Why repayment has been slow
There are several reasons that people have been slow to repay their student loans.
For one, the job prospects for many graduates of for-profit, two-year and non-selective four-year schools aren’t great, making it hard to earn the income needed to pay back loans and otherwise stay afloat. Some students don’t complete their programs or receive degrees.
Another reason that Moody’s cites for slow repayment is a rise in income-driven repayment plans, which can lower monthly loan payments based on their incomes and the size of their families and make paying back those loans more affordable.
“As you can imagine, the monthly payment will be lowered to reduce their monthly obligation but at the same time that keeps the loan outstanding for much longer and the repayment rate is going to be much slower,” Nicky Dang, senior vice president/manager at Moody’s, told CNN.
Finally, more people are opting for extended repayment plans, meaning that they plan to pay back their loans on a longer schedule. Only about a quarter of balances are currently being repaid on 10-year or shorter terms, the report said.
Many people are on longer repayment plans because they cannot afford traditional loan payments, although analysts believe others are opting to pay back loans on a longer schedule by choice, Warren Kornfeld, senior vice president at Moody’s, told CNN.
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