A Look Inside the Class of 2017’s Plan for Student Loan Repayment
- November 13, 2017
- Posted by: Dave Rathmanner
- Category: Student Loans
Each year, millions of students graduate college and embark on the beginning of their journeys in the "real world."
Many exciting times lie ahead: starting their careers, moving to new locations, meeting new people, and hopefully earning some considerable amounts of money.
It's not all fun, though.
The majority of these recent graduates also have to start preparing to repay their student loan debt.
After graduation, most federal and private student loan borrowers will only have six months until they are required to start making payments on their debt.
Since most colleges and universities in the United States have graduation in May or June, borrowers from the Class of 2017 have just entered, or are about to enter, student loan repayment.
At LendEDU, we were curious to see how these borrowers were planning to repay their debt and how confident they were in their abilities to do so successfully. To learn more, we surveyed 825 student loan borrowers from the Class of 2017 and asked them a series of questions related to their student loan debt and their plans for repayment.
Below, you will find our key findings and analysis followed by the full results of the survey.
Want to skip ahead to the full results? Click here.
The Majority of Borrowers Started Making Payments Before They Were Required To
We first asked borrowers when they started, or plan to start, making payments on their student loan debt. For most federal and private student loans, repayment isn't required until six months after graduation, better known as the grace period.
We wanted to figure out if student loan borrowers from the Class of 2017 were getting a head start on repaying their loans, even though it was not required. The results are as follows:
As you can see, the majority of borrowers, or 59.64 percent, started making payments before they were required to, with over a third of borrowers making payments while in school.
This is encouraging, especially for those with unsubsidized federal student loans and private student loans, in which interest accumulates while students are still in school. Making these non-required payments helps reduce the total cost of interest and can help borrowers understand the repayment process before they are forced into it.
The Class of 2017 Really Wants Student Loan Repayment Assistance from Employers
It seems that every day another company announces a new student loan repayment assistance benefit. Typically, companies offer to make payments towards employees' student debt each month to help recruit new employees and retain existing employees.
As a way to gauge the attractiveness of this benefit to recent graduates, we asked respondents if they considered this benefit when looking for jobs. The results are as follows:
As shown in the graph, almost two-thirds of borrowers said that the prospect of receiving a student loan repayment assistance benefit has influenced their job searches.
These recent graduates have probably read horror stories about student loan debt for the past four years knowing that they would soon be in the situation that millions of people struggle with every day.
The idea of having an employer covering most of, if not all of, a monthly payment is very comforting and enticing. In addition, these borrowers can then make additional payments, helping reduce their principal balances and the cost of interest as well as expediting repayment.
Most Federal Borrowers Will Use the Standard 10-Year or an Income-Driven Repayment Plan
By default, federal student loan borrowers are put into the Standard 10-Year Repayment Plan. In this plan, payments are fixed and the loans will be paid off in (you guessed it) 10 years - assuming every monthly payment is made.
There are, however, many other options available to borrowers, most of which allow repayment to be extended and allow for lower monthly payments.
To figure out which of these plans were the most popular with the Class of 2017, we asked which of them they planned on using. The results are as follows:
As expected, the most popular plan amongst borrowers was the Standard 10-Year Plan. Compared to the other options, this plan saves the most money in interest and allows borrowers to be done with repayment in a relatively short amount of time.
The next most popular answer was an income-driven repayment plan, which actually includes five different plans. These all follow the same premise: payments are capped at 10 to 20 percent of discretionary income and allow for forgiveness after 20 to 25 years of full payments.
Income-driven repayment plans are often popular choices amongst borrowers as they change over time to fit their financial situations. If a recent graduate has not started working yet, they may be eligible for $0 payments until they do. In addition, if workers start off making low salaries but expect to earn more in the coming years, these plans can make payments more manageable to start.
Shifting gears, it is a little concerning that nearly 20 percent of respondents did not know which plan they would be using for repayment. Hopefully these borrowers are still trying to decide among the various options that they have done extensive research on, but it is more likely that they are unsure simply because they have not yet looked at the available repayment plans.
It is important for borrowers to know the options available to them so they can create a plan for repayment, giving themselves the best chance at succeeding.
The Majority of Borrowers Are Expecting Forgiveness
Having student loan debt completely forgiven is likely a common wish among the millions of borrowers in repayment today - and why wouldn't it be? Who wants to use their own money to pay off their debt. Wouldn't it be better to just have it completely wiped away? Of course it would.
