7% Of Borrowers Are On Track To Never Repay Their Student Loans, According To A New Report

The JPMorgan Chase Institute recently released some alarming statistics on the current state of student loan debt in the United States.

They estimate that roughly 7 percent of borrowers will likely never be able to pay off their student loans.

“American families carry more than $1.5 trillion in student loan debt,” state the authors of the research, led by Diana Farrell of the JPMorgan Chase Institute. “This debt provided many with the opportunity to pursue higher education, but remains for others a large, potentially crippling, financial burden.”

What is most troubling is that the debt burden is disproportionately affecting minority groups. They estimate that 13 percent of Black borrowers are on track to never pay off their student loans and that minority groups are two to three times more likely than Whites to have never made a payment against their loans.

“Black borrowers appear to experience more challenging circumstances related to student loan debt relative to White borrowers according to every metric we explored: payment burden, payment help received, payment shortfall, deferral rates, and time to pay off,” state the researchers. “Thus, as currently constituted, student loan credit markets threaten to amplify rather than mitigate racial wealth gaps across generations.”

This, of course, runs in opposition to the basic goal of education, which is to provide a pathway to financial stability for people of all backgrounds.

To arrive at this conclusion, the researchers assembled a dataset of over 300,000 Chase checking account customers who had outstanding student debt or were making payments toward student debt. They linked Experian credit bureau data to these individuals’ bank data, which allowed the researchers to explore key attributes of loan holders such as income, student loan payments, loan origination date, account holder age, and, in some cases, race and ethnicity.

All of this data paints a bleak picture of the student loan debt crisis in America, and an especially bleak picture for minority borrowers.

What can be done to fix the problem? One obvious solution has to do with curbing rising tuition costs. But that’s only part of the story. The bigger issue, according to the researchers, is the high degree of income and wealth inequality that exists between Whites and minorities.

“Black borrowers are more likely to face a student debt ‘trap,’ due in part to the fact that they have lower incomes and asset holdings and likely fewer people in their network who may be able to assist with repayment when they need help,” state the researchers.

To that point, the researchers report that approximately 40 percent of people involved in student loan repayment are helping someone pay their student loans, with most helpers holding no student loans themselves. In other words, student loan repayment is very much a “family affair.”

Here, minority borrowers are again at a significant disadvantage: only about 19 percent of Blacks and 26 percent of Hispanics fell into the “helper” category, or someone who made payments toward a student loan but did not hold a loan themselves.

The researchers believe that targeted debt assistance programs could also be expanded to help ease the burden on existing student loan borrowers.

The analysis uncovered some other noteworthy characteristics of student loan holders, including:

1. The median age of student loan holders was 39.
2. The median income of student loan holders was found to be about $56,000/year.
3. The amount of liquid assets possessed by student loan holders was estimated to be around $3,600.
4. The median loan balance was approximately $14,500.
5. The median installment loan balance was approximately $107,000.

Setting aside the data and figures, it is important to remember that the effects of having too much debt are psychological as much as they are financial. A recent study published in the Journal of Experimental Psychology found that student loan debt was associated with lower levels of life satisfaction more than other types of debt such as home mortgages and credit card debt.

“Consumers are less satisfied with life when carrying debts that they mentally label as debt,” state the researchers, led by Adam Greenberg of Bocconi University. “Whereas consumers appropriately view their student loans as debt, they are less likely to label their mortgage or credit card balance as debt. For this reason, despite representing the largest debts, mortgages are less related to consumers’ satisfaction in life than student loans; and despite representing some of the costliest debts, credit card balances are less related to consumers’ life satisfaction than student loans.”