A disturbing number of student loan borrowers who began their repayment plans between 2010 and 2012 have made little to no progress towards reducing the principal balance owed on their student loans. According to a recent report from Moody’s Investor Services, 49 percent of student loan borrowers whose loan repayment plans began during that time have made no progress. Even worse, many of them have seen their balances grow.
This problem could be due to several factors, including poor job prospects and low salaries in their first jobs after graduation. Depending on the degree pursued by each borrower, it can be difficult, if not impossible, to find a viable job that will allow the borrower to make appropriate payments to pay down their student loan debt.
Many borrowers end up choosing to enroll in a federal income-driven repayment plan that is based on the borrower’s monthly income. If the borrower’s income is significantly low, however, that monthly payment can amount to paying only a portion of the interest earned that month, not even close to hitting the principal. These income-based plans will also extend the life of the loan.
Income-based repayment plans have grown in use over the past few years. As of June 30, 2019, over $480 billion of all student loans were covered by an income-driven repayment plan. More than 75 percent of all outstanding student loan balances are on repayment plans that are longer than ten years. The longer the loan term, the smaller the monthly payment will be.
With smaller monthly payments and longer loan terms, student loan balances are hitting a point where they are simply stagnant. When all federal student loans are reported as being repaid on a normal 10-year schedule, the rate of repayment is somewhere around 10 percent. However, according to Moody’s statistics, the current repayment rate is only at three percent.
One major reason could be behind why so many student borrowers are banking on income-driven repayment plans, and that must do more with loan forgiveness. It depends largely on the program, but most borrowers who continue to pay their monthly payments on income-driven repayment plans are promised that their debts will be forgiven after 20 to 25 years. One of these debt forgiveness programs is the public service loan forgiveness program. However, this forgiveness option has come under fire as of recently after it was reported that 99 percent of borrowers were denied loan forgiveness.
Income-driven repayment plans are not always a bad option, especially if for the short-term. When someone has low income, structuring a lower payment plan can keep the loan from going into default. As the person continues making payments on time, he or she can move up to a graduated repayment plan to make more progress. By doing this, the monthly payments start off low but will increase every two years. This increase will allow the loan to be paid off in ten years and allow the borrower to make more progress on the principal balance.
For borrowers who are struggling with student loan debt, relief options are available. Many student loan borrowers are unaware that they have rights and repayment options available to them, such as postponement of loan payments, reduction of payments or even a complete discharge of student loan debt. There are ways to file for bankruptcy with student loan debt. It is important you contact an experienced Miami bankruptcy attorney who can advise you of all your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.
Source: Forbes- You Pay Monthly but Your Student Debt Keeps Growing.