It’s a shocking statistic, but 1 million people default on their student loans each year.
Here’s what you need to know and what you can do about it.
Latest Student Loan Debt Statistics
According to the latest student loan statistics from personal finance site Make Lemonade, there are more than 44 million borrowers who collectively owe $1.5 trillion in student loans. Student loans are now the second largest consumer debt category after mortgages. On average, graduates of the Class of 2016 owe $37,000 in student loans, and graduates of the Class of 2017 owe almost $40,000 in student loan debt.
A report from The Urban Institute, a non-profit research institute, found earlier this year several shocking student loan statistics related to student loan default:
- 40% of student loan borrowers may default on their student loans by 2023.
- 250,000 borrowers default on their federal student loans each quarter, with an additional 20,ooo to 30,000 who default on their rehabilitated student loans
- Surprisingly, those borrowers with a smaller amount of student loan debt had a higher likelihood of default.
- 32% of borrowers with a balance of $5,000 or less defaulted at least once within four years compared with 15% of borrowers who owed more than $35,000.
4 Options If You Might Default On Your Student Loans
If you think you might default on your student loans, there are several options that you can consider for your federal student loans.
After you conduct your own, independent research, contact your student loans servicer to enroll in any of these options for student loans.
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1. Income-driven repayment plans
As their names suggest, the federal government offers several student loan repayment plans based on your income. Examples of income-driven repayment plans include PAYE and REPAYE.
While income-driven repayment plans can lower your monthly student loan payments substantially, remember that interest still accrues on your student loans.
This means that although you pay less each month, your total student loan balance likely will increase. The good news, however, is that if you meet certain requirements, your federal student loans may qualify for student loan forgiveness after 20 or 25 years.
Deferral allows you to temporarily stop making student loan payments or to temporarily reduce your student loan monthly payment for a specified period.
With a deferral, you may not be responsible for paying the interest that accrues on certain types of student loans, including Direct Subsidized Loans, Subsidized Stafford Loans and Perkins Loans, among others.
However, you will be responsible to pay interest on the following types of student loans, among others: Direct Unsubsidized Student Loans, Unsubsidized Student Loans and Direct PLUS Loans.
Forbearance allows you to temporarily stop making student loan payments or to temporarily reduce your student loan monthly payment for a specified period.
However, with a forbearance, you are responsible for paying interest on all types of federal student loans.
4. Student Loan Consolidation
Student loan consolidation can help you organize and manage your student loans. With federal student loan consolidation, you can combine your existing federal student loans into a single, Direct Consolidation Loan.
A Direct Consolidation Loan is a federal student loan with a single student loan servicer and single monthly payment.
One key disadvantage of student loan consolidation is that you cannot lower your interest rate. Your interest rate is equal to a weighted average of the interest rates on your current federal student loans, rounded to the nearest 1/8%.
If you want to lower your interest rate, a better strategy is to refinance student loans. With student loan refinancing, you can lower your interest rate, reduce your monthly payment and pay off student loans faster.
Remember: you can always pay off your student loans in full at any time. So, if you have the financial resources, you can repay your student loans in full without any prepayment penalty.