How is student loan paid back

how is student loan paid back

How many people aren't paying back their student loans?

A surprisingly high proportion of the $1 trillion in outstanding federal student debt — more than half — isn't currently being repaid. That's partly because students don't have to make payments while they're still enrolled in school or for six months after they graduate.

But plenty of student debt isn't being paid back for tougher reasons. About 30 percent of the $1.2 trillion is in deferment, forbearance or default. Deferment and forbearance are ways to avoid making payments without entering default. Borrowers don't need to make payments, but in some circumstances interest accumulates and capitalizes, meaning it's added to the principal.

When a loan is in default, a borrower hasn't made a required payment in at least 270 days

and hasn't arranged for a deferment or forbearance. The entire balance is due immediately, and if it's a federal loan, the government can take wages, Social Security payments, or tax refunds. As of August 2014, 8 percent of Direct Loan borrowers and 21 percent of borrowers from the now-discontinued Federal Family Education Loan program are in default.

The Federal Reserve Bank of New York, which issues quarterly reports on household debt that include both private and federal student loans, estimates that about 11 percent of the balance of outstanding student loans is at least 90 days delinquent.  And unlike delinquencies on other forms of household debt, delinquencies on student loans are still rising.

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Why can't student loans be discharged in bankruptcy?

Source: www.vox.com

Category: Credit

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