A new report from Moody’s Investor Services highlights an alarming statistic: 49% of student loan borrowers whose repayment obligations started in 2010-12 have made no progress towards reducing the balances that they started repayment with. None. Kaitlyn Blount Crow is one of them. As a young adult with dreams of telling other people’s stories, Crow graduated from the University of Alabama in 2015 with a degree in communications—one that left her with $31,000 in student loans.
Rather than default on loan payments, Crow enrolled in a federal income-driven repayment plan—one that tied her monthly payment to her earnings. At first, her income was so low her monthly repayment was $0. Nevertheless, she would pay some money towards the loans whenever she could, hoping this effort would eventually help her pay off her student debt.
The failure of student loan balances to shrink is the result of multiple factors, including the problem that graduates who are underemployed and those who fail to graduate have with repayment. After 20 or 25 years, depending on the program, individuals on income-driven repayment plans are promised debt forgiveness—In addition, the Public Student Loan Forgiveness program offers forgiveness—without any tax hit—to those who work for 10 years in the public or not-for-profit sector. As a result, some borrowers hoping for forgiveness may not be too worried by stagnant or growing loan balances.
“Having this program really made me feel better about taking a lower paying job instead of being forced to chase higher and higher pay,” Cochran says. “Also, the interest rate on my loans is less than the long term market annualized returns, so even if I was in the private sector, I would be better off investing any extra payment and not paying more than required. I would hate to pay extra on my loans and then become disabled or die and have fewer assets to support my family.
I myself started out on an income-driven repayment plan for my $21,500 student loan balance. After making monthly payments of $145 for almost two years—and seeing that my balance had decreased by only $231.31, despite making nearly $2,700 in payments—I recently switched to a graduated repayment plan. My monthly payment is now only $30 more each month. The highest I’ll ever pay each month is $396.
No candidate, Republican nor Democrat has ever promised to do anything about the student debt aside from Bernie. As a stand-alone manifesto promise I support this. If it was the coin toss policy, I’d vote for any candidate with a solid plan that includes free college education.