40% Of Borrowers May Default On Their Student Loans
“The statistic showing a huge problem, but 40% of student loan borrowers may default on their student loans by 2023”
According to the latest student loan statistics from personal finance site Make Lemonade, there are more than 44 million borrowers who collectively owe $1.5 trillion in student loans. Student loans are now the second largest consumer debt category after mortgages. On average, graduates of the Class of 2016 owe $37,000 in student loans, and graduates of the Class of 2017 owe almost $40,000 in student loan debt.
A report from The Urban Institute, a non-profit research institute, and a report from The Brookings Institution, found earlier this year several shocking student loan statistics related to student loan default:
- 40% of borrowers may default on their student loans by 2023
- 250,000 borrowers default on their federal student loans each quarter
- It takes 19.4 years, on average, to pay off student loans
- Surprisingly, those borrowers with a smaller amount of student loan debt had a higher likelihood of default (not paying their student loans for at least nine months).
- 32% of borrowers with a balance of $5,000 or less defaulted at least once within four years compared with 15% of borrowers who owed more than $35,000.
Three Smart Ways To Pay Off Student Loans
There’s no doubt that student loans can feel overwhelming – no matter who you are.
However, these strategies will help you take control and pay off your student loans faster.
- 1. Student Loan Consolidation
Student loan consolidation can help you organize and manage your student loans. With federal student loan consolidation, you can combine your existing federal student loans into a single, Direct Consolidation Loan.
A Direct Consolidation Loan is a federal student loan with a single student loan servicer and single monthly payment.
One key disadvantage of student loan consolidation, however, is that you cannot lower your interest rate. Your interest rate is equal to a weighted average of the interest rates on your current federal student loans, rounded up to the nearest 1/8%.
- 2. Student Loan Refinancing
If you want to lower your interest rate, a better strategy is to refinance student loans. With student loan refinancing, you can lower your interest rate, reduce your monthly payment and pay off student loans faster.
You can refinance federal student loans, private student loans for both.
While you won’t have access to federal student loan repayment programs, many of the best student loan refinancing lenders offer similar forbearance programs that allow you to pause payments if you face financial hardship or lose your job.
- 3. Make An Extra Payment
If you’re struggling to pay off student loans, the last thing on your mind may be an extra student loan payment.
However, the timing of your student loan payment matters. Here’s why.
You can always pay off your student loans in full at any time without a prepayment penalty. The monthly payment concept is set by lenders, but you can make student loan payments as often as you can. The longer you take to pay off your student loans, the more interest you pay and the more money they earn.
This extra student loan payment calculator will show you much money you can save your student loans.
Therefore, if you can pay your student loans more frequently than once per month, or make an extra payment of any amount whenever you can, you will reduce your principal student loan balance.
Literally any amount helps to lower your student loan balance: your annual bonus, tax refund, tips, gift from grandma, bingo winnings, that bet with your friend.