High Payments Equate to Student Loan Defaults

According to a new Department of Education report, Income Based Repayment program participation is increasing. Approximately $1.3 trillion of debt is outstanding and defaults are increasing, currently standing at 8%. Default status means that payments have been missed for a year or more.

Income Driven Repayment programs set payments based on a percentage of income. Payments can be adjusted based on income fluctuations and in the case of financial hardships. After a set number of payments have been made, the remaining balance can be forgiven.

The report notes that the defaults are typically those with lower balances, frequently leaving without graduating, and attending lower quality schools. The average balance of loans in IDR is $51,000, more than twice the average balance of borrowers who make fixed payments.

The full report can be found on Economics 21 here.

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Written by csla_contributor

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