WASHINGTON, D.C. – Today, the Consumer Financial Protection Bureau released a new data point finding that nearly half of student loan borrowers leave school owing at least $20,000 – double the share of borrowers a decade ago. The Bureau also found that more borrowers are taking out student loans later in life, and fewer borrowers are paying down their student debt in five years. Record student debt and associated borrower stress is spurring more employers to offer student loan repayment benefits to their employees, according to a separate CFPB report released today. This report features a series of recommendations to help employers and other companies that manage benefits programs ensure that borrowers receive the maximum value.
“The Bureau’s research shows that people are taking on more student debt later in life, and having a tougher time paying it back,” said CFPB Director Richard Cordray. “Many employers have taken notice and are developing student loan repayment programs to assist employees in tackling their student debt. Our recommendations are aimed at helping employers ensure these innovative programs deliver their intended benefits."
Student loans are used to pay for college, trade school, or graduate education. The loans can be funded by the federal government, or privately through banks and other lenders. The student loan market has grown rapidly in the last decade, with about 44 million Americans currently owing money. The combined total of outstanding federal and private student loan debt now exceeds $1.4 trillion – the vast majority of which are federal loans. Student loans are usually “serviced” by third parties. These servicers are a critical link between borrowers and lenders. They manage borrowers’ accounts, process monthly payments, and communicate directly with borrowers.
Borrowers Taking on More Debt
Based on an analysis of over one million anonymized student loan borrowers’ credit reports, the Bureau looked at groups of borrowers who began repaying loans from 2002 to 2014. The Bureau analyzed each group’s repayment experience through 2016. Through this analysis, the Bureau identified key changes in the way consumers borrow and repay student debt. Specifically, the Bureau found:
- More than 40 percent of student loan borrowers leave school owing $20,000 or more: The study finds that the percentage of borrowers owing $20,000 or more at the start of repayment has more than doubled since 2002, from 20 percent to more than 40 percent. The percentage of borrowers owing $50,000 or more has seen even more rapid growth, tripling over this same period from 5 percent to 16 percent.
- Half of student loan borrowers are older than 34 when they start repayment: Since 2003, the percentage of borrowers starting repayment over the age of 34 has doubled, increasing from 25 percent to nearly 50 percent. The study also found the percentage of consumers beginning repayment under the age of 25 has decreased from 30 percent to 15 percent.
- 30 percent of borrowers are not paying down their loan balances after five years in repayment: The percentage of borrowers who are not paying down their loan balances has nearly doubled, increasing from 16 percent in 2008 to 30 percent in 2016. This means that even if borrowers are making payments, those payments are not enough to cover the interest on their loans. Therefore, the amount of principal is the same and the overall amount of debt is the same or more, depending on how much interest has accrued. The percentage of borrowers whose debt has grown while in repayment has increased from 8 percent in 2008 to 12 percent in 2016. The share of borrowers who have fully repaid their loans five years into repayment has fallen nearly 20 percent over the last ten years from 50 percent to 41 percent.
- More than 60 percent of borrowers not reducing their balances are delinquent: Income-driven repayment plans can allow borrowers to make small or zero-dollar payments and still remain current on their loans. These affordable payments may not decrease their loan balance but can help them avoid delinquency. Despite increases in the availability of these plans, 60 percent of borrowers who are not paying down their balances five years into repayment are delinquent on their loans. Among these borrowers, those with less than $20,000 in student loans are even more likely to be in poor standing, with 75 percent delinquent on at least one of their loans. More information on this key finding can be found in the Bureau’s explainer blog: https://www.consumerfinance.gov/about-us/blog/too-many-student-loan-borrowers-struggling-not-enough-benefiting-affordable-repayment-options/
Employers Offering Student Loan Repayment Benefits
In response to historic levels of student loan debt and evidence that it can have a far-reaching impact on borrowers’ lives, employers and other actors such as state governments have sought new ways to assist in managing this debt. This assistance is typically offered as an employee benefit where payments are sent directly to borrowers’ student loan servicers. Borrowers may use the employer contributions to prepay principal on their student loans or to replace all or a portion of their monthly student loan payment. Because student loan borrowers typically have multiple loans, each with different loan terms and repayment schedules, employers often outsource the administration of these benefits programs to third parties. These companies are often fintech or technology-platform companies that issue third-party payments to student loan servicers.
Today’s report highlights the increased interest in these programs as a positive development for consumers in a marketplace grappling with record debt levels. The Bureau highlights issues identified by student loan borrowers, as well as feedback from a range of private and public-sector entities including employers providing student loan repayment benefits to borrowers. Highlights of the report include:
- Growing number of employers offer repayment assistance to employees with student debt: Recognizing that student debt can have a domino effect on consumers’ financial lives, separate industry and media reports suggest increased interest among both large and small employers in helping employees pay down student debt. One industry survey shows that nearly one-in-10 employers with over 40,000 employees offer a third-party repayment assistance program. These programs may be designed to support recruiting efforts, improve retention, or supplement wellness benefits, among other goals.
- Student loan repayment assistance can save some borrowers hundreds or thousands of dollars: Borrowers may save hundreds or thousands of dollars in interest payments over the life of a loan when employers prepay student debt. For example, with a 10-year, $30,000 loan at 6 percent interest, an employer paying $100 a month will save the borrower more than $11,000 over the life of the loan. Alternatively, borrowers may free up cash by using their benefits to replace all or a portion of their monthly student loan bill. However, today’s report also warns that many of the most vulnerable borrowers – for example, those in default – may not have access to benefits offered under a typical employer program.
- Servicing problems can create roadblocks to providing and improving student loan repayment benefits: Companies and other benefit providers caution that problems initiating, transmitting, and processing payments may hinder certain borrowers’ ability to maximize the benefits of repayment benefits. These roadblocks may deter consumer-friendly developments that could better support employees repaying student loans and may reduce the potential value of employer payments. These practices also may make it difficult for employer programs to coordinate with other federal student loan benefits that could increase the value of these programs.
- Employers and benefits administrators can tailor programs to better meet employees’ needs: Student loan borrowers’ circumstances vary widely, and repayment assistance programs do not have to be one-size-fits all. The Bureau notes that certain types of employers are uniquely situated to tailor repayment benefits to fit the specific needs of their employees. For instance, a nonprofit organization or government agency can better tailor its benefit programs to complement public service benefits that may be available to those repaying their federal loans under an income-driven repayment plan.
This report features a series of recommendations to student loan servicers, policymakers, and administrators of student loan repayment programs. These recommendations are designed to address these concerns and promote future growth and innovation to assist consumers with student debt.
The CFPB provides a Repay Student Debt tool, which helps borrowers get unbiased tips on how to navigate student loan repayment, along with other sample letters they can send to their student loan servicers. More information is available at: consumerfinance.gov/students.
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.