Diana Farrell Student Loan Debt: Fiona Greig Who is Paying it Down? Daniel M. Sullivan

October 2020

Abstract

American families carry more than spouses—in order to manage their and 7 percent of all borrowers not $1.5 trillion in student loan debt. This debt. In particular, we find that while in deferral are on track to never pay debt provided many with the oppor- the median borrower is not unduly off their loans. These dynamics of tunity to pursue higher education, but burdened by their debt, a significant repayment put Black borrowers at a remains for others a large, potentially minority of lower-income and younger disadvantage, who, relative to White crippling, financial burden. In this borrowers are heavily burdened, borrowers, have lower incomes and report, we explore how people of required to make payments that con- higher debt balances and are 4 times different socioeconomic groups are stitute more than 10 percent of their as likely to have no payments made managing their student debt. We do take-home income. We also find that against their loans, partly due to the this by linking administrative banking almost 40 percent of those involved fact that they are less likely to receive data, credit bureau records, and public in student debt repayment are making repayment help. This debt provided records on race and ethnicity to create payments on other people’s loans, many with the opportunity to pursue a unique data asset that includes the with 27 percent of those involved higher education with commensurate income, demographics, debt balances, holding no student debt whatsoever. income keeping debt burdens at and student loan payments of 301,583 These outside helpers play a key role reasonable rates. For others, student individuals. In general, we find that in helping borrowers make progress loan debt remains a large financial borrowers of socioeconomic groups on their loan. Nevertheless, we find burden relative to income. In this tend to manage student loans quite that low-income and older borrow- report, we explore how people of differently, often relying heavily ers are more likely to be several different socioeconomic groups on others—children, parents, and months behind on their payments, are managing their student debt.

About the Institute

The JPMorgan Chase Institute is harnessing the scale and scope of one of the world’s leading firms to explain the global economy as it truly exists. Drawing on JPMorgan Chase’s unique proprietary data, expertise, and market access, the Institute develops analyses and insights on the inner workings of the economy, frames critical problems, and convenes stakeholders and leading thinkers.

The mission of the JPMorgan Chase Institute is to help decision makers—policymakers, businesses, and nonprofit leaders— appreciate the scale, granularity, diversity, and interconnectedness of the global economic system and use timely data and thoughtful analysis to make more informed decisions that advance prosperity for all. Table of Contents

3 Executive Summary 23 Finding Four Compared to White and Hispanic student loan borrowers, Black borrowers are less likely 7 Introduction to be making progress on their loans.

12 Finding One 29 Implications Although the median student loan borrower is obligated to pay 3.8 percent of their take- home income, many borrowers, especially 32 Data Asset lower-income and younger borrowers, face payment burdens well over 10 percent. 35 Appendix 15 Finding Two Almost 40 percent of individuals involved in 36 References student loan repayment are helping someone else pay off their student loan debt, with most helpers 38 Endnotes holding no student loan debt themselves. 40 Acknowledgements and 19 Finding Three Suggested Citation Low-income and older borrowers are more likely to be behind on payments or in deferral, and roughly 7 percent of borrowers are projected not to repay their loans. Executive Summary

American families carry more than $1.5 trillion in student loan debt. This debt provided many with the opportunity to pursue higher education with commensurate income keeping debt burdens at reasonable rates. For others, student loan debt remains a large financial burden relative to income. In this report, we explore how people of different socioeconomic groups are managing their student debt.

Finding One Median reported payment burden by income level 10%

8% Although the median student loan borrower is obligated to 6% pay 3.8 percent of their take- 4% home income, many borrowers, especially lower-income and 2% percentage of income percentage younger borrowers, face payment as a Reported payment 0% burdens well over 10 percent. 20 30 40 50 60 70 80 90 100 200 Income ($1,000s)

Note: Medians are calculated wit in twenty income quantiles. Eac income bin is represented by its average income. Reported payment is total amount paid toward outstanding student debt during t e twelve-mont window December 2015 t roug November 2016. Income refers to take- ome income.

Source: JPMorgan Chase Institute

Finding Two Individuals who do not have a student Pure Helpers These individuals ( 9 percent) loan but have made payments (No student loan debt are helping someone else towards student loans. 27% pay down their student loan debt by making student loan Almost 40 percent of individuals payments towards loans that Individuals who have a student loan and are not theirs. involved in student loan repayment have made payments but whose Net Helpers are helping someone else pay payments are also helping pay down 12% another person’s student loan. off their student loan debt, with most helpers holding no Individuals who have a student loan and Some of these student loan debt themselves. have made student loan payments Paying Debtors individuals might be out of their checking account 43% receiving help from others to but are not Net Helpers. the extent that their reported payments exceed their Individuals who have a student loan but observed payments. have not made payments towards Non-Paying Debtors student loans out of their 18% checking account. Source: JPMorgan Chase Institute

Student Loan Debt: Who is Paying it Down? Executive Summary 3 Finding Three

Low-income and older borrowers are more likely to be behind on payments or in deferral, and roughly 7 percent of borrowers are projected not to repay their loans.

Distribution of payment shortfall by age Distribution of payment shortfall by income

6 10 percent of borrowers with incomes less than 6 $30,000 in take-home income are 4 to 6 months 5 or more behind on their payments in just one year. 5 10 percent of borrowers around age 60 are at least 3 months behind in their payments. 4 4 90th Percentile 3 3

2 2 The median (50th percentile) borrower 1 90th Percentile 1 around age 60 is current with payments.

0 50th Percentile 0 50th Percentile Payment shortfall in months Payment 20 40 60 80 100 200 30 40 50 60 70 Income $1,000s) Age

Note: Percentiles shortfall in months Payment are calculated within twenty income and age quantiles, respectively. Each bin is represented along the x-axis by its average value. Payment shortfall is the difference between all scheduled and reported payments during the twelve-month window December 2015 through November 2016, divided by average monthly scheduled payment. ncome refers to take-home income. Source: JPMorgan Chase nstitute

Finding Four

Compared to White and Hispanic student loan borrowers, Black borrowers are less likely to be making progress on their loans.

Progress on student debt repayment by ra e

13 ercent of Black borrowers not in deferment are on track to never Nearly 10 ercent of Black ay off their student loans in that borrowers had no ayments their loan balance is increasing. made against their student loans. 13.1%

9.9% 8.4% 6.8% 4.5% 2.6%

Black His anic White Black His anic White

No payments made against loan On tra k to never pay off

Note: The sam le is restricted to borrowers who do not have a student loan in deferral or forbearance during the twelve-month window December 2015 through November 2016. Borrowers rojected to never ay off debt have increasing balances over the twelve-month sam le eriod; that is, interest charges over the course of the year are larger than total ayments made. Income refers to take-home income. Source: JPMorgan Chase Institute

4 Executive Summary Student Loan Debt: Who is Paying it Down? In summary, this report finds that without saying that curbing the rise step in expanding targeted assistance student debt holders are not a in tuition costs and student loan debt would be to help additional borrowers monolithic group. Many borrowers borne by students and their families benefit from improved access to are not unreasonably burdened would address the problem at its existing payment assistance programs, by student loan payments and are root. In addition, reducing racial gaps such as IDR. Student loan debt policies making payments on time. But in income and wealth would boost and assistance programs should also certain segments of the student loan families’ ability to pay for tuition take into consideration the extent population are significantly burdened and repay student loan debt among to which students rely on a network by their debt, especially low-income segments of the population most of people to repay their student borrowers, the elderly, and Black burdened by student loan debt. loans. Loan origination programs borrowers. Moreover, we find that a Setting aside these structural issues might want to rebalance eligibility of significant portion of student debt that contribute to the patterns of loans between students and parents. payments are made not by the loan student loan repayment that we Additionally, there could be more holder, but by other individuals not observe, we explore a few possibilities avenues for payment assistance for tied to the loan, presumably family for how targeted debt assistance parents. A possible complement to members who may not directly reap programs could be expanded to repayment relief programs is to allow the labor market returns to higher alleviate the burden of existing student for restructuring or forgiveness of human capital investment. This means loan borrowers. As a general principle, student debt through a bankruptcy-like 1 that the economic impacts of student because the majority of borrowers process. A further step to address debt likely affect a broader portion are managing their debt without undue payment burdens would be to of the population than previously being excessively burdened, efforts expand efforts to provide targeted thought. Additionally, the prominent to alleviate undue burdens from debt forgiveness to those most role of help in student loan repayment student loan debt should be targeted burdened. Targeted student loan puts Black borrowers at a disadvantage at those who are facing truly difficult debt forgiveness could be a means in that they exhibit a greater unmet circumstances. This is true for payment of rebalancing our investments in need for repayment assistance. assistance efforts like income-driven public goods such as education across What should be done to address the repayment (IDR) programs as well communities and insuring against disparate patterns we find in student as more aggressive actions like debt the risk that borrowers, Black and loan borrower outcomes? It goes forgiveness. A relatively easy first Hispanic borrowers disproportionately, find themselves in a debt trap.

Student Loan Debt: Who is Paying it Down? Executive Summary 5 Data Asset

We assembled a novel dataset of Louisiana—this also includes self- we consider an account in active use 301,583 de-identified Chase checking reported race and ethnicity data taken if it has at least five transactions in account customers who had out- from public voter registration records. every month of our sample period standing student debt or were making We constructed our sample of 301,583 and at least $12,000 in deposits over payments towards student debt. from a larger match of 4.75 million the course of the sample period. This We linked Experian credit bureau Chase customers to Experian records gave us a base sample of 1.8 million data for December 2015 through covering December 2015 through customers. From these, we selected November 2016 to these individuals’ November 2016. We then restricted all individuals who either (a) have an bank data. This joint data asset this sample to those customers who open student loan in the Experian allows us to observe income, student meet certain activity criteria in order records or (b) make payments out loan payments, and key attributes to ensure a reliable analytical sample. of their Chase account to a student of the student loan tradeline (e.g., Customers in our sample must have loan servicer, leaving us with our origination date) and the account been Chase customers for the entire final sample of 301,583 customers holder (e.g., age). For three states period of study. They must have also involved in student debt repayment. in our sample—Florida, Georgia, and actively used their Chase accounts;

Universe of 39 million Chase checking accounts

Sample of 4.75 million Experian records who have Chase checking accounts

1.8 million “core” Chase checking accounts with Experian Records (have $12,000 of deposits and five transactions per month)

301,583 Chase checking accounts who are involved in student loan repayment (either hold student debt or have made at least one payment to a student loan ser vicer)

80,873 People making student loan 220,710 Student loan holders payments but not holding a loan

16,799 People involved in student loan repayment for whom we observe self-reported race (from 2018 voter registration files in Florida, Georgia, and Louisiana)