Though it may sound too good to be true, student loan forgiveness is actually a thing. Typically borrowers can only receive it if they work in a public service field or for a non-profit for 10 years while making full payments or after 20-25 years while enrolled in an income-driven repayment plan.
To see how many borrowers from the Class of 2017 planned to have their loans forgiven, we asked them just that. The results are as follows:
As you can see, an astounding 59.15 percent of borrowers plan to have their student loans forgiven. While this could certainly be the case for some borrowers eventually, the likelihood of over half of borrowers having their debt forgiven is very unlikely. There simply aren't enough public service and non-profit jobs that would qualify for forgiveness as compared to the jobs that don't qualify.
What's concerning about this apparent lack of understanding of student loan forgiveness is that borrowers may slack off on making payments or actively trying to pay down their debt if they think it will eventually just be wiped away. This can lead to a higher total loan cost, or even worse, default.
Borrowers need to do more research about student loan forgiveness to figure out if they will actually qualify for it before they just automatically assume that they will.
Most of the Class of 2017 Plans to Refinance - But There's a Catch
Student loan refinancing is similar to refinancing an auto loan or mortgage - a new lender pays off the old loan and issues a new one with a lower interest rate or monthly payment. This process can save borrowers thousands of dollars in interest if they meet the eligibility criteria.
Currently, only private lenders will refinance student loans, but they do refinance both federal and private loans. There have been bills proposed in Congress to allow federal student loan borrowers to refinance to lower rates with the government, but none have passed so far.
To determine if borrowers are interested in student loan refinancing, we asked respondents if they plan to refinance their student loans in the future. The results are as follows:
As shown in the graph, over 50 percent of borrowers plan to refinance their student loans at some point. The caveat here, though, is that almost two-thirds of these borrowers would only refinance if the federal government offered it - which they currently do not.
While this is certainly an interesting result, it makes sense.
Though refinancing with a private lender can often save a substantial amount of money, federal borrowers will lose access to the various federal repayment programs and deferment and forbearance protections.
Perhaps if private lenders offered more repayment plans and protections, a larger proportion of these borrowers would consider refinancing with them.
Many Borrowers Will Depend on Help from Their Parents
Many parents help their children pay for college, but often students still need to turn to student loans when these contributions, on top of savings, aren't enough. We were curious as to whether these parents would continue to support their children by helping them out with their student loan payments after graduation.
To figure this out, we simply asked, "Will your parents help you make your student loan payments?"
The results are as follows:
We were surprised that nearly 40 percent of respondents expected to receive help from their parents with their student debt. Perhaps these parents no longer feel the burden of making contributions towards their children's tuition and other school-related expenses, so they decided they can help them out with their debt instead.
The Class of 2017 Seems to Have a Decent Understanding of Their Student Loans...
We also wanted to get an idea of how well borrowers from the Class of 2017 knew their very own student loans. We asked a series of questions to see if they knew their interest rates, monthly payments, and total student debt balances within $500. The results are as follows:
It was encouraging to see that the majority of borrowers knew their monthly payments and student loan balances. This means they have, at the very least, somewhat of an idea of what lies ahead of them for the next 10 or more years.
While it would have been nice to see more borrowers to know their interest rates, it is reasonable that less knew them as compared to monthly payments and balances. Most students have to take out multiple loans throughout their college careers. Often, interest rates change from year-to-year, so it may be hard keep track of all of them, though borrowers should definitely try as it can help them strategically choose which loans to pay off first.
...But Over a Third Still Haven't Taken the First Steps to Successful Repayment Yet
On top of asking borrowers if they knew the basics about their loans, we wanted to go a little further.
First, we asked if they knew who their student loan servicer was. For reference, these are the companies who take payments from borrowers and help them if they need to switch repayment plans or if they are facing financial hardship, among other things. The results are as follows:
Next, we asked borrowers if they have logged into their student loan accounts since graduation. The results are as follows:
As shown from the previous two charts, over half of borrowers know their servicers (59.52 percent) and have logged into their accounts (60.97 percent), but a considerable portion have not.
It is one thing for borrowers to say they know interest rates, monthly payments, and loan balances, but if they aren't familiar with the actual companies who they will be working with for the next five to 30 years, and haven't explored their student loan accounts yet, trouble might be brewing.
Borrowers' servicers are their keys to success. If they need to miss a payment, are facing financial hardship, or want to strategically make extra payments, they will need to work with their servicers. Simply knowing who their servicers are would be a great first step to take to ensure everything goes smoothly once repayment starts.
