Why Student Debt Keeps Growing — Even As Borrowers Keep Paying

How does a graduate student loan balance spiral out of control, despite years of careful payment?

A series of Wall Street Journal articles explored how some private colleges charge six-figure sums for graduate degrees that lead to low wages and how federal loan programs without limits lead to very high debt.

Upon graduation, a significant and growing percentage of graduates undertake repayment plans that tie monthly payments to their salaries, according to the Congressional Budget Office. But often these payments don’t cover interest, meaning the total debt continues to grow.

We put you in the shoes of a graduate student starting a two-year master’s program in 2021 at a cost of $100,000. In this case, you earn an adjusted gross income of $65,000 upon graduation.

Methodology

This is just a simulation; Other computers may make different assumptions and give different results, according to student loan experts The Wall Street Journal interviewed. The magazine simulated a scenario in which loans were disbursed in August and January for two years. For each disbursement, we calculate the daily interest rate of the loan and the number of days payable to determine accrued interest.

Our borrowers commenced repayment in November 2023 and reached 25 payment years in 2048. The borrower’s annual payments are set according to the previous year’s tax return, so his income the person is artificially low in the first two years of payments. We assume earnings growth at 4% per year; Poverty levels increase by 2.5% in our scenario. This analysis does not affect payment and interest rate suspensions during the pandemic or account for possible future similar freezes.

Our borrowers are single and have no children. Another repayment plan, such as Pay As You Earn, may be better for another borrower. It also assumes that our borrowers are not subject to compliance. If this happens, all unpaid interest — at some point in the tens of thousands of dollars — will be capitalized and credited to the principal.

The income tax bracket is likely to change over the next few decades, so our borrowers’ actual tax bills may vary. This tax estimate does not account for deductions other than the standard deduction.

New student debt crisis

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https://www.wsj.com/articles/how-your-student-debt-keeps-growingeven-when-you-keep-paying-11640994313?mod=pls_whats_news_us_business_f Why Student Debt Keeps Growing — Even As Borrowers Keep Paying

Ian Walker

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