6 Executive Summary Student Loan Debt: Who is Paying it Down? Introduction

Student debt allows more people to officially scheduled to make on their ameliorate student debt burden ought attend college with the prospects loan. Measuring the distribution of to consider not only the borrower of achieving higher income levels, actual and scheduled payment burden but also the network of people the but many policymakers and student is especially important in light of the borrower relies upon, who notably advocates argue that the burden income-driven repayment programs, may not benefit financially from of the debt—totaling over $1.5 and additional measures taken in the the human capital investment. trillion—presents a looming crisis COVID-19 crisis, which attempt to align Third, who is making progress on (Looney and Yannelis 2015). With the student loan repayment obligations repaying their student loan debt? cost of higher education rising far with borrowers’ ability to pay. An important metric of success for faster than inflation, an increasing student loan debt is the ability of the number of students and their debtor to pay off their loan over time. families use student loan debt to Evidence suggests, however, that a finance their education. For many, Understanding number of borrowers are stuck in a how families share the this is a sound investment paid off “debt trap,” with student loan balances burden of student debt is through higher earnings over time. increasing rather than decreasing important for the design of For others, however, unpaid student over time even as they attempt to pay loans become a lifelong burden with both loan origination and repayment programs. them down (Gibbs 2017). What share minimal returns. What impact does of borrowers are in this situation? student debt have on the financial How much time does the typical lives of borrowers and their families? borrower take to repay their loan? In this report, we develop a new data Finally, are there racial disparities asset that links credit bureau records Second, who shoulders the burden in student loan debt and repayment with administrative banking data from of student loan debt during patterns? Survey evidence suggests Chase checking accounts in 2016. repayment? With a growing share that there are large racial disparities Together, these two data sources of federal student lending for in student loan borrowing and provide information on outstanding undergraduates now composed of repayment, showing that Black student debt, total monthly payments Parent PLUS loans, student loan debt individuals are more likely to take on made against the debt, income, and is increasingly shouldered by both student loan debt and experience more household demographics for 1.8 the recipients of higher education difficult conditions for repayment.3 2 million families. Using this dataset, and their family members (Baum et We contribute to this literature by we answer four key questions. al. 2019). In this report, we are able assembling an administrative data First, what is the payment-to-income to distinguish between payers who set that pairs banking data with burden of student loan debt? In are legally tied to the student loan voter registration data in order our recent report, we noted that one debt versus those who are making to expose disparities in payment in four families spend more than payments on another person’s burdens, progress, and help received 11 percent of their take-home income behalf. This allows us to shed light in repaying student loan debt across on student loans in months with on the extent to which student loan White, Black, and Hispanic families. repayment is unofficially a “family positive payments (Farrell et al. 2019). While the economics literature has Here we take this analysis one step affair.” Understanding how families share the burden of student debt documented the impact of student further, measuring burden by not only debt on many variables, from college using payments made out of the loan- is important for the design of both loan origination and repayment completion to home ownership, we holder’s checking account, but also lack a comprehensive understanding in terms of the payments they were programs insofar as policies to

Student Loan Debt: Who is Paying it Down? Introduction 7 of how it influences families’ financial These helpers are typically older and student loan repayment that we outcomes.4 Our data allow us to have higher incomes. Third, low- observe, we explore a few possibilities expand the existing literature in income and older borrowers are more for how targeted debt assistance several key ways: first, we describe likely to be behind on payments or in programs could be expanded to the burden it places on the collective deferral, and 7.1 percent of borrowers alleviate the burden of existing household income statement. If in a given year saw an increase in student loan borrowers. As a general parents and spouses pay a significant their balance, putting them on track principle, because the majority of portion of monthly payments, then to never repay their loans. Finally, we borrowers are managing their debt the economic impacts (on saving, observe large racial gaps in student without being excessively burdened, spending, income, etc.) of student loan repayment. Compared to White efforts to alleviate undue burdens debt may be broader than previously and Hispanic student loan borrowers, from student loan debt should be thought and have strong policy Black borrowers are less likely to be targeted at those who are dealing with implications (Lochner et al. 2018). making progress on their loans. genuinely challenging circumstances Our analysis also speaks to the existing In summary, this report finds that in repayment. This is true for payment literature focused on student loan student debt holders are not a assistance efforts like income-driven repayment (as opposed to origination), monolithic group. Many borrowers repayment (IDR) programs as well and the impact of debt on finances are not unreasonably burdened as more aggressive actions like debt post-education (Goodman et al. 2019; by student loan payments and are forgiveness. A relatively easy first Bleemer et al. 2017). We complement making payments on time. But step in expanding targeted assistance existing work on loan progress and certain segments of the student loan would be to help additional borrowers payoff (Gibbs 2017; Conkling and population are more substantially benefit from improved access to Tremper 2018) by adding cuts on age, burdened by their debt, especially existing payment assistance programs, income, and race. We provide a unique low-income borrowers, the elderly, such as IDR. Student loan debt policies perspective on monthly payment and Black borrowers. Moreover, we and assistance programs should also burdens since we can account for find that a significant portion of take into consideration the extent unofficial “help” received and take- student debt payments are made not to which students rely on a network home income, as opposed to official by the loan holder, but by parents and of people to repay their student measures of scheduled payments spouses, who do not directly reap the loans. Loan origination programs and taxable income (Looney and labor market returns to higher human might want to rebalance eligibility of Yannelis 2015). Payment-to-income capital investment. This means that loans between students and parents. ratios are an important input into the economic impacts of student debt Additionally, there could be more income-driven repayment formulas likely affect a broader portion of the avenues for payment assistance for (Herbst 2019), and an accessible population than previously thought. parents. A possible complement to repayment relief programs is to allow means of understanding how burdened What should be done to address the the student debtor population is. for restructuring or forgiveness of disparate patterns we find in student student debt through a bankruptcy-like Our findings are as follows. First, loan repayment? It goes without process. A fur ther step to address although the median student loan saying that curbing the rise in tuition undue payment burdens would be to borrower manages to make their costs and student loan debt borne expand efforts to provide targeted scheduled payment of $2,071 or by students and their families would debt forgiveness to those most 3.8 percent of their take-home income address the problem at its root. In burdened. Targeted student loan annually, payment burdens vary widely, addition, reducing racial gaps in debt forgiveness could be a means with low-income and younger student income and wealth would boost of rebalancing our investments in loan borrowers most burdened by families’ ability to pay for tuition public goods such as education across student loan payments. Second, almost and repay student loan debt among communities and insuring against the 40 percent of individuals involved in segments of the population most risk that those investments fail to pay student loan repayment are helping burdened by student loan debt. off for certain communities, Black and someone else pay off their student Setting aside these structural issues Hispanic borrowers disproportionately. loan debt, with most helpers holding that contribute to the patterns of no student loan debt themselves.

8 Introduction Student Loan Debt: Who is Paying it Down? About the Data

Our sample is drawn from a individuals, we observe their age Chase–Experian sample oversampled de-identified universe of 1.8 million and take-home income (based on Chase customers who made at least families for whom we observe Experian their checking account inflows). one student loan payment between credit bureau data for December 2015 Our main sample differs from the October 2012 and December 2013. through November 2016, as well as nation in some important aspects. As a result, it likely oversampled administrative checking account data, First, by construction, our sample student loan borrowers, who tend which allow us to observe income, excludes individuals who are unbanked, to be younger (median age of 39) student loan payments, and key roughly 6.5 percent of the nation than the typical credit bureau record attributes of the student loan tradeline (FDIC 2018), and those who do not holder (median age of 51). However, and the account holder. We focus on a have a credit bureau record, roughly among student loan borrowers, it likely subset of these customers who have at 11 percent of the adult population oversampled older and actively paying least five checking account transactions (Brevoort, Grimm, and Kambara 2015). borrowers because many borrowers and $12,000 in deposit inflows during These populations likely overlap. are not required to make payments our twelve-month window in order Second, our sample differs slightly until six months after leaving school. to select customers for whom we are from national benchmarks of credit With a median student loan balance of confident their Chase account is their bureau record holders and student loan $14,452, the Chase–Experian sample of primary checking account. Specifically, borrowers. As shown in the Appendix, student loan borrowers has slightly less we observe roughly 220,000 primary the age distribution of credit bureau student loan debt compared to national account holders who have a student holders in the Chase–Experian sample benchmarks. Although the median loan tradeline and an additional tilts in favor of younger individuals student loan borrower has two trade 80,000 primary account holders who than national benchmarks. On the lines, 16 percent of student loan holders do not have a student loan tradeline contrary, our sample of student loan have five or more trade lines (see but who we observe making student borrowers is slightly older than national Table A1 in Appendix). These borrowers loan payments. For each of these benchmarks. This is likely because our also tend to have higher balances.

Table 1: The sample draws from a universe of 1.8 million families for whom we observe Chase checking account and Experian credit bureau records

Sample of student loan holders Full Chase-Experian sample

Number of people 220,710 1,843,857 Median number of student loans 2 0

Median age 39 51 Median income $56,083 $47,541 Share female 45.5% 40.1% Share with mortgage 61.6% 67.2% Median liquid assets $3,621 $3,930 Median student loan balance $14,452 $0 Median installment loan balance $107,357 $194,937

Share of sample with deferred student loans 8.5% 1.4%

Share with reported student loan payment of zero 3.1% 0

Source: JPMorgan Chase Institute

Student Loan Debt: Who is Paying it Down? Introduction 9 For the purposes of our analyses, we payments made via paper check sample: December 2015 through leverage the Chase–Experian sample or money order are unable to be November 2016. We explore to observe three different payment categorized as such. Additionally, payment burden in Finding 1. metrics: we are unable to link electronic • Payment help given and received • Scheduled payments are based on student loan payments out of the (Reported payment minus Experian data and reflect the min- checking account to individual Observed payment): The relation- imum monthly required payments trade lines. Thus, these payments ship between reported payments for the student loan tradeline to stay are not necessarily being made and observed payments can indicate current. These payments represent toward the borrower’s own student help given and received (Figure 1). the promised and expected obliga- loan debt balance; that is, the When observed payments exceed tion of the borrower as reported borrower may be making payments reported payments, we call these by the loan servicers to Experian. towards someone else’s loan. account holders “net helpers.” In • Reported payments are based We are able to combine these payment addition, we can observe “pure on Experian data and indicate the metrics with additional bank and helpers” who have no student loan total payments received by the loan Experian data to examine five key tradeline (and thus mechanically no servicer and reported to Experian. student loan borrowing outcomes. reported payment) but nonetheless These payments represent the total • Payment burden (payment are making student loan payments. amount re-paid by the borrower divided by income): We define In Finding 2, we calculate the share or anyone else during the month. payment burden as the payment of individuals involved in student loan repayment who are extend- • Observed payments are based amount divided by take-home income; e.g., scheduled burden is ing help to another person and on Chase checking account data quantify the amount of help given and reflect the total student loan the borrower’s scheduled payment divided by their income. To account and received by age and income. payments from the borrower’s Specifically, we characterize people Chase checking account toward any for seasonal fluctuations in income such as tax rebates and year-end as having given (received) help student loan trade line. Notably, we when the reported payment is at are only able to categorize student bonuses, we consider the sum of payments and income during least one month’s payment more loan payments as such if they are (less) than the observed payment.6 made electronically. Student loan the last twelve months of our

Figure 1: Individuals involved in student loan repayment can be paying down their own debt or helping someone else repay their student loan debt

Pure helpers Individuals who do not have a student loan tradeline in their These Individuals are helping na e but have ade pay ents towards student loans someone else pay down their student loan debt in that they are aking student loan pay ents out Loan holders – net helpers of their checking account but do not Individuals who have a student loan tradeline in their na e; have student loan debt or have lower reported student loan their student loan pay ents out of their checking account pay ents according to Experian exceeds what the credit bureau reports. This excess is helping credit bureau data. pay down another person’ s student loan

Loan holders – payers Individuals in these groups Individuals who have a student loan tradeline in their na e and hold student loan debt have ade student loan pay ents out of their checkings account but are net helpers. A subset of these individuals might be receiving help fro others to Loan holders – non-payers the extent that their reported pay ents exceed their Individuals who have a student loan tradeline in their na e observed pay ents. but have not ade pay ents towards student loans out of their checking account.

