The rapid increase in student numbers has slowed down in recent years, but the credit balances of individual borrowers mostly do not decrease as hardly anyone repays their loans.
According to a Moody & # 39; s Investors Service study released on Thursday, total debt has stopped its meteoric surge last year. However, the study has shown that a number of factors prevent borrowers from reducing their burdens. Loans outstanding are more than $ 1.6 trillion, have more than doubled in the past decade, and have tripled since 2006.
Since the explosion of student debt after the great recession, annual repayment rates or existing credit balances have dropped by only 3%, Moody’s said. Only 51% of borrowers who borrowed between 2010 and 2012 have made any progress in repaying their debts.
"While higher school enrollment and rising tuition fees have been the main drivers of student loan growth in the past, slow repayments have recently been the main driver," said Jody Shenn, senior analyst at Moody's, and others in the report. "Over the next few years, the combination of slow repayments and increased, if no longer growing, new debt is likely to further increase outstanding debt."
High failure rate
There are several reasons why debt does not decrease.
For one, many borrowers use repayment plans based on borrowers' income and choose longer repayment options.
The presidential candidates, especially on the democratic side, have made reducing or eliminating student debt a cornerstone of their campaign. Moody & # 39; s said such proposals would "stimulate the US economy but have a negative impact on some financial institutions".
In the meantime, the burden of student loans with a default rate of 11% continues to be felt, which is the highest of all debt categories. Education is also now second only to mortgages as the highest form of debt for all Americans.
"Increasing student debt dependence is restricting an individual's access to other forms of household credit, which is likely to delay start-ups and home ownership, which are key drivers of economic growth and wealth creation," Shenn wrote.
One indication that the pressure could ease only slightly is that the annual growth rate slowed to 5% in the third quarter of 2019, from a peak of 14.7% in late 2008, the Federal Reserve said.
A newspaper published by the St. Louis Fed earlier this week also dealt with the issue of student debt. The study found that four-year and graduate school debt increased faster than community colleges, suggesting that repayment rates could accelerate in the future.