The $100 Billion in Student Loan Savings Being Left on the Table
Now that you graduated, it’s time to get serious about your student loans. Don’t worry, you’re not alone.
- There is $1.31 trillion in student debt held by 44 million Americans.
- That’s 70% of all college graduates
- The typical student manages 4 separate loan accounts.
- The average new graduate has $37k in student debt.
60% of millennials have no idea when they’ll be able to pay back their student debt and many of them don’t know the basic information about their student loans and repayment options. 37% don’t know their interest rate and 33% have never heard of refinancing. It’s also a huge financial burden – they spend nearly 20% of their salary on student loan payments. 3 in 10 millennials are still living with their parents after college, while 7 in 10 of are delaying home purchase because of their student loans. To make matters worse, 11% are currently delinquent on their student loans.
Refinancing from private lenders has emerged as an opportunity for those with high income and great credit to lower their interest rate. More than 200,000 people have refinanced over $15 billion in loans since 2012. The average interest savings from refinancing is more than $17,000 per person. This has already resulted in more than $3.5 billion in interest savings!
Most people still don’t know about refinancing, as only 10% of eligible borrowers have refinanced so far. We’re here to change that and get the word out. If we can succeed, that would create $35 billion in total interest savings from refinancing!
Public Service Loan Forgiveness is another underutilized repayment plan. This allows anyone at an eligible non-profit or government employer to have their remaining loan balance forgiven after 10 years of on-time payments. For some people with abnormally high loan amounts, like doctors and lawyers, this can result in hundreds of thousands in savings.
432,000 people have signed up for the student loan forgiveness program as of June 30, 2016. Based on government reports, the average amount of loans forgiven after 10 years of payments is around $35,000 per person. This means nearly $15 billion will be forgiven from the Public Service Forgiveness program. It’s estimated that 25% of people on income driven plans work in public service. If these people filled out the right paperwork, there would be 1.3 million people signed up and $45 billion in TAX-FREE loan forgiveness!
Income Driven Repayment is the other government assistance option, and fortunately awareness of these plans has grown in recent years. 5.3 million people with $270 billion in student loans are signed up for these repayment programs as of November 30, 2016. The average amount of loans forgiven after 20 to 25 years of payments is around $10,000 per person. According to the government, nearly $49 billion are set to be forgiven from the Income Driven Repayment Plans. With an estimated 2 million people to be added to income driven plans in the next year, that would be $70 billion in TAXABLE loan forgiveness!
When you combine each of these savings opportunities, there is nearly $150 billion in potential student loan savings!
Assumptions: Average re nance loan size = $75k, Savings = $17.5k (Source: DBRS, lenders); Average IDR/PSLF loan size = $51k, Average income $60k, Interest rate = 6% (Source: Dept of Ed); Total IDR loans with PSLF removed: 4.9 million borrowers with $250 billion in debt (Source: Dept of Ed)
Sources: https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2016Q4.pdf; https://www.newyorkfed.org/microeconomics/data.html; http://ticas.org/sites/ default/ les/pub_ les/classof2015.pdf; http://blogs.wsj.com/economics/2016/05/02/student-debt-is-about-to-set-another-record-but-the-picture-isnt-all-bad/; https://www.bloomberg.com/ news/articles/2016-04-07/majority-of-millennials-have-no-idea-when-student-loans-will-be-paid-off; http://www.businesswire.com/news/home/20160407005785/en/Millennial-College- Graduates-Student-Loans-Spending-One-Fifth; http://www.cnbc.com/2016/06/13/71-of-those-with-student-debt-say-it-delays-homewonership-survey.html; https://www.whitehouse.gov/ sites/default/ les/docs/millennials_report.pdf; https://studentaid.ed.gov/sa/about/data-center/student/portfolio; http://www.gao.gov/assets/690/681064.pdf; https://www.studentloansguy.com/ refinance-market-size/