Source: JPMorgan Chase Institute

10 Introduction Student Loan Debt: Who is Paying it Down? When reported payments exceed values denote pre-payment by same rate going forward. Finally, observed payments, this disparity the borrower or payments in we calculate how many years it will can have two interpretations. First, it excess of the minimum required. take for the borrower to zero out can indicate that another method of • Deferment or forbearance: the balance on all their student payment is being used to pay down the Deferment and forbearance can loans, holding income constant. loan besides electronic withdrawals allow borrowers to temporarily In Finding 3 we measure progress from the borrower’s Chase checking stop making payments on their on student loan repayment in three account. The borrower is making loan for up to three years under a ways. First, we look at each borrower’s student loan payments via paper variety of circumstances, including payment shortfall, or how much of checks or money orders, which we are returning to school, medical their scheduled payments they did unable to categorize as such, or via circumstances, and economic not end up fulfilling. Second, we payments out of a non-Chase account. hardships.8 During this time, loan calculate how many borrowers are The second possibility is that the balances may increase if borrowers in deferral. And third, we calculate borrower is receiving help. Someone do not make interest payments. how long a borrower will take to besides the borrower—such as a Here we include any borrower in completely pay off their student debt parent, a spouse, or a child—is making the “deferred” group if any of their given current payment levels.9 payments directly to the loan servicer tradelines are flagged by Experian on the borrower’s behalf. We explore In Finding 4, we compare these student as being deferred or in forbear- loan borrowing outcomes among help received and given by borrowers ance. For simplicity, and because in Finding 2 by calculating the differ- Black, Hispanic, and White account less than 1 percent of these holders for a subsample of roughly ence between reported and observed people are in forbearance alone payments for each borrower. It is worth 110,000 primary account holders without deferral, we will exclusively in the Chase–Experian sample for noting that since we do not observe refer to them as in “deferral.” the identity of who makes payments on whom we observe self-reported race. any given tradeline, we cannot make • Projected time to payoff: We Of these, 12,154 have a student loan conclusions, except in the aggregate, project the time to payoff for both tradeline. We take this self-reported about who is providing help to whom. borrowers in active repayment race information from the data asset and those in deferral. To do this, described in Farrell et al. (2020), • Payment shortfall and prepay- we impute the interest rate for where we observe self-reported race ment: We calculate payment each tradeline in our data using for Chase account holders obtained shortfall as scheduled payments month-to-month changes in through voter registration records in minus reported payments, divided balances together with reported Florida, Georgia, and Louisiana from by the average of scheduled pay- payments. For example, if a 2018. Because voter registration forms 7 ments for the year. The numerator tradeline’s balance in January was do not separately ask about race and is simply the difference in dollars $1,000, the borrower’s reported ethnicity, we are unable to separately between what a borrower should payment was $100, and the balance analyze race and Hispanicity (e.g. we have paid and what they actually in February was $910, we assume cannot distinguish Hispanic individuals paid. By dividing this difference the interest charge for January who identify as White from Hispanic by average scheduled payment, was $10. Next, we average the individuals who identify as Black). For we change the unit of measure interest rate across the borrower’s this reason, we use the word “race” as from dollars to months’ worth of tradelines, weighting by the current a shorthand to describe responses to payments. Positive values repre- balance. We then take the average the question on the voter registration sent how many months behind reported payments made in our form, acknowledging that many people the borrower is, and negative sample year and suppose the consider Hispanic identity an ethnic borrower makes payments at the category and not a racial group.

Student Loan Debt: Who is Paying it Down? Introduction 11 Finding One

Although the median student loan of $3,936. The fact that, in aggregate, (borrower’s annual payment divided by borrower is obligated to pay 3.8 per- reported payments skew slightly higher borrower’s annual income). Scheduled cent of their take-home income, than scheduled payments suggests that and reported burden are similar, many borrowers, especially lower- the typical borrower is making pay- as in the left panel of Figure 2, with income and younger borrowers, ments on track or ahead of schedule. median payment burdens of 3.8 and face burdens well over 10 percent. We further examine progress on loans 3.9 percent of take-home income, The left panel of Figure 2 shows the on a per person basis in Finding 3. respectively. The 75th percentile of 10th, 25th, 50th, 75th and 90th per- Observed payments skew lower than scheduled burden is 7.3 percent, imply- centiles of scheduled, reported, and both scheduled and reported payments, ing that a quar ter of borrowers are observed payment amounts for all with a median of only $1,594. This gap obligated to pay at least 7.3 percent of student debt holders in our sample could signify that borrowers are either their take-home pay, while 10 percent over the twelve-month period. The making additional payments that we do of the sample is obligated to pay distribution of median scheduled and not observe via paper checks or non- at least 13.3 percent (the 90th per- reported payments are similar, with a Chase accounts or receiving payment centile) of their take-home pay. median of about $2,070 and a 75th per- help on their loans from others. Similar to the left panel of Figure 2, centile of $3,684. Reported payments observed burden is markedly lower tend to skew slightly higher, with a We explore this fur ther in Finding 2. than scheduled or reported burden, median of $2,146 and a 75th percentile The right panel of Figure 2 shows with a median of only 2.7 percent. the distributions of payment burdens

Figure 2: Distributions of annual payment level and burden by payment type

Distribution of annual payment amounts Distribution of payment burdens (Payment as a percentage of income)

90th Percentile 90th $7,000 14% Percentile

$6,000 12%

$5,000 10%

$4,000 75th 8% Percentile 75th Percentile $3,000 6% 50th $2,000 Percentile 4% 50th Percentile 25th Percentile 2% 25th $1,000 Percentile 10th Percentile 10th Percentile $0 0% Scheduled Reported Observed Scheduled Reported Observed payment payment payment burden burden burden

Note: Scheduled pa ment is the sum of required minimum monthl pa ments for the twelve-month sample period November 2015 through December 2016. Reported pa ment is the sum of all pa ments made against the borrower's student loans during the sample period. Observed pa ment is the sum of all pa ments made out of the borrower's Chase accounts during the sample period. Income refers to take-home income.

Source: JPMorgan Chase Institute

12 Finding One Student Loan Debt: Who is Paying it Down? Next we examine how annual payment hand, as shown by Looney and Yannelis similar when we focus on scheduled or levels and burden vary by age and (2015), higher income borrowers tend observed payments. Most notably, the income. These borrower attributes to have higher debt balances. On the median payment amount is relatively are of great interest and often not other hand, higher income borrowers constant across income groups. The present in other administrative may be better able to pay off their median borrower making $30,000 datasets. Age speaks to the extent to student loan debt completely, and pays $1,605 toward student loans, which borrowers are experiencing the income-driven repayment programs while the median borrower making strain of student loan debt repayment aim to reduce the payment burden $117,000 pays $2,700, a difference over the life cycle and potentially on among low-income borrowers. of only $91.25 per month. However, behalf of others rather than their own Figure 3 plots the 25th, 50th, 75th, and extremely large payments, captured education. Income allows us to see 90th percentiles of reported payments in the 90th percentiles, are far more whether debt loads are higher among by income and age. We focus on likely for high-income borrowers, people with higher earning power. reported payments in order to capture with those making at least $30,000 It is ambiguous whether we might payments made, but the relationship per year paying $5,038 and those expect to see higher or lower levels of between payments and income looks making $130,000 paying $9,760. payment levels by income. On the one

Figure 3: Payment levels by income and age

Distribution of annual reported pa ment b income Distribution of annual reported pa ment b age

$15,000 $15,000 90th Percentile

$10,000 $10,000

75th Percentile 90th Percentile

$5,000 $5,000

50th Percentile 75th Percentile

25th Percentile 50th Percentile 25th Percentile $0 $0 20 40 60 80 100 200 30 40 50 60 70 Income ($1,000s) Age

No e: Percen iles are calcula ed wi hin wen y income and age quan iles, respec ively. Each bin is represen ed along he x-axis by i s average value. Repor ed paymen is he sum of all paymen s made agains he borrower's s uden loans during he welve-mon h sample period November 2015 hrough December 2016. Income refers o ake-home income.

Source: JPMorgan Chase Ins i u e

Student Loan Debt: Who is Paying it Down? Finding One 13 In Figure 4, we explore how payment reported burden increases. Again, this The median scheduled burden for burdens vary by age and income.10 gap could signify that older borrowers the lowest income group (around Median burdens are highest among pay primarily with paper checks or $16,000 annual take-home income) people in their 20s (that is, when non-Chase accounts, or it could signify is 11.5 percent and for the highest most people have just graduated that order borrowers receive a large income group ($250,000 annual from college and enter the labor amount of help on their loans. We take-home income) is 1.5 percent. force) and lowest for people in their explore this fur ther in Finding 2. Observed burdens are also negatively late 30s. Starting with 40-year-olds, The left panel of Figure 4 shows that correlated with income, but observed the median scheduled and reported scheduled, reported, and observed burden is significantly lower than burdens steadily increase with age. payment burdens are strongly other burden metrics for low-income Observed burden is again system- negatively correlated with income. borrowers. Again, this could be due to atically lower than scheduled and This is not surprising in light of the fact unobserved payments or help received reported burdens. Most noteworthy, that Figure 3 shows little variation in from others. Next we turn to examine however, is that observed burden reported payment values by income. the extent of help being received and steadily decreases with age, while given in student loan repayment.

Figure 4: Median payment burden by income and age

Median payment burdens by income Median payment burdens by age (Payment as a percentage of income) (Payment as a percentage of income)

12% 12%

10% 10%

8% 8%

6% 6%

4% 4%

2% 2%

0% 0% 20 40 60 80 100 200 30 40 50 60 70

Income ($1,000s) Age

Reported Scheduled Observed

Note: Percentiles are calculated within twenty income and age quantiles, respectively. Each bin is represented along the x-axis by its average value. Scheduled payment is the sum of required minimum monthly payments for the twelve-month sample period November 2015 through December 2016. Reported payment is the sum of all payments made against the borrower's student loans during the sample period. Observed payment is the sum of all payments made out of the borrower's Chase accounts during the sample period. ncome refers to take-home income.

Source: JPMorgan Chase nstitute

14 Finding One Student Loan Debt: Who is Paying it Down? Finding Two

Almost 40 percent of individuals own student loan debt (220,710 people slightly larger than the observed involved in student loan repay- or 12 percent of the Chase–Experian payments made by student loan holders ment are helping someone else sample) or because they are making themselves ($1,594).11 Notably, student pay off their student loan debt, payments on someone else’s student loan borrowers have higher median with most helpers holding no loan debt (80,873 people or 4 percent reported payments ($2,146) than student loan debt themselves. of the Chase–Experian sample). It shows observed payments ($1,594). In fact, Figures 2 and 3 above show that, in that 39 percent of individuals involved 42 percent of student loan borrowers aggregate, the distribution of observed in student loan repayment are actually have higher reported payments than payments skews lower than the distribu- helping someone else repay their loans observed payments, additional evidence tion of reported payments. This suggests as either “pure helpers” (27 percent) that many borrowers are receiving help that more money is being received by or “net helpers” (12 percent). Most of from others with their obligations. student loan servicers than we observed those helpers (69 percent) are pure Table 2 further breaks down the sample leaving borrowers’ checking accounts. helpers who do not have a student of borrowers according to whether This additional money could be coming loan tradeline in their own name. The they are making payments or not. from relatives or friends of the borrower remaining 31 percent of helpers are net Fifty-nine percent of our borrowers in the form of financial help. We explore helpers—they have a tradeline in their are “Payers” in that they are making this possibility in two ways. First, we name but their observed payments payments less than or roughly equal to look for these potential “helpers” in exceed payments reported to Experian, their reported payments. Even among our data; specifically, we look for “pure suggesting they are helping to make pay- this group, 34 percent show larger helpers”—people who make payments to ments on another person’s tradelines. reported payments than observed student loan servicers but do not have Compared to the median student loan payments, potentially indicating some a student loan according to Experian holder, helpers of both sorts tend to level of payment help received. Finally, data—and “net helpers”—people who are have higher incomes (over $70,000 the remaining 25 percent of student making larger student loan payments among helpers compared to $54,000 loan borrowers are “non-payers” in that than what is received on their own among all borrowers). Pure helpers tend we observed no student loan payments tradeline. In order to be classified as a to be substantially older than the typical were made from their Chase accounts net helper, a borrower must make at student loan holder (47 compared to 39, during our twelve-month observation least one month’s worth of their own respectively), suggesting that some of window. Non-payers tend to be older payments to someone else’s tradeline. them could be parents making payments and have lower incomes than the rest Second, we examine the magnitude on behalf of their adult children. Net of student loan holders. However, of help by calculating the difference helpers tend to be slightly younger 88 percent of these borrowers still had between reported and observed (37 years) than the median student payments made against their tradelines payments for each individual in our data loan holder, suggesting that some of by someone. Moreover, the median to explore any systematic trends in who these helpers could be spouses. reported payment for the non-paying is receiving and giving financial help. The degree of this help is substantial. group is $1,783, only $363 lower than Table 2 lists summary statistics for the median student loan payment for all everyone in our data involved in student The median size of observed payments by pure helpers ($1,772) is actually student loan holders, suggesting that the loan repayment either through their amount of outside help is substantial.

