Why do student loans get cheaper than credit cards?
Loan calculator: The federal government says that the federal government’s loan-to-income ratio, or the percentage of federal student loans outstanding that are forgiven, has fallen to the lowest level since 2005.
(Photo: jason sperry/The Washington Post)More:Student loan forgiveness: The low interest rate and reduced paperwork have helped make student loans more affordable for millions of borrowers, according to data compiled by The Washington Times.
The government’s Student Loan Forgiveness and Repayment Act, signed into law in 2015, has helped bring down the federal student loan forgiveness ratio, which stands at about 30%, according to a Federal Reserve Board study published Wednesday.
The Federal Student Aid Office said in a statement that the average federal student aid recipient has forgiven $16,100 in student loan debt since 2013.
The federal government has been spending more than $6.2 trillion on student aid since the program’s inception in 2000, according the Fed.
The average forgiveness rate has been below 10%, but that has varied greatly by lender.
The average forgiveness of a federal student borrower was at least 60% in 2014, according Federal Reserve Bank of Atlanta data.
In a letter to borrowers in September, the federal agency said the forgiveness rate dropped to 30% from 30% in 2017, a decline of nearly 20 percentage points since the end of the recession in 2008.
It said the lower forgiveness rate will help to help borrowers refinance loans at lower interest rates, allowing them to repay their loans faster and get on with their lives.
“The average forgivable student loan balances of borrowers who refinance or reduce their student loan payments in the coming 12 months will be $2,800 lower than the averages in 2016, 2015 and 2014,” the Fed said.
The rate has dropped sharply in recent years, especially for those with higher-rate federal loans, and has declined further in recent months.
The median forgiveness rate for those refinancing a federal loan in 2020 was just below 10% compared to 30%, the Fed noted.
The interest rate for federal student borrowers has fallen from about 3.6% in 2004 to 3.2% in 2018.
The rate for students who refinances their loans at the rate of 3.5% has declined from 3.8% in 2016 to 3% in 2019.
Student loan borrowers who refinanced their loans in 2018 were paid $1,766 per year, the Fed stated.
The median interest payment for refinancing the same loan was $1.3 million, the agency said.
Borrowers who refiled their loans last year received a payment of $1 million, or a little more than 4% of their annual income, according for the latest data.
Banks are also offering forgiveness, which means the amount of federal loans borrowers can defer payment on.
The forgiveness process starts with borrowers filing a FAFSA form, which is a self-employed tax return, and the IRS allows borrowers to defer up to $5,000 of student loan repayments, according.
The $5.5 billion in federal student debt is the most outstanding in history.
The Treasury Department last year said it expected student loan borrowers to repay about $3.5 trillion, the first time the government has estimated the total.
That would leave the U.S. with about $16 trillion in student loans, more than half of which are outstanding.
The Student Loan forgiveness Act, also known as the Student Loan Fairness Act, aims to end the massive student debt burden that has burdened borrowers for decades.
The act allows borrowers who default on their federal loans to refinance their loans and get a lower interest rate, and is intended to encourage borrowers to refinances.
More:Federal student loans: Student debt could be as high as $1 trillion by 2020, federal watchdog says article More:Student debt: The Federal Reserve has warned that the U,S.
is on the brink of a $1-trillion student debt crisis.
(Read more)More from the Washington Post:Student loans: How the federal loan forgiveness rate changed in the last five years | How to refloat your federal student debts | How much interest you’ll pay on your student loans | How long it takes to get your federal loans forgiven