A typical borrower between ages 20 and 30 pays $203 a month toward student debt
Many Americans are struggling under huge monthly student-debt bills. But they are a sizeable minority, not the norm.That’s the conclusion of research from the Federal Reserve Bank of Cleveland. The typical borrower between ages 20 and 30 pays $203 a month toward student debt. Three-quarters of borrowers pay no more than $400 a month, the study shows.
They’re largely doing this by enrolling in income-based repayment plans, which cap borrowers’ monthly payments at 10% or 15% of their discretionary incomes (as set by a formula). While this lowers their payments significantly–by hundreds of dollars in many cases–it also means, for many, that balances grow. Payments under income-driven repayment often don’t cover interest. The government promises to forgive any amount remaining after 20 or 25 years, but that amount will be taxed as ordinary income.
And, of course, a $400 or even $200 payment is high if the borrower is unemployed or stuck in a low-level job. Indeed, borrowers who are the most behind on payments typically have balances in the low end–under $9,000–mostly because they never finished school.
The upshot is that many borrowers are doing just fine–some are even buying homes. But there are big variations from the norm that can’t be ignored.
http://blogs.wsj.com/economics/2016/05/24/how-much-are-young-americans-paying-a-month-on-student-debt-less-than-you-think/
Do you think you will be paying more or less than $203 a month toward your tuition debt after graduation?
I personally think that unsubsidized loans should not be offered by federal agencies that are also responsible for handling subsidized loans. Students often unknowingly or simply accidentally take on extra loans and end up paying even more than anticipated.
ReplyDeleteWell I think that the difference in the mean and median here are very telling. The median is $203 while the mean is much higher at $350. That means there are some very high totals, more likely associated with low-income students I would guess. Having to pay more than I do for rent just on student loans is going to put you at a serious disadvantage, especially if you're in the situation where you didn't finish college and aren't able to get a high quality job.
ReplyDeleteI agree with Spencer, I think that the difference between and median monthly student loan debt repayment is a very important factor. Since the average is much higher than the median, then some students must be repaying their student debt at much higher than the median of $203. Therefore I think the average monthly repayment is a more interesting statistic and I wonder if all students paid back the average ($305) monthly repayment how long it would take them to get rid of their debt totally. Since it is unrealistic for everyone to be able to pay $305 monthly due to different jobs and salaries, I think that future or anticipated salaries should be accounted for when taking out student loans and the interest on the loans.
ReplyDeleteI don't think the government does a good job educating people about the costs of these loans. This is despite every borrower having to go through a tutorial in order for the loans to be disbursed.
ReplyDeleteI personally had to go through exit counseling for my student loans and it had a lot of information about repayment. There were short multiple choice quizzes throughout to make sure you understood the important aspects of paying back the loan. There was also a repayment option where you could choose how much you want to pay back. I did notice there were some places where the system is not beneficial for people. There was a progressive rate and it reminded me a lot of the progressive mortgages that help cause the financial crisis. This option might seem like a good idea to some people because they have to pay so little at first, however it is a trap because the future is so uncertain.
ReplyDeleteThose progressive rates could create a new kind of underwater, this time on student loans. That you have to pay more for you student loan than you earn in a month or something like that. In some ways they're good, allowing you to get into your career before you really need to start paying them back, but if everything doesn't go smoothly you're screwed. I imagine a recession could be a serious issue for people choosing that method.
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