Student Loan Debt: Who is Paying it Down? Finding Two 15 Table 2: Summary statistics for accounts associated with student debt

No student loan tradeline but makes payments Has student loan tradeline

Non-paying Pure helpers Net helpers Paying debtors All debtors

e.g., Debtors, e.g., Paying Anyone with Parents or family e.g. Debtors in who are also Students, an open members making deferment, grace helping make paying parents student loan Description student loan period, IDR with student loan on parent-plus tradeline payments on $0 payment, or payments on loan, excluding according to student’s behalf delinquent another’s behalf net helpers Experian data

Number 80,873 36,495 129,946 54,269 220,710

Share of full Chase- 4% 2% 7% 3% 12% Experian sample

Share of individuals involved in student 27% 12% 43% 18% 73% loan repayment

Share of student N/A 17% 59% 25% 100% loan holders

Median age 46.9 36.9 37.9 44.9 38.9

Median annual income 75,568 72,919 53,818 44,613 54,083

Median student $0 $10,812 $15,522 $14,370 $14,451 debt balance

Median observed $1,772 $4,184 $2,052 $0 $1,594 payments (annual)

Median reported $0 $1,854 $2,375 $1,783 $2,146 payments (annual)

Share of people with reported student loan 0% 0% 34% 88% 42% payments > observed student loan payments

Share of people with no reported student N/A 1% 0% 12% 3% loan payments

Source: JPMorgan Chase Institute

16 Finding Two Student Loan Debt: Who is Paying it Down? In Figure 5, we show the distribution repayment help from another person. likely to receive larger amounts of help of different repayment roles by age We explore this possibility below. and are unlikely to extend help. The and income band. More than a third The nature of our data do not allow median and 25th percentile of help is of the lowest-income individuals us to determine whose tradelines the zero or near zero for all income groups are not making payments on their helpers are contributing to, but we below $81,000, with the exception student loans. In contrast, more can describe the demographics of of the lowest group, whose median than half of the highest-income people who appear to be receiving or person receives approximately $200 individuals are pure helpers (40%) giving help, which we do in Figure 6 by of help. Of borrowers with around or net helpers (17%) towards comparing person-level calculations $30,000 of income, 25 percent loans held by other individuals. of reported payments minus observed receive at least $1,000 of help. By age, we observe among individuals payments among student loan under 35 years old the modal person borrowers. A positive value indicates is actively repaying their loans. In the borrower could be receiving contrast, among the oldest age groups, help, while negative values indicate Older individuals roles diverge. Those in the 65 plus borrowers who must be providing are more likely than category are most likely to be either help in addition to any payments younger borrowers to helping with someone else’s loan they make on their own loans. both extend and receive repayment (35 percent are pure help- The left panel of Figure 6 plots help help with student ers) or not making payments on their given and received across the income loan repayment. own loan (33 percent are non-paying distribution. Perhaps unsurprisingly, debtors). These non-paying debtors lower-income borrowers are more could be simply not paying or receiving

Figure 5: Share of non-debt holding helpers and debt-holding payers by income and age group

Distribution of payer types by income quintile Distribution of payer types by age group

10.8% 17.0% 1 .9% 18.2% 24.9% 25.5% 13.6% 33.5% 38.3% 37.1% 34.9% 7.5% 39. % 9.7% 15.7% 11.5% 12.2% 6.5% 14.4% 8.8% 9.4% 45.2% 17.4% 57.8% 51.1% 24.1% 47.2% 51.5% 47.1% 29.6% 34.4% 39.4% 32.5%

34.5% 30.3% 20.2% 23.9% 16.4% 17.9% 15.3% 18.5% 12. % 10.3% 14.6% Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5 18-24 25-34 35-44 45-54 55-64 65+ (<$33k) ($33-49k) ($49-70k) ($70-104k) ($104k+) Age Income

Pure helpers Net helpers Paying debtors Non-paying debtors

N te: A pure helper is a Chase acc unt h lder wh made payments t ward a student l an ut f their Chase acc unts during the sample peri d but did n t h ld a l an themselves. A net helper is a student debt h lder wh se bserved payments exceed their rep rted payments by at least ne m nth's w rth f rep rted payments; that is, they pay m re t wards student debt that is credit t their wn l ans. A paying debt r is a student debt h lder wh makes student l an payments ut f their wn acc unt and is n t a net helper. A n n-paying debt r is a student debt h lder wh made n student l an payments ut f their Chase acc unts. Inc me refers t take-h me inc me. S urce: JPM rgan Chase Institute

Student Loan Debt: Who is Paying it Down? Finding Two 17 Figure 6: Distribution of help given (negative values) and received (positive values) by income and age

Distribution of payment help received by borrower income Distribution of payment help received by borrower age

$2,500 $2,500 75th Percentile $2,000 $2,000

$1,500 $1,500

$1,000 $1,000 Help received 75th Help received 50th Percentile $500 $500 Percentile 50th $0 $0 25th Percentile Percentile Help given Help given -$500 -$500 Net payment help received Net payment Net payment help received Net payment

-$1,000 25th -$1,000 Percentile -$1,500 -$1,500 20 40 60 80 100 200 30 40 50 60 70 Income ($1,000s) Age

Note: Percentiles are calculated within twenty income and age quantiles, respectively. Each bin is represented along the x-axis by its average value. Payment help is the difference between reported and observed payments; that is, the difference between the total paid against a borrower's loans and the total payments made toward student debt from the borrower's Chase accounts. Negative payment help represents help provided by the borrower to other student debt holders. Income refers to take-home income. Source: JPMorgan Chase Institute

At higher income levels, few bor- borrowers could be from their child The results, shown in Appendix rowers receive any help, and a who is helping to pay down Parent Figure A1 are qualitatively similar to significant portion of high-income PLUS loans that were taken out on for Figure 6, with help received increasing borrowers are net givers of help the benefit of the child’s education. markedly for borrowers above age 50. despite holding loans themselves. This scenario is corroborated by the In summary, we find that a large The medians and 75th percentiles for fact that, based on the age of the group of people are assisting student income above $134,000 are all zero, borrower at loan origination, most loan borrowers with repayment, and 25 percent of borrowers paid loans held by people over 60 appear the majority of whom do not have a at least $594 toward student loans to be loans taken out for children’s student loan tradeline in their own over and above what was credited education rather than their own edu- name. This underscores the extent toward their own debt. This additional cation: 75 percent of 60+ borrowers to which student loan repayment is a help could reflect a high-income originated their first student loan after “family affair,” perhaps more so than borrower paying down student loan the age of 40, and the modal 60+ previously thought. Moreover, the help debt for a spouse, parent (e.g. a borrower originated their first loan at appears to involve intergenerational 12 Parent PLUS loan), or child. However, age 55. Additionally, we observed a transfers in both directions: we this last possibility is less likely in large number of non-payers among observe younger individuals serving light of the right panel of Figure 6. student loan borrowers in the 55–64 as net helpers by servicing their own The right panel of Figure 6 plots the and 65+ age bins in Figure 5. debt and the debt of others, many distribution of help by age. It shows One caveat is that it is also possible older borrowers who are making no that older individuals are more likely that help received particularly among payments on loans in their own name to receive help. The 25th percentiles older individuals could reflect unob- but are receiving help from others, and medians are all approximately served payments made out of a non- and many older individuals with no zero for borrowers below age 60. Chase account or via paper checks.13 loan in their own name nonetheless The 75th percentiles hover around To check for this, we re-calculate the making student loan payments. $500 from the youngest bins through right panel of Figure 6 restricting While helpers tend to have higher the early 40s, after which the values to people who made at least one incomes, borrowers receiving help increase to a maximum of $2,348 electronic student loan payment are likely to be lower-income and for the oldest borrowers. This between 2013 and 2016. Individuals older. Thus, older individuals are matches the increase in median help who have previously setup electronic more likely than younger borrowers received for borrowers over 60. The payments are less likely to use paper to both extend and receive help large amount of help going to older checks than the general population. with student loan repayment.

18 Finding Two Student Loan Debt: Who is Paying it Down? Finding Three

Low-income and older borrowers are The left panel of Figure 7 shows The right panel of Figure 7 shows pay- more likely to be behind on payments payment shortfall in our sample year ment shortfall by age bin. Again, most or in deferral, and roughly 7 percent by income bin. The vast majority of groups have little shortfall, as all medians of borrowers are projected not to borrowers are not behind on their pay- and 75th percentiles are at or near zero. repay their loans. Having documented ments, but low-income borrowers are However, grouping by age instead of the large degree of financial help more likely to be behind on their pay- income reveals that we see many people given and received in student loan ments. Across the income spectrum, who are behind in payments, as well as repayment, we next turn to examining the 25th, 50th, and 75th percentiles few who are making significant pre- the extent to which individuals are of borrowers are paying on schedule payments. Twenty-five percent of making progress on paying down their or are less than one month behind. borrowers under 30 years old have a debt. We measure progress on student However, 10 percent of borrowers (the pre-payment (a negative shortfall) of loan repayment in three ways. First, 90th percentile) with incomes less at least one month. At the same time, we look at each borrower’s payment than $30,000 in take-home income 10 percent of borrowers under 30 are shortfall, or how much their reported are 4 to 6 months or more behind on at least two months behind. Shortfalls payments fall short of their scheduled their payments in just one year, and at the 90th percentile stay around payments within our sample year. 10 percent of middle-income borrow- two months up to age 40, while the Because reported payments include ers (between $30,000 and $50,000) 25th percentiles move toward zero. help received from others, this measure also have shortfalls of at least two This could be due to selective survival: of shortfall takes into consideration all months. These results largely align those who pre-pay their loans in their outside help. Second, we calculate how with conventional wisdom that low- 20s are done paying by the end of many borrowers are (temporarily) in er-income borrowers are more likely to their 30s and thus disappear from our deferral or forbearance. And third, we have trouble paying. This is especially sample of student loan holders. After calculate how long a borrower will take true considering Figure 3, which shows age 45, shortfalls increase markedly, to completely pay off their student debt that scheduled payments are largely with the 90th percentiles rising above given their current payment levels. constant across income groups. three months and the 75th percentiles rising as well to about 0.25 months.

