New Study: Decline in Undergraduate Student Loans

With tuition fees increasing year on year, you might think that undergraduate student loans would grow with them. But according to a new Student Loan Hero study, students today aren’t taking out as many federal student loans — which account for about 85% of all student loans — as they did five years ago.

In fact, federal direct loan borrowing has declined significantly among undergraduate and graduate students. By contrast, borrowing has not decreased for everyone, with parents are now taking out more loans for the education of their children than ever before.

So while the student loan debt crisis is still ongoing, new federal student loans appear to be past their peak.

Main conclusions:

  • Undergraduate and non-graduate students were 23% less likely to take out a federal student loan in the 2017-18 academic year than they were five years earlier.
  • Parents of undergraduate and non-graduate students were 27% more likely to take federal loans than they were five years ago.
  • Graduate and professional students were 6% less likely to take a federal loan in 2017-18 than five years earlier. However, graduate students borrowed $2.5 billion more in 2017-18 than in 2012-13, due to a higher number of loans per borrower.

Undergraduates were less likely to borrow in 2017-18 than in 2012-13

Department of Education shows undergraduates and non-graduates were 23% less likely to take out federal student loans in the 2017-18 academic year than they were five years earlier .

While 50% of undergraduate and non-graduate students took direct loans in 2012-2013, this proportion fell to only 38% in 2017-2018.

Overall, this group borrowed $15.7 billion, down 27% from five years ago. Part of that decline was due to declining college enrollment, in part because the sizable millennial generation is now past college age. But as data on enrolled students indicate, those who are in school are less likely to use student loans.

Federal Borrowing Rates on Student Loans
Academic year Undergraduate and non-graduate students Graduate students Parents
2010-11 50.6% 54.8% 4.4%
2011-12 51.0% 54.9% 4.3%
2012-13 49.5% 51.9% 3.6%
2013-14 44.7% 51.5% 3.7%
2014-15 42.8% 50.4% 3.8%
2015-16 40.8% 49.8% 4.5%
2016-17 39.3% 49.6% 4.6%
2017-18 37.9% 49.1% 4.5%
Notes: Rates are defined as the percentage of borrowers to students enrolled in Title IV schools in each category. Parent Plus Loans are available to parents of undergraduate and undergraduate students.

But parents were more likely to have student debt

While students aren’t taking out as many school loans as they used to, parents are going the other way, borrowing more and more to finance their children’s education. In 2017-18, parents of undergraduate and non-graduate students were 27% more likely to take federal loans than they were five years earlier.

They borrowed $301 million, or 3% more than in 2012-2013. In addition, 5% of students had parents who have taken out Parent PLUS loansagainst 4% five years earlier.

The danger of this trend, however, is that Parent PLUS loans are not as borrower-friendly as direct student loans. Not only do they come with higher interest rates, but they are not eligible for most income-based repayment plans.

Parents who borrow too much with Parent PLUS loans may find it difficult to repay that debt. It is especially difficult if they are are still repaying their own student loans.

Fewer graduate students took out loans, but they borrowed more

Some graduate schools leave students with a huge debt burden – medical, dental, and law schools typically leave students with loans worth six figures. And according to our findings, graduate students borrowed $2.5 billion more in 2017-18 than in 2012-13, possibly due to higher tuition fees.

But surprisingly, all that extra debt is in the hands of fewer students, as graduate and professional students were 6% less likely to take out a federal loan in 2017-18 than five years prior. So, although fewer graduate students are taking out loans, we are seeing an increase in the number of loans per borrower to pay for the cost of a higher degree.

Although graduate students are eligible for direct student loans, they could also fill the funding gap with PLUS Graduate Loans, which come with interest rates of 7.08% for the next school year 2019-2020. The relatively high rate, of course, makes loan repayment all the more difficult.

Despite lower borrowing, student debt continues to grow

While applications for new undergraduate student loans appear to be on the decline, that doesn’t mean the student loan crisis is any less urgent. In reality, student loan debt continues to grow due to accrued interest and late fees that exceed the rate at which borrowers are able to repay existing debt.

For example, borrowers on income-tested repayment plans may actually see their debt increase because their interest exceeds their monthly payments. Although income-driven plans can make student loan repayments more affordable, they does not necessarily help you repay your debt.

The Brookings Institution estimates that 40% of borrowers in the 2004 cohort could default on their student loans by 2023. So while fewer student borrowers take out school loans overall, the student debt crisis which are faced nearly 45 million Americans doesn’t seem to be going away anytime soon.

How to Handle Heavy Undergraduate Student Loans

Where borrowing money for college used to be the norm, today’s borrowers seem to be more aware of the dangers of go into heavy debt. Perhaps seeing the struggle of their parents or older siblings has led many to find other ways to pay for their education — or even avoid college altogether — if that means taking out loans.

If you’re dealing with a large pile of student debt, here are some options that might help:

  • Apply for an income-contingent refund. Income-driven repayment plans, such as Income-Based Reimbursement and Pay as you earn, can cap your monthly payments at 10%, 15% or 20% of your Discretionary Income. Although you may not reduce your debt very much, this repayment approach could be a lifesaver if you have limited income. However, note that Parent PLUS loan borrowers can only access one of these plans, Reimbursement based on incomeand only if they consolidate their loan(s) first.
  • Explore student loan forgiveness programs. If you work in a nonprofit or other eligible organization, find out Cancellation of civil service loans, which wipes out the remaining balance of your loan after 10 years. Depending on your occupation, you may also be eligible for other forgiveness programs Where student loan repayment assistance programs.
  • Apply for student loan refinance. If you have decent credit and a stable income, or can find a co-signer who does, you may be able to refinance your student loans for lower rates. Refinancing can be a particularly attractive option for parent borrowers looking to restructure their debt. But remember that refinancing makes your loan private, so you will lose your eligibility for federal repayment plans and rebate programs.

While students are borrowing less today than five years ago, student debt remains a major problem for millions of people in the United States. Find out about your various repayment options and strategies so you can take control of your loans and hopefully get closer to a debt-free life.

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