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Moody's: Slow Student Loan Repayment Driving High Balances, Bringing Social, Credit Implications

January 17, 2020

Slow repayments have become the most important contributor to rising student loan balances, Moody’s Investors Service said in a report released Thursday.

In the past, rising tuition and climbing college enrollments were the largest contributors to increasing student loan balances, according to the ratings agency. But the drivers shifted to slow repayment, which is likely to combine with continued elevated levels of borrowing to increase outstanding debt into the future.

Loan originations slowed somewhat following a dozen years of rapid growth ending in 2012, according to the report, an in-depth look at student lending. That’s because the number of students enrolled in higher education has declined and the cost of attending college has stabilized in comparison to family incomes.

Nonetheless, Moody’s singled out social and credit implications for increasing student debt burdens. Student debt growth has affected credit quality in sectors like higher education institutions and student loan asset-backed securities. Student debt is “weighing on household finances and the broader economy,” according to Moody’s.

Students who attended for-profit institutions and public two-year institutions struggled the most to make a dent in loan balances, Moody’s found after examining five-year repayment rates for two different student cohorts. But the ratings agency still said students who attended all types of institution were contributing to slow repayment.

“Even in the category with the highest repayment rate in the 2010-12 cohort -- graduates of private nonprofit institutions -- 20 percent of borrowers had not paid down balances,” the report said. “A sizable proportion of all former students at private nonprofit four-year (33 percent) and public four-year (35 percent) schools who entered repayment in 2010-12 also had not paid down any of their debts after five years, underscoring the wide array of sources of borrowers with slow repayments.”

Just 51 percent of all federal borrowers with repayment obligations beginning in 2010-12 had made progress cutting outstanding balances five years later. Expansion of income-driven repayment plans and borrowers choosing long repayment terms helped to contribute to the slow pace.

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Rick Seltzer

Rick Seltzer, Projects Editor, oversaw special projects and coordinated daily production for Inside Higher Ed from 2019 through May 2021. He joined the publication in 2016, covering finance and management. Previously, he worked as a reporter for The Baltimore Business Journal, The Bloomington Herald-Times, the Central New York Business Journal and The Harrisburg Patriot-News. He has covered numerous business, municipal, government and general assignment beats. Rick graduated from Syracuse University in 2008.

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