Figure 7: Payment shortfall by income and age

Distribution of payment shortfall by borrower income Distribution of payment shortfall by borrower age 7 7 6 6 5 5 4 4 3 3 90th Percentile 2 2 1 90th Percentile 1 75th Percentile 75th Percentile 0 0 50th Percentile 50th Percentile 25th Percentile −1 −1 Payment shortfall in months Payment 25th Percentile shortfall in months Payment −2 −2 20 40 60 80 100 200 30 40 50 60 70 Income ($1,000s) Age

Note: Percentiles are calculated within twenty income and age quantiles, respectively. Each bin is represented along the x-axis by its average value. Payment shortfall is the difference between all scheduled and reported payments during the tweleve-month sample period December 2015 through November 2016, divided by average monthly scheduled payment. Negative values of shortfall constitute pre-payment. Income refers to take-home income. Source: JPMorgan Chase Institute

Student Loan Debt: Who is Paying it Down? Finding Three 19 Having documented that the median and then again steadily decrease with the non-deferral sample according to borrower is making payments on time, age. This could be a survival effect—any both scheduled payments (green) and it is worth noting that some borrowers students still carrying their own student reported payments (blue). The right within this group—8.5 percent—are still loans past age 45 are likely to have panel shows the same for the deferral not making substantial progress on larger balances and lower repayment— sample. The majority of borrowers, repaying their loans because they are but the ultimate causes are unclear. 60 percent, are split between 1–5 and in deferral or forbearance and may not 6–10 years to pay off. These trends be required to make payments towards coincide with the fact that the standard their loan balance or interest. Figure 8 In a single pay off term is ten years. About a quar- describes the demographics of borrow- year, 10 percent of ter percent of the sample is projected ers with at least one tradeline in deferral borrowers with incomes to pay off in more than ten years.14 In or forbearance during our sample less than $30,000 in take- addition, about 7 percent of the sample period. The left panel shows that the home income are 4 to 6 projected to never pay off their loan modal person in deferral is in the lowest months or more behind because their average monthly payment income bin (less than $25,000) and that on their student loan is less than the monthly interest charge. deferral is strongly negatively correlated payments. In other words, their loans are negatively with income. The age distribution of amortizing insofar as their balances deferred borrowers in the right panel are increasing over time. This situation is less clear cut. The modal deferred Beginning with Figure 9, we describe could occur when someone falls behind borrower is in the youngest age group who is making progress on their loans on their payments, but notably just over (18–24), likely due to more people under through the lens of projected time to 5 percent of borrowers are projected 25 still being in school or recently gradu- debt pay off. The left panel of Figure 9 to never pay off their loans even if they 15 ated. Deferral rates decline through age shows projected time to pay off for make all their scheduled payments. 44 but spike again in the 45–54 group

Figure 8: Distribution of borrowers with a tradeline in deferral or forbearance

Percent of borrowers in deferral by income group Percent of borrowers in deferral by age group

13.3% 11.0% 10.5% 11.0% 9.3% 9.0%

8.6% 7.8% 7.5%

7.2%

5.8%

4.5% 3.7%

$12-24k $25-39k $40-59k $60-84k $85-114k $115-149k $150k+ 18-24 25-34 35-44 45-54 55-64 65+

Income Age

Note: A borrower is flagged as in deferral if any of the borrower's student loans is in deferral or forbearance at any point during the twelve-month sample period December 2015 through November 2016. Income refers to take-home income. Source: JPMor an Chase Institute

20 Finding Three Student Loan Debt: Who is Paying it Down? The right panel of Figure 9 tells a part of the never-pay-off group. This of deferment is temporary, both due to markedly different story for the divergence is likely due to two factors. legal time limits and unusual economic deferral sample. About 57 percent of First, we classify someone as “in hardships. Many, if not most, people in the deferral sample is projected to deferral” if any of their tradelines are deferment during our sample year will never pay off their loan. This statistic in deferral for any part of our sample not be in deferment the following year. is not surprising, given that the goal year. Some people end their deferral As such, the twelve-month payment of deferral is to temporarily relieve statuses quickly, and moreover, stream we observe for them is unlikely the borrower from making payments borrowers may only have one of to be representative of their long- during times of economic hardship. their tradelines flagged as deferred. term payment habits, and our further However, we can also see that if Second, some deferment programs discussion of projected time to pay borrowers followed their scheduled do not reduce scheduled payments off excludes our deferment sample.16 payments, only 34 percent would be a to zero. More generally, the status

Figure 9: Projected time to pay off by deferral status

Percent of borrowers by projected time to pay off debt, Percent of borrowers by projected time to pay off debt, borrowers not in deferment borrowers in deferment 56.9% 39.9%

35.8% 31.9% 29.1% 34.5%

19.9% 17.6% 20.6% 15.2% 16.6% 12.3% 13.4% 7.1% 7.1% 10.4% 10.7% 9.7% 6.3% 5.3%

< 5 6-10 11-20 > 20 Never < 5 6-10 11-20 > 20 Never

Years to pay off Years to pay off

Reported payment Scheduled payment

Note: We project a borrower's time to pay off debt by imputing the interest rates on their loans and then calculating how many months it will take to reach a zero balance assuming the borrower continues to make the same payments as in our sample period. A borrower is flagged as in deferral if any of the borrower's student loans is in deferral or forbearance at any point during the twelve-month sample period December 2015 through November 2016. Borrowers projected to never pay off debt have increasing balances over the tweleve-month observation period; that is, interest charges over the course of the year are larger than total payments made.

Source: JPMorgan Chase Institute

Figures 10 and 11 show the distribution group is projected to pay off in 5 falling in the “never payoff” group is of time to pay off by age and income, years or less, again consistent with strongly correlated with age; about respectively, among borrowers who are the ten-year repayment period. About 11 percent of the 65-and-over group not in deferral. The modal 18–24-year- 71 percent of this group is projected to falls here, compared to 5 percent old is projected to pay off in 6–10 years, pay off in 10 years or less. Older of the youngest group. This trend is consistent with recent graduates borrowers are also concentrated in particularly noteworthy because most finishing payments early within the the 5-or-less and 6-10 year pay off of these borrowers’ debts are probably standard ten-year repayment term ranges, but they are also much more taken out for the benefit of a child; constraint. About 77 percent of this likely to have longer projected pay recall that 75 percent of borrowers in youngest age group is projected to offs, with the effect increasing with our sample who are over 60 originated pay off in less than ten years. Similarly, age. Most notably, a borrower’s odds their first loan after they were 40. the modal person in the 25–34-year-old Most notably, a borrower’s odds of

Student Loan Debt: Who is Paying it Down? Finding Three 21 Figure 10: Projected time to pay off by age

Projected time to pay off debt by borrower age 50%

40%

30%

20%

Percent of age group Percent 10%

0% < 5 6-10 11-20 > 20 Never Years to pay off 18-24 25-34 35-44 45-54 55-64 65+ Note: The sample is restricted to borrowers not in deferral. We project a borrower's time to pay off debt by imputing the interest rates on their loans and then calculating how many months it will take to reach a zero balance assuming the borrower continues to make the same payments as in our sample period. Borrowers projected to never pay off debt have increasing balances over the twelve-month observation period; that is, interest charges over the course of the year are larger than total payments made. Source: JPMorgan Chase Institute

Figure 11 shows time to pay off by extremely large balances (e.g., from To sum up, across all three income group. The modal borrower postgraduate professional training) metrics—payment shortfall, deferral for each income group but the which have been consolidated to status, and time to payoff—lower-in- highest ($150,000 and over) is in the receive a longer term. Less surprising come borrowers are making the 5 years or less pay off range. The is the strong negative correlation least amount of progress in paying highest income group has slightly between income and the likelihood of off their student loans, and one in more people, about 28 percent, in the being in the group that will not pay ten individuals making less than 6–10 year pay off range. The likelihood off the loan. Roughly 10 percent of $25,000 a year are projected to never of having 11–20 years is, surprisingly, people making less than $25,000 are pay off their loans. Notably, older positively correlated with income. projected to not pay off their student borrowers are more likely to face a This could be because higher-income loan debt versus just over 5 percent payment shortfall and be projected borrowers are more likely to have for the highest income group. not to pay off their student loans.

Figure 11: Projected time to pay off by income

Projected time to pay off debt by borrower income 40%

30%

20%

10% Percent of income group of income Percent

0% < 5 6-10 11-20 > 20 Never Years to pay off

$12-24k $25-39k $40-59k $60-84k $85-114k $115-149k $150k+ Note: The sample is restricted to borrowers not in deferral. We project a borrower's time to pay off debt by imputing the interest rates on their loans and then calculating how many months it will take to reach a zero balance assuming the borrower continues to make the same payments as in our sample period. Borrowers projected to never pay off debt have increasing balances over the twelve-month observation period; that is, interest charges over the course of the year are larger than total payments made. Income refers to take-home income. Source: JPMorgan Chase Institute

22 Finding Three Student Loan Debt: Who is Paying it Down? Finding Four

Compared to White and Hispanic may result in large differences in student and the share Hispanic increases student loan borrowers, Black debt outcomes across racial groups, marginally to 21 percent. The median borrowers are less likely to be affecting the efficacy of debt-related income of Black and Hispanic student making progress on their loans. policy (e.g., income-based repayment) loan borrowers is approximately $12,500 We now reconsider our previous and the overall equity of these policies. or 22 percent lower than the income of analytics—burden of debt, payment Table 3 gives summary statistics on the White student loan borrowers. Despite help given and received, and payment sub-sample of our data with race and (or perhaps due to) their lower incomes, progress—through the lens of race and ethnicity information. Across all cus- the median Black student borrower ethnicity. Farrell et al. (2020) document tomers in the Chase–Experian sample, is slightly older and has significantly systematic differences in the financial 53.2 percent of the sample identify as higher student loan balances than outcomes of Black, White, and Hispanic White, 17.3 percent identify as Black, and median White and Hispanic student loan families. In particular, they find that 19.5 percent identify as Hispanic. When borrowers. Notably, one in ten Black Black and Hispanic families have fewer looking only at student loan holders, student loan borrowers had no payments liquid assets and thus have less cash the share of the sample who is Black made on their loan in our observation buffer to weather financial shocks like increases significantly to 24.3 percent year; the equivalent rate among White job loss. These underlying differentials borrowers is one in thirty-nine.

Table 3: Summary statistics by race

Student loan holders Pure helpers Full Chase-Experian sample

Black 2,949 703 19,005 Number of people Hispanic 2,554 901 21,443 White 6,651 3,041 69,600 Black 24.3% 15.1% 17.3% Share of sample Hispanic 21.0% 19.4% 19.5% White 54.7% 65.5% 63.2% Black $45,095 $58,444 $36,763 Median income Hispanic $44,908 $60,399 $37,221 White $57,572 $78,129 $50,186 Black 45 51 55 Median age Hispanic 41 49 50 White 42 49 56 Black $16,607 $0 $0 Median student loan balance Hispanic $12,017 $0 $0 White $14,282 $0 $0 Black $859 $1,039 $0 Median observed payment Hispanic $1,094 $1,172 $0 White $1,611 $1,688 $0 Share with reported Black 9.9% N/A N/A student loan pay- Hispanic 4.5% N/A N/A ment of zero White 2.6% N/A N/A

Source: JPMorgan Chase Institute

Student Loan Debt: Who is Paying it Down? Finding Four 23 Figure 12 presents annual payment debt. In contrast, Hispanic borrowers’ facts raise the possibility of large levels and burdens by race and median reported payment is roughly differences in payment shortfalls ethnicity. Although Black borrowers on par with their scheduled payment, and help received across race have the highest loan balances, the and Black borrowers’ median reported groups, which we explore below. median scheduled payment is highest payment is a full $212 lower than their In terms of payment burdens, Black for White borrowers, just over $2,000, scheduled payment, implying that in borrowers are faced with the most followed by Black borrowers ($1,850) aggregate Black borrowers may be substantial scheduled burden. Even and Hispanic borrowers ($1,650). experiencing financial circumstances if Black and White borrowers had Notably, the median reported payment that inhibit their means to make similar scheduled payments, the fact among White borrowers is higher than full scheduled payments. All three that Black borrowers earn 78 cents for the scheduled payment, suggesting groups have observed payments every dollar earned by White borrow- that not only do White borrowers have lower than reported payments, with ers (see Table 3) contributes to this dis- a more aggressive repayment schedule Black borrowers experiencing the parity in respective payment burdens. but, in aggregate, White borrowers are largest gap between observed and actually prepaying their student loan reported payments. These last two

Figure 12: Payment annual levels and burdens by race

Median annual payment amounts by race Median payment burdens by race (Payment as a percentage of income)

$2,099 $2,034 4.0% $1,847 3.7% 3.6% 3.6% 3.7% 3.4% $1,636 $1,641 $1,634 $1,611

2.6% $1,094 2.3% $859 1.8%

Black Hispanic White Black Hispanic White

Scheduled Reported Observed

Note: Scheduled payment is the sum of required minimum monthly payments for the twelve-month sample period November 2015 through December 2016. Reported payment is the sum of all payments made against the borrower's student loans during the sample period. Observed payment is the sum of all payments made out of the borrower's Chase accounts during the sample period. Income refers to take-home income. Source: JPMorgan Chase Institute

Figure 13 shows the distribution of payments during our sample window make progress on their loan. Helpers payer types (pure helper, net helper, (27.1 percent). Though we cannot could play a role in allowing borrowers paying debtor, and non-paying debtor) determine who is receiving the help to remain current on their student by race. Compared to White and given by pure helpers and net helpers, loans when they experience financial Hispanic individuals involved in student this finding is consistent with prior shocks, and past research has found debt repayment, Black individuals are research documenting that Black that Black households have both lower least likely to face the circumstances parents are less likely to provide help income and smaller asset buffers that enable them to help other people to their adult children for education than White and Hispanic households repay their student loans either as than White parents (Nam et al. 2015). (Farrell et al. 2020). We further pure helpers (19.2 percent) or net The smaller pool of Black helpers may explore the relationship between debt helpers (8.9 percent) and they are contribute to the conditions that make repayment and help received below. most likely to have made no it more difficult for Black borrowers to

24 Finding Four Student Loan Debt: Who is Paying it Down? Figure 13: Share of helpers and debtors by race

Distribution of payer types by race

19.2% 26.1% 31.4% 8.9% 10.0% 11.9%

44.8% 43.7% 39.7%

27.1% 20.3% 17.1%

Black Hispanic White

Pure helpers Net helpers Paying debtors Non-paying debtors

Note: A pure helper is a Chase account holder who made payments toward a student loan out of their Chase accounts during the sample period but did not hold a loan themselves. A net helper is a student debt holder whose observed payments exceed their reported payments by at least one month's worth of reported payments; that is, they pay more towards student debt that is credit to their own loans. A paying debtor is a student debt holder who makes student loan payments out of their own account and is not a net helper. A non-paying debtor is a student debt holder who made no student loan payments out of their Chase accounts.

