Student loan debt is weighing on every generation, not just millennials — and it’s impeding workers’ ability to save for retirement.
Since the value of time in retirement savings is important, representing the potential for savings to grow and compound, this is no small matter.
A recent Council of Economic Advisors post indicated some of the actions that the White House is engaged in to help lessen the burden of student loan debt, but other trends within the sector show that there’s still a considerable amount of work to be done.
In a blog post, the White House has reviewed six trends in the student debt arena that show how the student loan sector is evolving, which could indicate progress ahead for retirement savings as some situations improve.
1. Recent grads’ default rates are down.
The Department of Education looks at the cohort default rate each year, to see how many borrowers for a given fiscal year’s cohort of students have defaulted on federal student loans during the first three years of entering repayment.
After several years of increases, the default rates among recent cohorts are finally decreasing. Among borrowers who began repaying their student loans in fiscal year 2012, the three-year default rate was 11.8 percent, down 2.9 percentage points from the peak two years prior.
2. Delinquencies are also down.
Recipients with direct federal loans who are scheduled to be making payments are doing better at it.
For the 31+ day delinquency rate, which looks at the proportion of borrowers who are more than 31 days late on payments, there was a 2.5 point improvement in December 2015 over the previous year.
3. Deferments for economic hardship and unemployment are down.
Students can request payment deferments if their economic circumstances are severe enough — such as inability to find a job. Among direct loan recipients, deferments have fallen by 31 percent year-over-year in the first quarter of fiscal year 2016.
This means that, compared with the first quarter of FY 2015, 170,000 fewer direct loan recipients were in a hardship-related deferment either due to lack of a job or other economic hardship. This is good news, particularly since the decline occurred even as the number of direct loan borrowers rose.
4. Greater availability and utilization of flexible repayment options are improving the on-time payment rate.
More people are using flexible repayment options such as Pay As You Earn and other income-driven repayment plans, and that in turn is keeping people prompt on their payment schedules.