under certain repayment plans, qualified borrowers can have their outstanding loan forgiven after a specified period of time (10, 20, or 25 years).
The number of student loans increased as the number of borrowers increased, the average loan amount increased, and the rate at which they paid off their loans slowed. Some of the parameters of student loans – particularly borrowing limits, interest rates,
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