Furthermore, borrowers' student loan accounts will be where they make payments and view their loan details for years to come. It is essential for these people to familiarize themselves with their accounts so they don't leave important notifications unread, miss payments, or lose track of their repayment progress.
Despite This, Most Borrowers Are Still Optimistic About Repayment
Aside from knowing how well borrowers knew the details of their student loans, we also wanted to figure out if they felt prepared for repayment.
We next asked borrowers, "How would you grade yourself on your knowledge about and readiness to repay your student debt?" The results are as follows:
Once again, it was encouraging to see that so many borrowers were confident in their knowledge of student loan repayment and their abilities to repay their debt, with over 60 percent giving themselves an "A" or "B".
During a time when it seems like the media only covers borrowers struggling to repay their debt, it is refreshing to see that a good portion of the newest group to enter repayment are confident that they will be successful.
Hopefully these borrowers have done their research and have a good understanding of what will be required of them in the coming years as opposed to just having blind confidence. It is crucial for the Class of 2017 to be successful in repayment with outstanding student debt at an all-time high and default rates going up.
1) When did you/will you start making payments on your student loan debt?
-35.64% - While in college.
-24.00% - Before my grace period was/will be over (Note: This is the 6-month period after leaving school where no repayment is required on federal student loans and most private student loans).
-27.76% - Once my grace period was/will be over and payments are required.
-12.61% - Not until at least 2 months after my grace period was/will be over.
2) Has the prospect of receiving a student loan repayment assistance benefit influenced your job search?
-64.73% - Yes.
-35.27% - No.
3) Do you think your current salary will be enough for you to afford your monthly payment(s)?
-21.94% - Definitely.
-29.33% - I think so.
-22.42% - I'm not sure.
-11.64% - I don't think so.
-9.21% - Definitely not.
-5.45% - I don't have a job yet
4) Is your salary more or less than you expected? (Note: Only asked to those who currently had a job)
-18.46% - More.
-52.18% - About the same.
-29.36% - Less.
5) Do you think your education was worth the cost and associated student loan debt?
-51.39% - Yes.
-26.06% - No.
-22.55% - Undecided.
6) Do you regret spending student loan money on non-school related expenses (such as spring break, eating out, alcohol, etc.)
-31.88% - Yes, I regret spending my student loan money unwisely.
-38.79% - No, I don't regret how I spent my student loan money.
-29.33% - I did not spend my student loan money unwisely.
7) Based on your early career outlook and your student debt, which of the following would you do differently if you could go back in time?
-22.91% - Attend a less expensive school.
-20.12% - Choose a major with a better career outlook.
-21.33% - Work or work more while in college.
-13.70% - Be more careful about where I spend my money.
-11.52% - Take more credits each semester to graduate in less time.
-10.42% - I wouldn't do anything differently.
8) Which repayment plan do you plan on using to repay your federal student loans?
-30.06% - Standard 10-Year Plan.
-22.06% - An Income-Driven Repayment Plan.
-16.73% - Extended Repayment Plan.
-12.85% - Graduated Repayment Plan.
-18.30% - I'm not sure.
9) Do you plan to refinance your student loans?
-20.48% - Yes - with a private lender (currently only option available).
-33.09% - Yes - but only if the government offers it in the future.
-27.03% - No.
-19.39% - I have never heard of student loan refinancing.
10) Do you plan on receiving student loan forgiveness?
-59.15% - Yes.
-40.85% - No.
11) Do you know the exact interest rate on your student loans?
-43.88% - Yes.
-56.12% - No.
12) Do you know your minimum monthly payment on your student loan(s)?
-65.33% - Yes.
-34.67% - No.
13) Do you know your total student loan balance within $500?
-60.61% - Yes.
-39.39% - No.
14) Do you know the consequences of not making payments on your student debt?
-72.85% - Yes.
-27.15% - No.
15) Do you know the name of your student loan servicer?
-59.52% - Yes.
-40.48% - No.
16) Have you logged into your student loan account since graduation?
-60.97% - Yes.
-39.03% - No.
17) How would you grade yourself on your knowledge about and readiness to repay your student debt?
-30.67% - A
-31.64% - B
-21.21% - C
-10.06% - D
-6.42% - F
18) Will your parents help you make your student loan payments?
-38.18% - Yes.
-61.82% - No.
All data in this poll came from a poll of 825 graduates from the Class of 2017 who had student loan debt. The poll was commissioned by LendEDU and conducted online by the polling company Pollfish. A screener question was used to ensure respondents were indeed undergraduate student loan borrowers from the Class of 2017. The poll ran over a two-day span from November 1, 2017 to November 2, 2017.