Source: JPMorgan Chase Institute

Figure 14 shows the distribution of help received for each and Hispanic borrowers are close behind ($935 and $805 racial group in both levels and as a fraction of take-home respectively). However, this help represents a slightly larger income. The distributions are similar across all three groups, fraction of income for Black borrowers (2 percent) than for with the 25th and 50th percentiles at or near zero. At Hispanic (1.8 percent) and White (1.7 percent) borrowers, the high end of the distribution, White borrowers receive given racial gaps in take-home income observed in Table 3. the most help in pure dollar terms ($1,004), but Black

Figure 14: Payment levels and burdens by race

Distribution of payment help received by race Distribution of payment help received as a fraction of borrower income by race $1,000 75th Percentile 2.0%

75th Percentile $800 1.5%

$600 1.0%

$400 Payment help received Payment 0.5% $200

50th Percentile of income as a fraction help received Payment 50th Percentile 0% $0 25th Percentile 25th Percentile Black Hispanic White Black Hispanic White

Note: Payment help is the difference between reported and observed payments; that is, the difference between the total paid against a borrower's loans and the total payments made toward student debt from the borrower's Chase accounts. Negative payment help represents help provided by the borrower to other student debt holders. Income refers to take-home income. Source: JPMorgan Chase Institute

Student Loan Debt: Who is Paying it Down? Finding Four 25 Figure 13 showed that a smaller trend is consistent with evidence from the 90th percentile for Hispanic and fraction of Black individuals involved Figure 13 that a significantly smaller White borrowers is 3.4 months and 2 in student debt repayment provide portion Black individuals involved months respectively, it is 10.4 months help on others’ loans, but Figure 14 in student loan repayment tend to for Black borrowers, indicating that at suggests that Black borrowers receive be pure or net helpers. Put simply, least 10 percent of Black borrowers comparable amounts of repayment our findings suggest that systemic made less than two months’ worth of help. We attempt to reconcile these conditions make it such that the Black payments towards their loan during two sets of facts in Figure 15 by community experiences less help our twelve-month sample window. examining how many borrowers in with student loan repayment despite Prior research has found significant each race group receive help. We also facing comparatively more strain from disparities in the financial resources split each group by whether borrowers student loan repayment. This issue is available to Black, Hispanic, and are themselves making payments, likely a major contributor to the differ- White households (Farrell et al. 2020). as in Figure 13. For example, the far ent rates in loan repayment progress Most importantly, Black families have left bar shows that 33.6 percent of across race groups that we find below. significantly fewer liquid assets—just Black borrowers make no payments We begin to look at loan progress by 32 cents in liquid assets for every out of their own accounts, of whom race in Figure 16, which shows the dollar held by White families—mechan- 71.7 percent (comprising 24.1 percent distribution of payment shortfalls ically creating more vulnerability to of all Black borrowers) receive help by race. The majority of all three financial shocks like job loss. Similarly, 18 with payments. The key takeaway groups have no shortfall, with a few the incomes of Black households of Figure 15 is that although similar people who may be pre-paying. The tend to be systemically lower as well, portions of all three racial groups 75th percentile shortfall for Hispanic as seen in our sample of student receive help, regardless of whether and White borrowers is also zero, debt holders as shown in Table 3. they are making payments or not, while for Black borrowers it is slightly Both conditions could help explain a much larger portion of Black above one month. Extreme shortfalls the larger shortfalls seen among borrowers are making no payments are significantly more common among Black student debt holders, and we and receiving no payment help. This Black borrowers, however. While explore this possibility in Figure 17.

Figure 15: Help coverage among paying and non-paying borrowers

Payment help among paying and non-paying borrowers

80%

Compared to White student loan borrowers, a larger share of 60% Black borrowers are not making payments and receiving no payment help from others. 40%

20% Percentage of borrowers Percentage

0% Black Hispanic White Black Hispanic White

Debtors not making payments Debtors making payments

Net helper Paying debtor Non-paying debtor Recieving help

Note: Payment help is the difference between reported and observed payments; that is, the difference between the total paid against a borrower's loans and the total payments made toward student debt from the borrower's Chase accounts. A net helper is a student debt holder whose observed payments exceed their reported payments by at least one month's worth of reported payments; that is, they pay more towards student debt that is credit to their own loans. In this figure, we classify a borrower as "receiving help" if their total help recieved is at least one twelfth of their observed payments, or one month's worth.

Source: JPMorgan Chase Institute

26 Finding Four Student Loan Debt: Who is Paying it Down? Figure 16: Payment shortfall by race

Distribution of payment shortfall by race Figure 17 shows payment shortfall across race groups within 10.4 income quintiles and liquid asset quintiles, with Black borrowers on the left, Hispanic borrowers in the middle, and 10 White borrowers on the right. Across all income and liquid asset quintiles, the median debtor in each racial group has no more than one month of shortfall. However, across all income and liquid asset quintiles, Black borrowers experience the largest shortfalls and White borrowers experience the smallest. Black-White differences in payment shortfall shrink when

6 comparing families with similar levels of income or liquid assets, but they do not disappear. Even in the highest income bin, 10 percent of Black borrowers have a shortfall of five months or more, while the equivalent metric for Hispanic and 4 3.4 White borrowers is approximately one month. Among families

Payment shortfall in months Payment with liquid assets between $2,200 and $4,200 (the middle

2.1 of the liquid asset distribution) 10 percent of Black borrowers 2 90th Percentile had missed eight or more months’ worth of payments, while 10 percent of White borrowers had missed just one month. Figure 18 shows our second metric of payment progress by 75th Percentile race: the share of borrowers with at least one tradeline in 0 50th Percentile 25th Percentile deferral. Nearly 20 percent of Black borrowers have a tradeline Black Hispanic White in deferral, at least double the rate of Hispanic borrowers (10 percent) and White borrowers (8 percent). The deferral rate Note: Payment shortfall is the di†erence between all scheduled and reported payments during the twelve-month sample period December 2015 through of Black borrowers is also higher than that of any individual November 2016, divided by average monthly scheduled payment. Negative values age or income group; the lowest income group in Figure 8, of shortfall constitute pre-payment. Source: JPMorgan Chase Institute less than $25,000, has a deferral rate of about 13 percent.

Figure 17: Payment shortfall by race, income and liquid assets

Payment shortfall by race within income quintile Payment shortfall by race within liquid asset quintile

12 12

10 10

8 8

6 6

4 4

2 2 90th 90th Percentile Percentile shortfall in months Payment 75th Payment shortfall in months Payment 0 75th 0 Percentile Percentile 50th 50th Percentile Percentile Black Black Black Black Black Black Black Black Black Black White White White White White White White White White White Hispanic Hispanic Hispanic Hispanic Hispanic Hispanic Hispanic Hispanic Hispanic Hispanic

Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5 Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5 (<$30k) ($30-44k) ($44-61k) ($61-90k) ($90k+) (<$1,100) ($1,100-2,200) ($2,200-4,200) ($4,200-9,400) ($9,400+) ncome Liquid assets

Note: Income and liquid asset quintiles are calculated before splitting the sample by race Each borrower's liquid assets is the average of monthly balances for the sample period Income refers to take-home income Source: JPMorgan Chase Institute

Student Loan Debt: Who is Paying it Down? Finding Four 27 Figure 19 explores projected time to pay off by race. As above, we exclude borrowers with loans in deferment from Figure 18: Deferral rates by race these calculations. Similar to the overall population, the Percent of borrowers in deferral by race modal borrower in each group falls in either the 5-or-less or 6-10 year pay off bin. However, Black borrowers are 20.2% relatively more likely to fall in all the longer pay off term bins, especially “20+ years” and “Never,” where Black borrowers are twice as likely to appear as White borrow- ers. Approximately 13 percent of Black borrowers fall in the never-pay-off group, consistent with the evidence in 10.5% 8.5% Figure 15 that showed that at least 10 percent made no reported payments in our sample year. As with shortfall, this could be a joint story of differential conditions in income, assets, and limited outside help, and we explore this in

Figure 19. However, even when we focus on subsamples of Black Hispanic White borrowers with similar incomes levels, Black borrowers are more likely to be projected not to pay off their student loan Note: A borrower is agged as in deferral if any of the borrower's student loans is in deferral or forbearance at any point during the twelve-month sample period debt. Thus, Black borrowers are significantly more likely December 2015 through November 2016. to find themselves in a debt trap regardless of income. Source: JPMorgan Chase Institute

Figure 19: Projected time to pay of by race

Projected time to pay o debt by race 39.5% 36.6%

31.8% 30.2% 28.7% 24.3%

19.6% 17.6% 18.7% 13.1% 11.3% 8.4% 7.3% 6.3% 6.8%

< 5 6-10 11-20 > 20 Never Years to pay o Black Hispanic White Note: We project a orrower's time to pay o de t y imputing the interest rates on their loans and then calculating how many months it will take to reach a zero alance assuming the orrower continues to make the same payments as in our sample period. A orrower is fagged as in deferral if any of the orrower's student loans is in deferral or for earance at any point during the twelve-month sample period Decem er 2015 through Novem er 2016. Borrowers projected to never pay o de t have increasing alances over the twelve-month sample period; that is, interest charges over the course of the year are larger than total payments made.

