A new report says that about half of student loan borrowers have a higher student loan balance after 5 years
after 5 yearsImagine this common scenario: you borrow student loans. You start to pay off your student loans. You keep paying off your student loans every month. Five years go by. Now, here’s the uncommon part. After 5 years, your student loan balance isthan when you started. Literally, your student loan balance has not declined. Zero. Zilch. Nothing.
Suddenly, with the power of compound interest, you owe more money than you borrowed - and then some. This may sound unbelievable, but, according to a new report from Moody’s. Moody’s says that only 51% of federal student loan borrowers who started student loan repayment in 2011-2012 had madeprogress in reducing the balance on their student loans after five years. This includes borrowers from public, private and for-profit colleges.
Moody found that slowing student loan repayment is a major driver in the growth of student loan debt. Today, theshow that more than 44 million borrowers collectively owe $1.6 trillion of student loan debt. According to Make Lemonade, student loan debt is now the second highest form of consumer debt after mortgages. This new data is important. Historically, rising tuition costs and higher enrollment were the leading drivers of student loan debt.
The problem with income-driven repayment is they can provide short-term financial relief, but are potentially more expensive in the long term. Too many borrowers jump into income-driven repayment terms for the “promise” of lower payments, but those lower payments come at a cost because interest still accrues on your student loans.
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