‘High-Balance Borrowers’ Struggle to Repay Student Loans
A recent Brookings Institution report found that the number of "high-balance borrowers" has increased by 12% in 14 years.
Recent research shows that the number of borrowers with more than $50,000 in student loan debt has more than tripled since the year 2000. And these borrowers are struggling to make progress in paying back these loans. This creates a financial hardship for both for the borrowers and the taxpayers who are left to foot the bill.
The number of “high-balance borrowers” has increased from 5 percent in 2000 to 17 percent in 2014, according to a paper published by the Brookings Institution. The paper showed that these borrowers currently hold most of the federal student loan debt, approximately $790 billion of the $1.4 trillion borrowed in total.
In 1990, less than 5 percent of borrowers had loan balances that were higher than $25,000. And having loan balances that exceeded $100,000 was practically unheard of then. But in 2014, 40 percent of borrowers had loan balances exceeding $25,000 and 5 percent of borrowers had loan balances that exceeded $100,000.
Traditionally, high-balance borrowers were mostly graduate students. They usually didn’t struggle to repay their loans because their education afforded them higher-paying jobs.
And while high-balance borrowers rarely default on their loans, they often find other ways to avoid making their monthly payments, according to the report. Many borrowers will take advantage of hardship forbearances or income-driven repayment plans, which allow borrowers to make payments based on a percentage of their income. But by making smaller payments or putting their payments off altogether, borrowers aren’t able to make any progress on their loan balance.
The paper pointed to several reasons for the increase in high-balance borrowers. In 2006, the federal government began offering PLUS loans to graduate students. These loans allowed graduate students to borrow up to the entire cost of the program they were enrolled in.
And college tuition has continued to rise steadily, meaning that undergraduates are beginning to accrue high loan balances. The number of undergraduates that owe over $50,000 in loans increased from 28 percent to 37 percent.
The research also indicated that many students are taking on high amounts of debt to fund degrees from expensive for-profit colleges, which can produce poor job prospects. In 2000, less than 5 percent of borrowers with a high loan balance attended a for-profit college. By 2014, that number had risen to 15 percent.