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When Student Loans Linger: Characteristics of Borrowers Who Hold Student Loans over Multiple Decades

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Author(s): Urban Institute

Published: Jan. 8, 2020

Report Intro/Brief:
“Conversations about the burden of student loan debt have become increasingly common. But for some Americans, the issue is not new. More than 1.5 million borrowers who first took out loans before 2000 still have debt. Borrowers with debt from the mid-1990s or earlier tend to have higher default rates, have lower credit scores, and live in lower-income neighborhoods than more recent student loan borrowers.

Reason Loans Linger
Federal student loans are generally not subject to a statute of limitations for pursuing legal action to collect on defaulted debt. This means the government can collect on debt regardless of how old it is. Discharging student loans in bankruptcy is possible but requires special circumstances. When borrowers delay repayment or fall into default, the amount owed on the student debt tends to rise because of accumulating interest and fees. Although these penalties are intended to motivate borrowers to repay their debts, they can prolong the time it takes to fully pay down the loan.

Characteristics of Borrowers with Old Loans
I estimate that 0.2 percent of current borrowers had a first debt origination date before 1990 and 3.5 percent had a first origination date before 2000. That means 99,000 consumers have an origination date before 1990 on their credit record and 1.5 million have an origination date before 2000. But these are likely underestimates, as some of these lingering loans may have fallen off the borrower’s credit record, even though they are still collectible.

Borrowers with loans first disbursed before 1995

  • are more likely to live in neighborhoods with higher shares of black residents in their age cohort;
  • at the median, currently owe slightly more on their loan than they initially borrowed;
  • have lower credit scores than those who first borrowed in the late 1990s and early 2000s; and
  • live in areas with lower household incomes than later cohorts.

Policy Options
Some lingering student debt will never be completely repaid. There are policy solutions that could provide relief for borrowers and decrease the chances of recent borrowers holding loans for decades. Potential solutions include

  • making it easier for borrowers to enter income-driven repayment,
  • mitigating the accrual of student loan interest,
  • allowing student loan forgiveness for borrowers facing long-run hardships, and improving the process of default and default resolution.”

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