Federal Student Loans Swell by $30 Billion in One Quarter
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April 6, 2018
By: Mason Gallik
The total student debt owed to the federal government jumped by $30 billion from three months ago to a staggering $1.367 trillion. For reference, $1.367 trillion could buy almost 1.4 million homes that cost $1 million each. This total is up by 5.8% from a year ago as borrowing for college continues to expand. Remember, this number does not include private student loans, so the total student debt in the United States is higher than $1.367 trillion.
The fastest growing type of federal loan is the Graduate PLUS loan with a 12.6% increase in total Graduate PLUS loans outstanding over the past year. These loans only make up a small portion of the total portfolio though. The largest part of the federal student loan portfolio is the Direct Loan Portfolio with about 78% of all federal loans being part of this portfolio. We will use this portfolio’s data in this article since it is the largest portion of federal student loans outstanding.
Over the past quarter, federal student loans in repayment spiked by $50 billion to $600 billion as the Class of 2017’s grace period ends. This is a very large increase, which may be troubling in the long term if the Class of 2017 is not prudent in paying its loans. On the surface, there looks like there is some good news though. The percentage of the portfolio delinquent or in default dropped from 25.9% to 24.6% over just one quarter. While this looks great, it may be attributed to the spike of loans leaving grace period and entering repayment as mentioned above. This is because those borrowers who just entered repayment have not had the time yet to become delinquent or default on their loans since their payments have just begun. Delinquencies and defaults have increased in their total amount, but not in proportion to the amount that just entered repayment.
With regards to the types of payment plans for loans in repayment, Income-Driven Plans still remain the most popular with traditional, level payment plans such as the Standard Plan coming in a close second. REPAYE is continuing to gain popularity amongst Income-Driven Plans and now makes up 12.6% of the Direct Loan Portfolio in repayment. Income-Driven Plans may be changing if the Trump administration gets its way as discussed here. They most likely need legislative support to do this, however, and it may be unpalatable to tackle this before midterms.
Overall, student loan debt continues to rise quickly. While delinquency and default rates have gone down slightly, this may be attributed to the Class of 2017 entering repayment. Let’s hope they continue paying their loans on time to keep these default percentages dropping!