◼ FINANCE Bloomberg Businessweek August 19, 201925PHOTOGRAPH BY SARAH WILSON FOR BLOOMBERG BUSINESSWEEK. ILLUSTRATION BY EVA CREMERS. *YEARS REPRESENT WHEN BORROWERS ENTERED REPAYMENT; BASED ON A TWO-YEAR AVERAGE WITH PRIOR YEAR. DATA: U.S. DEPARTMENT OF EDUCATION; FEDERAL RESERVE
That’s the grim assessment of a new Bloomberg
Businessweek analysis, which found that U.S. stu-
dent loan borrowers as a group are paying down
about 1% of their federal debt every year. It’s as
if a former student were reducing the balance of
a typical $30,000 college loan by only $300 annu-
ally. At that rate, it’s almost unthinkable how long
it would take to repay the government: a century.
Of course, many borrowers will pay off their
loans much faster, especially as wages grow over
time. The low annual paydown reflects the signifi-
cant number who are struggling, as well as a group
of borrowers—including Vicky Wilson—in a program
that can lower payments and may ultimately result
in their debt being forgiven in 25 years or less.
The Bloomberg analysis relies on data from the
government and ratings firm DBRS Inc. Bloomberg
checked its conclusion with the U.S. Department of
Education, as well as with economists who study
student loans and with former government offi-
cials. All agreed with the magazine’s calculations.
Secretary of Education Betsy DeVos “is very con-
cerned about the ballooning student loan portfolio
and the implications for students and taxpayers,”
says spokeswoman Elizabeth Hill. The agency is
improving servicing and simplifying repayment
plans but can’t solve the crisis on its own, she says.
The glacial payback rate alarms experts of all
political persuasions. It also helps explain why
the burden of the nation’s $1.6 trillion in student
loans—almost all of which is owed to the federal
government—has become a major issue in the U.S.
presidential campaign. Senator Bernie Sanders, an
independent from Vermont, and Senator Elizabeth
Warren, a Massachusetts Democrat, are both pro-
posing massive student loan forgiveness.
Another Democratic candidate, 37-year-old Pete
Buttigieg, the mayor of South Bend, Ind., has spo-
ken of the roughly $130,000 of college debt he and
his husband still hold. “Is the only real solution
debt forgiveness or death?” asks Michael Pierce,
a former regulator who oversaw student loans at
the federal Consumer Financial Protection Bureau.
“That’s where we are.”
Progressives propose a bailout because tuition
has far outpaced inflation while household wages
have stagnated. Conservatives say the government
has created the crisis by promoting out-of-control
spending by colleges fueled by no-holds-barred
borrowing by families—a reckoning that’s long been
deferred. Payments on student loans “are easy to
put off,” says Jason Delisle, a former Republican
analyst for the U.S. Senate Budget Committee.
Generation-spanning debt marks a sharp break
from the roots of the current student-lendingprogram, part of President Lyndon Johnson’s 1960s
Great Society initiative. The plan typically called for
120 monthly payments of the same amount, with
about 10% of the borrowed amount paid down
every year. Borrowers generally repaid their loans
within a dozen years.
The repayment rate began to slow in the mid-
1990s, but it wasn’t until 2012 that the student loan
program crossed an alarming threshold, according
to a 2015 study by Adam Looney, then a Treasury
Department economist, and Constantine Yannelis,
now a finance professor at the University of Chicago
Booth School of Business.
For the first time, a majority of debtors who’d
been in repayment for two years ended the second
year owing more than they borrowed. Their lack of
progress in paying back their loans dragged down
the statistics for their entire cohort: For every $1 the
class of 2010 had borrowed, members owed $1.02
by 2012. The share of borrowers whose balances
rose after two years of bills—53%—was 10 times the
proportion of similar borrowers who’d entered
repayment in 1980.
In part, the government is encouraging
borrowers to stretch out their payments through
programs that can lead to loan forgiveness. In
2011, President Barack Obama’s administration
began urging more of them to make use of govern-
ment plans that allow them to make monthly pay-
ments based on how much they earn, rather than
what they owe. Outlays could be as little as 10% of
income—or even zero, for those with especially low
incomes. Ultimately, the loans could be forgiven in
as little as 20 years. The government could wipe60%300
2007 2014*● Percentage of federal
student loan borrowers
whose balances rose
in the first year of their
repayment period◀ The Wilsons at
home in Austin