CFPB: Share of Borrowers With High Debt Sees Rapid Growth
By Allie Bidwell, Communications Staff
The percentage of student loan borrowers with $20,000 or more in debt has doubled over the last decade, the Consumer Financial Protection Bureau (CFPB) said Wednesday. The watchdog agency also found fewer borrowers are paying down their student loans five years into repayment, and more are borrowing later in life.
The CFPB used data from more than 1 million borrowers who began repaying loans from 2002 to 2014, and analyzed their repayment behavior through 2016. Overall, the agency found more than 40 percent of borrowers leave school with at least $20,000 in debt, up from 20 percent 15 years ago. What's more, the report said the percentage of borrowers who leave school with even higher cumulative debt loads – $50,000 or more – has tripled in the same period of time, from 5 percent to 16 percent.
There are also signs that borrowers are increasingly likely to struggle repaying their loans. The report found 30 percent of borrowers are not paying down their loan balances after five years in repayment, up from 16 percent in 2008. That means many borrowers are actually seeing their principal balances grow over time. The percentage of borrowers whose debt has grown while in repayment increased from 8 percent in 2008 to 12 percent in 2016, the report found.
And of those borrowers not making progress toward paying down their debt, the majority – 60 percent – are delinquent. Those with lower balances of $20,000 or less are even more likely to be delinquent, with 75 percent delinquent on at least one of their loans, the report said.
"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, in a statement. "Many employers have taken notice and are developing student loan repayment programs to assist employees in tackling their student debt."
A separate report also released Wednesday highlights some practices employers have implemented to help their employees with student loan debt. According to one study, as many as 1 in 10 employers with 40,000 or more employees offers a third-party repayment assistance program. In general, these programs make repayments on behalf of borrowers as a monthly payment, periodic payment, or annual lump sum payment, and direct the payments to the loan servicer.
Despite the growth in the benefit, there are roadblocks that are complicating the process, the CFPB found. Many repayment assistance programs, for example, said some servicers do not accept electronic payments, which can cause problems with the timeliness of the benefit. The companies also said they often do not have access to account information – such as loan balances, interest rates, and other information – that could help ease the process. Borrowers, too, noted problems with "enrollment delays caused by slow responses from servicers," slow responses to servicer errors, and recurring payment processing errors.
The CFPB recommended that loan servicing companies create a "clear and easily accessible process" for the third-party companies to electronically make payments, and that policymakers develop industry-wide standards for processing payments, among other recommendations.
"Taken together, the challenges that consumers, third-party repayment assistance program providers, and program administrators face when initiating, transmitting, and processing third-party payments could reduce benefits intended for borrowers, potentially causing borrowers to miss out on the maximum value of such programs, or create roadblocks for consumer-friendly developments that could better support borrowers who struggle the most to repay," the report said.
Publication Date: 8/17/2017
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