Source: JPMorgan Chase Institute

In summary, we find large racial also the most likely to have made no in the outcomes of student loan debt differences in the attributes of student payments toward their loans during are extensive, and reflect underlying loan borrowers and their payment our sample year. As a result, Black systemic conditions impacting Black progress. Among the three groups we borrowers exhibit the largest payment borrowers’ means of timely repay- examined, Black borrowers have the shortfalls and the greatest likelihood ment, such as income, assets, and largest current student loan balances, of having a student loan that is actually access to financial help from others. while experiencing the highest increasing over time (negatively payment to income burdens. They are amortized). These racial disparities

28 Finding Four Student Loan Debt: Who is Paying it Down? Implications

Student debt can open the door to low-income households, the elderly, debt balances than White individuals. higher education and higher incomes and, in particular, Black borrowers. Others have documented discrimina- for students who otherwise would not While the median borrower is current tory and predatory practices that have have been unable to attend college. in their payments, at least 10 percent contributed to greater student loan At the same time, other dynamics in of borrowers making less than $40,000 balances among Black families (Center higher education have arguably made a or over 45 years old are at least for Responsible Lending 2019). Black college diploma a higher-risk invest- three months behind on payments. borrowers appear to experience more ment for some. Tuition costs have risen Additionally, 10 percent of Black bor- challenging circumstances related to dramatically, increasing the amount rowers are at least 10.5 months behind. student loan debt relative to White of debt needed to get a diploma, such Many borrowers keep up with their borrowers, according to every metric that the prevalence of student debt has student loan payments because we explored: payment burden, pay- risen dramatically in the United States they receive substantial financial ment help received, payment shortfall, in recent years. For-profit colleges have help from someone else not legally deferral rates, and time to pay off. grown, often targeting low-income tied to the debt, underscoring that Roughly 10 percent of Black student students of color while offering lower student loan repayment is a “family loan borrowers had no payments financial benefits than traditional affair.” Help is especially impactful for made toward their loans during our institutions (Looney and Yannelis lower-income and older borrowers. twelve-month sample, many of whom 2015). This combination of high debt This means that the economic effects are in deferral. Compared to White and increasingly uncertain financial of student debt (on saving, spending, borrowers, Black borrowers are much benefits constitutes a risk that could be income, etc.) may affect a broader por- more likely to be significantly behind financially ruinous for families without tion of the population than previously on their repayments and twice as the buffer of financial wealth needed thought, and the costs of human capital likely to be experiencing an increase to weather bad outcomes. Moreover, investment may be borne by many in their loan balances. That is, Black the burden of student loans dispropor- more people than those who directly borrowers are more likely to face a tionally impacts Black families, who benefit from it. It also means that the student debt “trap,” due in par t to the are more likely to have less financial current de facto system of family-borne fact that they have lower incomes and wealth due to decades of barriers to debt likely disadvantages those families asset holdings and likely fewer people high-paying jobs and wealth accumu- who were prevented from accumulating in their network who may be able to lation (Center for Responsible Lending, wealth by discriminatory practices and assist with repayment when they need 2019; Aliprantis and Carroll 2019). policies. More work is needed to better help. Thus, as currently constituted, This report finds that, on the one hand, understand the impacts of student loan student loan credit markets threaten most borrowers are not unreasonably debt on borrowers and their families to amplify rather than mitigate racial burdened by student loan payments and help manage the financial burden. wealth gaps across generations. and are making payments on time. Indeed we find that, consistent with At least 75 percent of borrowers in other research (Scott-Clayton 2018; every age, income, and racial group Center for Responsible Lending 2019), Student loan are keeping up with their payments. significant disparities exist across credit markets However, that still leaves a large racial groups in managing student threaten to amplify number of borrowers who are expe- debt. Given large racial gaps in income rather than mitigate riencing difficulty keeping up with and wealth attributable to a myriad of racial wealth gaps their payments, and that segment structural forces, it is no surprise that across generations. of the student borrower population Black individuals are more likely to is already economically vulnerable: hold student loan debt and have higher

Student Loan Debt: Who is Paying it Down? Implications 29 The economic impacts of COVID-19 Setting aside these structural issues than their monthly interest, the unpaid are likely to exacerbate the burden that contribute to the patterns of interest will continue to accumulate of student loan debt, particularly student loan repayment that we while the debt principal does not go for those already most burdened. observe, below we explore a few down. Additionally, if the borrower The COVID-19 pandemic could lower possibilities for how targeted debt leaves their IDR program, or fails to the return on student loan investment assistance programs could be recertify their annual income on time, in several ways. Most importantly, expanded to alleviate the burden of they will not only be responsible for students may face a historically weak existing student loan borrowers. As a all the unpaid interest but also for the labor market after graduating. For general principle, because the majority unpaid interest that may be added those not ready to graduate, their of borrowers are managing their debt to the debt principal and which can classes may continue in person or without being excessively burdened, begin to accrue additional interest. online. For colleges returning to in-per- efforts to alleviate undue burdens This is a risk that has already been son classes, the possibility of infection from student loan debt can and should realized for many: in 2015, 57 percent raises the effective cost of attending be targeted at those who are experi- of borrowers in IDR programs failed college, and students that drop out as encing truly difficult conditions. This to recertify their income on time a result bear any debt they’ve incurred is true for payment assistance efforts (Department of Education 2015). like income-driven repayment (IDR) without the wage premium they Our findings highlight that current programs as well as more aggressive expected to earn from their degree. student loan debt policies and actions like debt forgiveness. At the same time students may be less assistance programs may not likely to finish school, they may also A relatively easy first step in expanding adequately consider the network of need to take on more debt in order to targeted assistance would be to help people the borrower may rely on to finish because they and their families additional borrowers benefit from make their payments. This means may have lost income. Moreover, those improved access to existing payment that a borrower’s income statement who are most economically affected assistance programs, including may understate both her ability to by COVID-19 are also those who are income-driven repayment programs. pay and her vulnerability to job losses most burdened by student loan debt: One way to do this is to reduce the and financial disruptions among Black, Hispanic, and lower-income paperwork burden required to partic- her financial support network. This workers have seen the largest job ipate in IDR, such as making annual issue has the potential to perpetuate losses (Bureau of Labor Statistics 2020; income recertification easier. Another intergenerational wealth inequalities Cajner et al. 2020). The administrative is to increase efforts to make sure bor- and place undue burdens on parents. relief (forbearance) offered as part rowers are aware of their IDR options. For wealthy parents, financing of the CARES Act will be important to We observe that at least 10 percent of education through tuition or student help people smooth consumption but people are making payments that rep- loan repayment is a way to transfer will likely result in families shouldering resent more than 10 percent of take- wealth to the next generation. For the debt burden for a longer period. home income, a common threshold for less wealthy parents, student loan What should be done to address the IDR programs.19 We also observe high debt repayment is an added financial disparate patterns we find in student rates of deferment among low-income burden to face if they do not benefit loan borrower outcomes? It goes borrowers who might be eligible for from their children’s income premium. without saying that curbing the rise IDR and eventual loan forgiveness. Student loan policies should take in tuition costs and student loan However, it is important to note these family dynamics into account. debt borne by students and their that current IDR programs do have First, loan origination programs may families would address the problem drawbacks, and new programs may need to rebalance eligibility of loans at its root. In addition, reducing be warranted. IDR provides debt between students and parents. Loan racial gaps in income and wealth forgiveness only after twenty years of origination programs currently make would boost families’ ability to pay for successful program participation. This a clear distinction between borrowers tuition and repay student loan debt extended time horizon makes debt and their parents. For example, among segments of the population forgiveness uncertain. Enrolling in an federal Parent PLUS loans, which are most burdened by student loan debt. IDR program is also not without risk. If taken out by parents of dependent the borrower’s reduced payment is less undergraduates on behalf of their

30 Implications Student Loan Debt: Who is Paying it Down? children, have higher interest rates and borrowers suggests this may be a graduates entering certain careers limits than those provided directly to common practice. However, if the and for those who remain in an undergraduate students. We observe student cannot sufficiently earn a IDR program for twenty years, our younger borrowers making payments premium, they have access to some evidence suggests there is an oppor- on loans that are not in their name and assistance, like IDR, but probably won’t tunity to expand avenues for targeted older borrowers receiving help with be able to help their parents who do debt relief. We find that a higher share their loans, most of which are Parent not have any avenue for assistance. of lower-income and Black borrowers PLUS loans. This suggests that many And with a meaningful share of older face extreme payment burdens (over students are repaying their parents’ Americans involved in student loan 10 percent of take-home income) and loans. What are the redistributive repayment making progress at a very are projected to never finish paying implications if these loans are ulti- slow rate, their debt burdens may off their loans if current repayment mately paid by the students them- very well stretch into retirement. trends continue. Given the dispropor- selves? Should loan limits be increased A possible complement to repayment tionate structural challenges Black in order to enable students to officially relief programs is to allow for restruc- and Hispanic families face within the take on more of the debt, giving them turing or forgiveness of student debt labor market, there is strong evidence access to lower interest rates and through a bankruptcy-like process.20 of racial gaps in income (Farrell et current payment assistance programs? Enabling student debt to be discharged al. 2020). Thus, returns to education Second, perhaps there should might ultimately increase the cost could be lower for Black and Hispanic be more avenues for payment of borrowing to the extent that the graduates than White graduates, assistance designed for parents. existence of the policy changes default making it mechanically more challeng- Borrowers on instruments like rates. Targeting discharge—for example ing for Black and Hispanic borrowers Parent PLUS loans are not eligible to those with limited assets and have to effectively repay their student loans. for programs like IDR. This creates been in default for several years— Targeted student loan debt forgiveness a potential pitfall for parents who could mitigate these price effects. could be a means of rebalancing our investments in public goods like educa- borrow on behalf of their children. A further step to address undue If the student completes college and tion across communities and insuring payment burdens would be to expand against the risk that borrowers, Black earns an income premium, they can efforts to provide targeted debt help their parents with parent-borne and Hispanic borrowers disproportion- forgiveness to those most burdened. ately, find themselves in a debt trap. loans. Our observations of the large Although debt relief is available for amount of help received by senior

Student Loan Debt: Who is Paying it Down? Implications 31 Data Asset

For this study, we assembled a novel origination date) and the account of the matched customers had made dataset of 301,583 de-identified Chase holder (e.g., age). For three states in our a student loan payment at some point checking account customers who had sample, this also includes self-reported during 2013. This would guarantee a outstanding student debt or were race and ethnicity data taken from large sample of student loan borrowers making payments towards student public voter registration records. during the sampling process. However, debt. To these individuals’ bank data, We constructed our sample of 301,583 it also skews our sample in certain we linked Experian credit bureau from a larger match of 4.75 million predictable ways, which we explore data for December of 2015 through Chase customers to Experian records further in this section. From our overall November of 2016. This joint data asset covering December 2015 through Chase–Experian sample of 4.75 million allows us to observe income, student November 2016. This sample was customers, we impose account activity loan payments, and key attributes constructed so that roughly a quarter filters to eliminate customers who do of the student loan tradeline (e.g., not use Chase as their primary bank.

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32 Data Asset Student Loan Debt: Who is Paying it Down? First, customers in our sample must population of student debt borrowers, balances are held by those under 30 have been Chase customers for the we compare the Chase–Experian in the Fed sample, while the under- entire period of study. They must also sample to the Consumer Credit Panel 30 borrowers only hold 14 percent actively use their Chase accounts; used by the Federal Reserve Bank of balances. This under-sampling we consider an account in active use of New York, which constitutes a of the youngest borrowers is likely if it has at least five transactions in representative sample of borrowers. due to the way the Chase–Experian every month of our sample period We begin our comparison in Figure 20. sample was constructed, specifically and at least $12,000 in deposits over The left panel plots the distribution its over-sampling of customers who the course of the sample period. This student loan borrowers by age in the had made a student debt payment gives us a base sample of 1.8 million two samples. The right panel plots how in 2013. This over-sampling should customers. From these, we select all the total balance of student loan lead to an under-sampling of people individuals who either (a) have an debt is distributed by the age of the who entered repayment after 2013, open student loan in the Experian debt holder. In both cases, we see that i.e., most borrowers who graduated records or (b) make payments out the Chase–Experian sample after July 2013. This is borne out by of their Chase account to a student underrepresents the youngest the similarity of the rest of the age loan servicer, leaving us with our borrowers. While borrowers under 30 distribution across the two samples. final sample of 301,583 customers make up 39 percent of the Fed Credit Once under-30 borrowers are involved in student debt repayment. Panel, they only make up 18 percent excluded, 46 percent of both samples To assess how our sample might of the Chase–Experian sample. fall in the 30–39 age range, with other be skewed relative to the true Similarly, 30 percent of student debt groups more closely aligning as well.

