Study: Undergrad Student Loan Borrowing Down More Than $15 Billion in 5 Years

 September 1, 2019
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With tuition costs rising year after year, you might think undergrad student loan borrowing would be rising along with it. 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 were five years ago.

In fact, borrowing of federal Direct loans has declined significantly among undergraduates and graduate students. On the other hand, borrowing hasn’t decreased for everyone, with parents now taking on more loans for their children’s education than ever before.

So although the student loan debt crisis is still with us, new federal student loan originations appear to be past their peak.

Key findings:

  • Undergraduate and non-degree 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-degree students were 27% more likely to take federal loans than they were five years ago.
  • Graduate and professional students were 6% less likely to borrow a federal loan in 2017-18 than five years earlier. However, grad students borrowed $2.5 billion more in 2017-18 than they did in 2012-13, due to higher originations per borrower.

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

Department of Education shows that undergraduates and non-degree students were 23% less likely to take on a federal student loan in the 2017-18 academic year than they were five years earlier.

While 50% of college undergrads and non-degree students borrowed Direct loans in 2012-13, that proportion dropped to just 38% in 2017-18.

Overall, this group borrowed $15.7 billion, or 27% less than they did five years before. Some of this decline was due to lower enrollment in college, partly because the large millennial generation has now passed beyond college age. But as the data for enrolled students indicates, those who are in school are less likely to use student loans.

Federal student loan borrowing rates
Academic Year Undergraduate & Non-Degree 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 loan borrowers to enrolled students in Title IV schools in each category. Parent Plus loans are available to parents of undergraduate and non-degree students.

But parents were more likely to take on student debt

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

They borrowed $301 million, or 3% more than in 2012-13. In addition, 5% of students had parents who took out Parent PLUS loans, compared to 4% five years earlier.

The danger with this trend, however, is that Parent PLUS loans aren’t nearly as borrower-friendly as Direct student loans. Not only do they come with higher interest rates, but they’re ineligible for most of the federal income-driven repayment plans.

Parents who over-borrow with Parent PLUS loans could find themselves struggling to repay that debt. This is especially challenging if they’re still paying off their own student loans.

Fewer graduate students took out loans, but they borrowed more

Some graduate schools leave students with huge debt burdens — medical, dental and law schools typically leave students with six figures worth of loans. And according to our findings, graduate students borrowed $2.5 billion more in 2017-18 than they did in 2012-13, perhaps due to rising tuition rates.

But surprisingly, all this extra debt is in the hands of fewer students, as graduate and professional students were 6% less likely to take on a federal loan in 2017-18 than five years before. So although fewer graduate students are taking out loans, we’re seeing higher originations per borrower to afford the cost of an advanced degree.

While graduate students are eligible for Direct student loans, they might also be filling the funding gap with Grad PLUS loans, which come with interest rates of 7.08% for the upcoming 2019-20 school year. The relatively high rate, of course, makes repaying the loans all the more difficult.

Despite lower borrowing, student debt is still growing

While originations of new undergrad student loans seem to be on the decline, that doesn’t mean the student loan crisis is any less urgent. In fact, student loan debt is still growing due to interest accrual and late fees that exceed the rate at which borrowers are able to pay down existing debt.

For example, borrowers on income-driven repayment plans may actually see their debt grow because their interest outpaces their monthly payments. Although income-driven plans can make student loan payments more affordable, they don’t necessarily help you pay down your debt.

The Brookings Institution estimates that 40% of borrowers from the 2004 cohort may default on their student loans by the year 2023. So even though fewer student borrowers are taking on school loans overall, the student debt crisis facing nearly 45 million Americans doesn’t seem to be going away anytime soon.

How to manage burdensome undergrad student loans

While borrowing money for college used to be the norm, today’s borrowers seem to be more aware of the dangers of taking on burdensome debt. Perhaps seeing the struggle of their parents or older siblings has led many to find other ways to pay for school — or even to avoid higher education all together — if it means taking on loans.

If you’re dealing with big pile of student debt, Here are some options that could help:

  • Apply for income-driven repayment. Income-driven repayment plans, like Income-Based Repayment and Pay As You Earn, can cap your monthly payments at 10%, 15% or 20% of your discretionary income. Although you might not chip away at your debt very much, this repayment approach could be a lifesaver if you have a limited income. However, note that Parent PLUS loan borrowers can only access one such plan, Income-Contingent Repayment, and only if they consolidate their loan(s) first.
  • Explore student loan forgiveness programs. If you work in a nonprofit or other qualifying organization, look into Public Service Loan Forgiveness, which wipes away your remaining loan balance after 10 years. Depending on your profession, you might also be eligible for other forgiveness programs or student loan repayment assistance programs.
  • Apply for student loan refinancing. If you have decent credit and a steady income, or can get a cosigner who has this, you might be able to refinance your student loans for lower rates. Refinancing can be an especially good option for parent borrowers who are looking to restructure their debt. But remember that refinancing turns your loan private, so you’ll lose your eligibility for federal repayment plans and forgiveness programs.

While students are borrowing less today than they were five years ago, student loan debt remains a major issue for millions of people in the U.S. Educate yourself about your various repayment options and strategies so you can take control of your loans and hopefully move closer to a debt-free life.

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