As the election campaign heats up on each side of the aisle, student loans have become a central issue. Bernie Sanders and Hillary Clinton have made proposals for comprehensive legislation that combine debt relief, the expansion of income-based student loan repayment plans, greater subsidies for colleges that cut tuition costs, and lower federal interest rates. Republican candidates have publicly supported some, but not all, of these reforms.
Growing student debt is a major economic problem. In 2003, Americans held over $250 billion in student debt. Today, it’s almost $1.3 trillion. According to MarketWatch, student loan debt in America is increasing by over $3,000 every second. The proposed solutions might differ, but one thing is clear: student loan debt is a bipartisan issue. When you look at the trend line over the past 12 years, student debt has shot upwards at a 45-degree angle regardless of who has been in office.
In last night’s Republican debate, student loans weren’t a factor. But here are a few realities of the student loan problem that we see every day at Credit Karma that no candidate has yet to acknowledge.
Millennials are borrowing more and they’re not seeing a good return on investment
Credit Karma recently surveyed Millennial and Baby Boomer generations to see how the recent shifts in borrowing patterns and tuition increases affected their outlooks towards their education. Millennials were two-and-a-half times more likely than Baby Boomers to have borrowed half or more of the cost of their degree, and almost three times more likely to have borrowed the cost of their entire education. For a college degree, Millennials are taking on debt at a fast rate. According to data from the National Student Loan Data System, almost half of the student debt the Federal Government owns is less than ten years old.
For the debt burden they’re taking on, many Millennials don’t feel like they’re getting a spectacular return. Over a quarter we surveyed felt that the money they spent on their education was not worth the value it bought them.
It’s not just young people
Student loan news coverage hones in on the effect educational debt has on younger adults and whether it stunts their financial development throughout their lives. Unfortunately, our data shows that student loan debt lingers through the generations. Twenty-seven percent of Credit Karma members between the ages of 35 and 44 have student loan debt, while according to the Department of Education only four percent of the population in that age range is in school. More than 1-in-7 of our members over the age of 45 still has an open student loan on their credit profile. Younger generations may feel this issue most acutely, but it’s affecting Americans of all ages.
Refinancing would be the quickest way to a make a dent in student loan debt, but not everyone would qualify
A lot of the discussion around easing student debt has been on refinancing and consolidating loans. As it stands currently though, refinancing is an option that not all Americans would qualify for. Over a quarter of Credit Karma’s more than 40 million members have student debt, but a majority of those with student debt likely don’t have high enough credit scores to qualify for refinancing.
Student loan refinancing is a growing sector of the lending market and understandably so. Refinancing has myriad benefits, including consolidating multiple loan payments and reducing loan costs with lower interest rates. According to our data as well as that from our partners, refinancing can potentially help a borrower save between $11,000 and $15,000 on average over the life of a loan. A study from Goldman Sachs in March this year, estimated that just $200 billion of America’s $1.2 trillion in student loan debt would be eligible for refinancing–roughly 16 percent. For how small a fraction of the total pie this is, the opportunity still remains huge. Goldman Sachs found that just 3 percent of the total eligible debt had actually been refinanced.
Which means that many of the people who need help, aren’t currently getting it
As Goldman Sachs’ study points out, the overwhelming majority of student loan debt isn’t eligible for refinancing, leaving most borrowers who need help out in the cold. We’ve seen from our data at Credit Karma that borrowers with lower than average credit scores tend to carry student loans at higher rates than those with better credit scores: 29 percent of Credit Karma members with a credit score of 560 or less carry a student loan, as opposed to 19 percent of members with a score of 740 or more.
More effort needs to go into financial literacy education, immediately
We can start taking steps to getting on top of student debt without an act of Congress. Educating consumers about the ins and outs of their student loans and the rights they have will help them start to take control back. Student loan debt can make people feel powerless. Missed payments and defaults have long-term negative impacts for borrowers. It is important that borrowers know the nitty-gritty details of their loans, their interest rates, their payment terms and any potential grace periods they might have. There are always steps within the system that a consumer can take. The issue is, too few people are talking about them.
By Kenneth Lin, CEO and Founder of Credit Karma. This article originally ran on Inc.com on September 17.