Third of Student Debt Owned by Only 6% of Borrowers
One-third of outstanding U.S. student loan debt is owned by only 6% of all student loan borrowers, according to a new report.
The public policy nonprofit Brookings Institution released a report this week clarifying where all of that $1.5 trillion student debt comes and goes.
"A very small fraction of all student loan borrowers have very large loans. Six percent of borrowers owe more than $100,000 in debt, with 2% owing more than $200,000," the report by Brookings' Kadija Yilla and David Wessel found. "This 6% owes one-third of the outstanding $1.5 trillion of debt.
"At the other extreme, 18% of borrowers owe less than $5,000 in student loan debt. They collectively owe 1% of the debt outstanding," the report stated.
About one-quarter of those with student loans borrowed for graduate school, Brookings said, but that one-quarter owns about half of all outstanding student loan debt.
"While only a small share of households with student debt have a graduate degree, loans associated with graduate degrees account for 50% of the total outstanding student loan debt," the report said. Households with student debt headed by someone without a bachelor’s degree account for only one-quarter of total outstanding debt.
And those who owe the most are not the ones defaulting on debt, the Brookings report said.
Brookings said borrowers with graduate degrees who own half of all student debt are the least likely to default. Who has higher default rates? Those who attend for-profit universities, like DeVry and the University of Phoenix.
In February 2018, U.S. President Donald Trump was required to pay $25 million to settle class-action lawsuits accusing Trump University of fraud after failing to deliver on promises to teach students how to succeed in the real estate sector.
"Forty percent of borrowers from for-profit, two-year programs default on their loans within five years," the report said. Just under one-third of borrowers who attended for-profit four-year programs "defaulted in this same timeframe."
Among students who borrowed to attend public community colleges, about 25% default within five years of entering repayment.
Defaults are much less frequent among those who borrowed to go to public or private nonprofit four-year schools.
Student debt is not all about tuition. In some cases, room and board, books, transportation and other living expenses cost well above tuition.
"Many students borrow to not only cover their tuition and fees but also to get cash to finance the cost of living while they are in school," Brookings reported.
Some public schools offer students "tuition free" financial aid. But that doesn't include the dorm or rental housing, or food. For students at public universities and colleges who pay no tuition, 22% borrow $30,000 or more. The average student borrows $24,000, Brookings said, based on an Urban Institute analysis conducted using the National Postsecondary Student Aid Study.
And what about all those young college students receiving bachelor's degrees from four-year colleges and universities? They graduate with little to no debt, Brookings said.
"Thirty percent of all bachelor’s degree recipients graduate with no debt," Brookings reports. "Another 23% graduate with less than $20,000 in loans."
Fewer than 20% of all borrowers owed more than $40,000. Only 12% of those who attended four-year public colleges owed more than $40,000.
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Biden Cancels Federal Student Loans for Nearly 153,000 Borrowers
President Joe Biden said Wednesday that while a college degree was still a ticket to a better life, that ticket is often too expensive, as he announced he was canceling federal student loans for nearly 153,000 borrowers.
Biden, who is in the midst of a three-day campaign swing through California, made the announcement as part of a new repayment plan that offers a faster path to forgiveness, putting the spotlight on his debt cancellation efforts in his reelection campaign.
"Too many Americans are still saddled with unsustainable debt in exchange for a college degree," he said from a local library before he went on to campaign-related events. Loan relief helps the greater economy, he said, because "when people have a student debt relief, they buy homes. They start businesses, they contribute. They engage."
The administration began sending email notifications on Wednesday to some of the borrowers who will benefit from what the White House has called the SAVE program. The cancellations were originally scheduled to start in July, but last month the administration said it would be ready almost six months ahead of schedule, in February.
"Starting today, the first round of folks who are enrolled in our SAVE student loan repayment plan who have paid their loans for 10 years and borrowed $12,000 or less will have their debt cancelled," Biden posted on social media Wednesday. "That's 150,000 Americans and counting. And we're pushing to relieve more."
The first round of forgiveness from the SAVE plan will clear $1.2 billion in loans. The borrowers will get emails with a message from Biden notifying them that "all or a portion of your federal student loans will be forgiven because you qualify for early loan forgiveness under my Administration's SAVE Plan."
In his email to borrowers, Biden wrote he had heard from "countless people who have told me that relieving the burden of their student loan debt will allow them to support themselves and their families, buy their first home, start a small business, and move forward with life plans they've put on hold."
More than 7.5 million people have enrolled in the new repayment plan.
He said Wednesday that it was the kind of relief "that can be life-changing for individuals and their families."
"I'm proud to have been able to give borrowers like so many of you the relief you earned," he said, asking the crowd gathered for his speech how many had debt forgiven. Many raised their hands.
Borrowers are eligible for cancellation if they are enrolled in the SAVE plan, originally borrowed $12,000 or less to attend college and have made at least 10 years of payments. Those who took out more than $12,000 will be eligible for cancellation but on a longer timeline. For each $1,000 borrowed beyond $12,000, it adds an additional year of payments on top of 10 years.
The maximum repayment period is capped at 20 years for those with only undergraduate loans and 25 years for those with any graduate school loans.
Biden announced the new repayment plan last year alongside a separate plan to cancel up to $20,000 in loans for millions of Americans. The Supreme Court struck down his plan for widespread forgiveness, but the repayment plan has so far escaped that level of legal scrutiny. Unlike his proposal for mass cancellation — which had never been done before — the repayment plan is a twist on existing income-based plans created by Congress more than a decade ago.
Biden said he remained steadfast in his commitment to "fix our broken student loan system," working around the court's ruling to find other ways to get it done.
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