Student loan borrowers — particularly those who are younger and from lower-income families — are spending up to 17% of their annual income on repayments, sometimes putting off basic needs to meet them, according to a comprehensive new report from JPMorgan Chase Institute.
The research — which used data from 4.9 million Chase checking accounts from 2012 and 2018 that made at least one student loan payment — presented a more nuanced picture about just how much debt borrowers have as well as how exactly borrowers are repaying their loans.
In some cases, families that were actively repaying their loans sometimes spent more on the payments than on fuel, leading the study to note that “families are spending more on student loans than key categories of basic necessities.”
D.C.-based Center for American Progress Director of Postsecondary Education Colleen Campbell told Yahoo Finance that the report’s findings were “an important step forward in looking at student debt as part of a person’s whole financial situation, rather than just looking at debt in isolation.”
In a press release, JPMorgan Chase Institute President and CEO Diana Farrell stated: “By understanding the relationship between these student loan payments and other financial outcomes, we hope to provide policymakers, lenders and other stakeholders with valuable information that can help shape policies to ease this burden for America’s families.”
While the scale of the study is massive, it’s also important to note that Chase does not operate in all U.S. states:
Student loans are hampering lives of young people
The median age of the student loan borrowers analyzed was 34, and the average gross income was $76,557. Their average student loan payment was $394 or 6.1% of their take-home income.
And that percentage rose among younger and low-income borrowers. Looking at Chase account holders aged between 25 to 34, one in 4 spent 11.8% of their income on student loan repayments, and a quarter of account holders below 25 spend 16.8% of their income on repayments.
Broken down by income level, families that earn less than $50,000, they’re making student loan repayments that comprise of roughly 7% of their take-home income. And for 1 in 4 of those families, that number goes up to 14.7%.
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Many school districts are desperate for teachers to work in low-income schools or to teach in high-demand programs. In return for teaching for five years, college graduates may be able to get large portions of their loans forgiven. The exact payoff depends on the type of loan, but the benefits can be huge: Stafford loans may qualify for up to $17,500 in repayment, while Perkins loans may qualify for full forgiveness.
Facing huge amounts of student loan debt? Eager to see the world? Desperate to fill out your resume? Look no further! The Peace Corps will cancel up to 70% of Perkins student loan debt. When it comes to Stafford and consolidated loans, the deal is not quite as good — the Peace Corps will allow full deferment for up to 27 months, but won’t pay off loans. Right now, though, spending a couple of years filling out a resume and waiting to enter the job market could be a very attractive option!
For new grads who are interested in volunteering, but aren’t interested in traveling halfway around the world, Americorps and VISTA could be attractive options. VISTA places volunteers with nonprofit groups, while Americorps places them in a variety of jobs, from teaching school to environmental cleanup. In return for a one-year stint, workers in both programs get stipends of up to $7,400, plus $4,725 to pay off loans.
The military offers some outstanding education resources, including the Montgomery GI Bill, which can cover more than half of the cost of a college education. For graduates facing heavy loan debts, the Army National Guard has some particularly nice options, including the Student Loan Repayment Program, which will pay up to $50,000 worth of student loans, depending upon the student’s area of study.
Love working with animals, but hate being in debt? The Department of Agriculture’s Veterinary Medicine Loan Repayment Program may have the answer: Qualified applicants may receive up to $75,000 in loan forgiveness — $25,000 per year for up to three years. The only catch is that you’ll probably have to get used to living in the boonies — participants are placed in areas that have insufficient veterinary coverage.
Veterinarians aren’t the only ones who can benefit from loan forgiveness — the government also offers some great loan forgiveness options for human doctors. Health care professionals looking to have the Northern Exposure experience might consider working with the National Health Service Corps and the Nursing Education Loan Repayment Program, both of which place medical workers in underserved regions.
Nor are small towns the only place where doctors can get their loans paid off. The National Institutes of Health will repay up to $35,000 per year in loans for qualified clinical researchers, and many hospitals will help repay loans for doctors who agree to work in physical therapy, among other career tracks.
As many young law school grads have been discovering, a Juris Doctor degree is not the moneymaker it once was. Luckily, some states, including Maryland, offer loan repayment aid for state employees who have studied law. For that matter, there are several programs that will help pay off loans for lawyers who work with nonprofits or public interest groups.
If worst comes to worst, you could always try escaping from your loans by literally escaping. The French Foreign Legion, for example, not only offers the opportunity to go to foreign lands, but encourages new members choose a new identity. Enlistment is for five years, and new enlistees receive roughly $1,400 per month. After serving one stint, legionnaires may apply for French citizenship, an option that may give you legal protection from your creditors, in addition to a pretty sweet state-run universal health care system.
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Overall, the report found that families making student loan payments “spend a higher share of their take-home income on student loans… than on out-of-pocket health expenses” in particular over 2017.
That pain is compounded as many millennials also struggle with their auto loans as well as credit card debt. Serious delinquencies rose for both components in the first quarter of this year, according to data from the New York Fed.
And when borrowers face an income shock — such as if a borrower gets laid off, or was in an adverse situation where they couldn’t earn an income — the report indicated they’d scale back their student loan payments first by putting them into forbearance rather than the other components like auto loans and credit card debt.
But since interest racks up on those in forbearance, that debt pile continues to grow while they attempt to fan the flames on the rest of their overall debt.
Private loan market may be able to do a better job
Amid repayment troubles — many student loans are going into delinquency status or are in default — the report also suggested that applying the private sector’s approach to federally held student loans could be a solution.
“The federal government does not apply risk-based underwriting, which could lead to borrowers taking on too much debt and being overly burdened by repayment costs,” it stated. “In contrast, the private loan market does apply actuarial pricing and, as a result, targets more creditworthy borrowers to whom they can offer competitive interest rates compared to the federal pool… [hence] putting upwards pressure on interest rates in the federal direct loan program.”
On top of that, “private [student] loans have a 98% repayment rate. So this is really a problem with federal student loans,” Consumer Bankers Association VP of Congressional Affairs and Director of Policy Kris Fallon recently told Yahoo Finance’s On The Move. “There’s a federal student loan crisis… the system is rigged in favor of the federal government.”
Making student debt benefits like a 401(k)
Another option — this time from Silicon Valley — proposes that firms embrace student debt as part of their employees’ life.
Goodly Co-Founder and CEO Greg Poulin — who had personally struggled with a student loans — thinks that employers should pay off their employees’ student debt as a benefit, just like how they offer 401(k)s.
“When I was in school, my father passed away very unexpectedly,” Poulin told Yahoo Finance. “So to pay for school at Dartmouth — had to borrow about $80,000 in student loans — I then moved out here to San Francisco to start working for a [human resources] startup. And it’s really difficult to do things like save for retirement, let alone think about saving for a house, start a family because my monthly payment’s over $900 a month.”
Poulin’s idea — which birthed his startup, Goodly — is that just like how 401(k)s are offered to employees as a benefit, companies could use his startup’s software to also offer to help pay off employees’ student debt, which he believes is a perk that many would appreciate.
“We could see that payoff in terms of recruiting and retention is a lot of companies,” he explained. “You will get benefits in companies, particularly other companies here in Silicon Valley, … [like] some pretty ridiculous things like ping pong tables, cold brew or dry cleaning for their employees. But at the end of the day, a lot of employees are struggling with student loans.”
Aarthi is a writer for Yahoo Finance. Follow her on Twitter @aarthiswami.
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