Figure 20: Distribution of student loan borrowers and balances by age in the Chase–Experian sample versus the NY Fed Consumer Credit Panel benchmark

Distribution of student loan borrowers across age groups Distribution of student loan balance across age groups

40% 40%

35% 35%

30% 30%

25% 25%

20% 20%

15% 15% Percentage of total balance of total balance Percentage Percentage of total borrowers of total borrowers Percentage 10% 10%

5% 5%

0% 0% Under 30 30-39 40-49 50-59 60+ Under 30 30-39 40-49 50-59 60+

Age group Age group

Chase-Experian sample New York Fed Consumer Credit Panel / Equifax

Source: JP organ Chase Institute using data from New York Fed Consumer Credit Panel / Equifax

Student Loan Debt: Who is Paying it Down? Data Asset 33 Figure 21 conducts a similar exercise the Consumer Credit Panel. This may of borrowers small. A similar explana- as Figure 20, this time looking at all be due to the over-sampling of people tion could be behind the patterns in debt (e.g., mortgages, car loans, credit who made a student loan payment the over-70 age bin; we over-sample card balances, etc.) rather than just in 2013. Because of this, the Chase– student debt payers, which skew student debt. Again, the left panel Experian sample is more likely to be young, thus excluding older customers. shows the distribution of borrowers missing recent graduates, as we saw in At the same time, those 70-year-olds by age while the right panel shows the Figure 21. But it also skews the sample we do sample are more likely to be distribution of balances by age of the toward student debt holders overall, student debt holders, increasing their debt holder. The left panel shows that meaning there are fewer 18 to 29-year- average balance relative to the aver- the Chase–Experian sample has fewer olds in the Chase–Experian sample age 70-year-olds in the population. 18 to 29-year-old borrowers, while the who are small debt holders, e.g., those Figure 22 plots the distributions of right panel shows that this youngest whose only debt is a monthly a credit student debt borrowers across the group holds more debt in the Chase– card balance. This simultaneously total amount of student debt they hold. Experian sample relative to those in keeps balances large and the number Here, the two samples are very similar.

Figure 21: Distribution of all credit bureau record holders and balances by age in the Chase–Experian sample versus the NY Fed Consumer Credit Panel

Distribution of credit bureau customers across age groups Distribution of all debt balance across age groups

25% 25%

20% 20%

15% 15%

10% 10%

5% 5% Percent of total balance of total balance Percent Percentage of all customers Percentage 0% 0% 18-29 30-39 40-49 50-59 60-69 70+ 18-29 30-39 40-49 50-59 60-69 70+ Age group Age group

Chase-Exper an sample New York Fed Consumer Cred t Panel / Equ fax Source: JPMorgan Chase Inst tute us ng data from New York Fed Consumer Cred t Panel / Equ fax

Figure 22: Distribution of all credit bureau record holders and balances by age in the Chase–Experian sample versus the NY Fed Consumer Credit Panel

Share of borrowers by student loan balance 30%

25%

20%

15%

10%

Percentage of borrowers of borrowers Percentage 5%

0% $1-5k $5-10k $10-25k $25-50k $50-75k $75-100k $100-150k $150-200k 200k+

Chase-Experian sample New York Fed Consumer Credit anel / Equifax Source: J Morgan Chase Institute using data from New York Fed Consumer Credit anel / Equifax

34 Data Asset Student Loan Debt: Who is Paying it Down? Appendix

Figure A1: Distribution of help given (negative values) and Figure A2: Age at origination of oldest open loan for received (positive values) by age, restricting to people who borrowers 60 and older have ever made an electronic student loan payment

Distribution of payment help by a e for borrowers who Age at origination of oldest open tradeline for have ever made an electronic student debt payment borrowers age 60 and older

$1,000 8,000 75th Percentile $800 7,000 $600 6,000 $400

$200 5,000 50th Percentile $0 4,000 Net payment help received Net payment 25th Percentile -$200 3,000 30 40 50 60 70 Number of borrowers Number of borrowers Age 2,000 Note: Sample is restricted to borrowers who have made at least one student loan payment from their hase accounts since 2013. Percentiles are calculated within 1,000 twenty age quantiles. Each bin is represented along the x-axis by its average value. Payment help is the dišerence between reported and observed payments; that is, 0 the dišerence between the total paid against a borrower's loans and the total <20 21-30 31-40 41-50 51-60 60+ payments made toward student debt from the borrower's hase accounts. Negative payment help represents help provided by the borrower to other student debt Age at origination of oldest open tradeline holders. Source: JPMorgan hase Institute Source: JPMorgan Chase Institute

Table A1: Summary statistics by number of student loan tradelines

Average balance Average balance Tradeline count Fraction of sample per tradeline per person

1 44% $19,783.26 $19,179.60

2 20% $12,477.39 $24,037.54

3 9% $9,910.82 $28,805.41

4 8% $7,377.18 $28,571.89

5 5% $7,145.00 $34,756.53

6–9 10% $6,169.72 $42,827.08

10+ 5% $6,649.03 $83,750.85

Source: JPMorgan Chase Institute

Student Loan Debt: Who is Paying it Down? Appendix 35 References

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Aliprantis, Dionissi, and Daniel R. Carroll. 2019. “What is behind the Persistence of the Racial Wealth Gap?” Economic Commentary, Federal Reserve Bank of Cleveland. Department of Education. 2015. Sample Data on IDR Recertification Rates for ED-Held Loans. https://www2. Baum, Sandy, Kristin Blagg, and Rachel Fishman. 2019. ed.gov/policy/highered/reg/hearulemaking/2015/paye2-re- “Reshaping Parent PLUS Loans: Recommendations for certification.pdf Reforming the Parent PLUS Program.” Report, Urban Institute, Washington, DC. Department of Education. 2020. “Consolidating your federal education loans can simplify your payments, but it also can Bleemer, Zachary, Meta Browh, Donghoon Lee, Katherine result in the loss of some benefits.” https://studentaid.gov/ Strair, and Wilbert van der Klaauw. 2017. “Echoes of Rising manage-loans/consolidation. Accessed August 18, 2020. Tuition in Students’ Borrowing, Educational Attainment, and Homeownership in Post-Recession America.” New York Fed Farrell, Diana, Fiona Greig, and Erica Deadman. 2019. Staff Report. “Student Loan Payments: Evidence from 4 Million Families.” JPMorgan Chase Institute. https://institute. Brevoort, Kenneth P., Philipp Grimm, and Michelle Kambara. jpmorganchase.com/institute/research/household-debt/ 2015. "Credit Invisibles." Bureau of Consumer Financial report-student-loan-payments. Protection Data Point Series 15-1. Farrell, Diana, Fiona Greig, Chris Wheat, Max Liebeskind, Bureau of Labor Statistics. Employment Situation Summary. Peter Ganong, Damon Jones, and Pascal Noel. 2020. July 2, 2020. “Racial Gaps in Financial Outcomes: Big Data Evidence.” JPMorgan Chase Institute. https://institute.jpmorganchase. Cajner, Tomaz, Leland Dod Crane, Ryan Decker, John Grigsby, com/institute/research/household-income-spending/ Adrian Hamins-Puertolas, Erik Hurst, Christopher Johann report-racial-gaps-in-financial-outcomes. Kurz, and Ahu Yildirmaz. 2020. “The U.S. Labor Market During the Beginning of the Pandemic Recession.” Tech. Federal Deposit Insurance Corporation. 2018. 2017 FDIC Rep. WP 2020–58, University of Chicago, Becker Friedman National Survey of Unbanked and Underbanked Households. Institute for Economics. Gibbs, Christa. 2017. “Student Loan Repayment.” Bureau of Center for Responsible Lending. 2019. "Quicksand: Borrowers Consumer Financial Protection Data Point Series 17-2. of Color & the Student Debt Crisis." https://www.responsi- blelending.org/sites/default/files/nodes/files/research-publi- Goodman, Sarena, Adam Isen, and Constantine Yannelis. 2019. cation/crl-quicksand-student-debt-crisis-jul2019.pdf “A day late and a dollar short: Liquidity and household formation among student borrowers.” Federal Reserve Board Chakrabarti, Rajashri, Vyacheslav Fos, Andres Liberman, and Finance and Economics Discussion Series Paper 2018-025. Constantine Yannelis. 2020. “Tuition, Debt, and Human Capital.” Federal Reserve Bank of New York Staff Report 912. Herbst, Dan. 2020. “Liquidity and Insurance in Student Loan Contracts: The Effects of Income-Driven Repayment on Borrower Outcomes.” Working paper.

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Student Loan Debt: Who is Paying it Down? References 37 Endnotes

1 Currently, student debt is only information on debt to borrowers’ measurement error because some dischargeable under Chapter 13 income and assets over time. portion of borrower’s first months (debt restructuring) when a debtor will include the prior month’s 5 While the impact of student debt can convince a judge that they have payment, which is out of our sample. on individual finances has been extreme economic hardship and if well-documented (Mezza et al. 8 Federal loans are eligible for the debtor completes a rigorous 2020), the burden it places on the deferment under a number cir- five-year repayment program. In collective household balance sheet cumstances including, returning practice, this happens very rarely. is less clear (Jerphanion 2020). to school, military service, cancer treatment, unemployment, and 2 This builds on our previous student 6 When we quantify the dollar amount various economic hardships (such as debt report (Farrell et al. 2019), in of help given (received) we do not receiving means-tested government which we only observed student apply the threshold that reported benefits). During deferment interest debt payments made out of checking payments have to be greater (less) generally does not accrue on the accounts. We now observe whether than observed payments by at least subsidized portion of federal loans. the account holder has a student one month’s worth of scheduled Generally forbearance is granted by debt tradeline in the credit bureau, payment. The difference between loan servicers for up to a year at a and the sum of payments made reported and observed payments time (with a cumulative limit of three monthly towards that tradeline is quantified as help given (positive years) under a variety of circum- in the credit bureau (regardless values) or received (negative values). of who makes the payment). stances such as financial difficulties, 7 We focus on this normalized measure medical expenses, and changes in 3 See Addo et al. (2016) for a recent because we frequently observe lags employment, and interest accrues summar y of the literature. For exam- in reported payments month to during periods of forbearance. ple, the analysis of loan repayment month. For example, if a borrower using the 1993–2003 Baccalareate has automatic payments scheduled 9 Note that all of these measures and Beyond Longitudinal Study in for the 25th of every month, some are net of any help received—even Lochner et al. (2015) found that of the payments are shift to the if a borrower makes zero pay- among “individual and family next month in Experian’s data, so ments themselves, they can be background characteristics, only race instead of $100 in November and making progress on their loans is consistently important for all mea- $100 in December, $200 is reported if someone else is paying. sures of repayment/nonpayment.” for December. Because any data 10 Each plot groups the x-axis variable 4 Certain papers have leveraged sample will necessarily have a last (e.g., age) into twenty quantiles and credit bureau data to study trends in month (November 2016 in our case), then shows the median value of student debt repayment (e.g., Gibbs some months will have erroneous the y-axis variable (e.g., reported 2017; Chakrabarti et al. 2020), but zero values because payments were payments). For example, Figure 3 taken alone these data provide very not registered before the monthly shows that the median sched- limited information on important reporting deadline. Thus, a fraction uled burden for people around borrower attributes like income. of borrowers will be artificially show 50 years old is 3.5 percent. Survey data, such as the Survey of a shortfall of one month, even if 11 Given that we over-sampled account Consumer Finances or the National they are making their full scheduled holders who made a student loan Postsecondary Student Aid Study, payments. Thus, any shortfall of payment in 2012–2013, our sample provides a cross-sectional snapshot one month or less may be due to may over-represent student loan pay- of debt balances and typical monthly a delay in the reporting the final ers and under-represent those with payments but with limited sample month’s payment rather than an a student loan but not making pay- sizes and time frame. Even large actual failure to pay, and we will ments. Therefore we may overstate administrative datasets, such as remember this point in interpreting the amount of help in aggregate, but the National Student Loan Data the results. Note that pre-payment System, are unable to link verified may also suffer from this same

38 Endnotes Student Loan Debt: Who is Paying it Down? pure helpers and student loan payers or even to zero, with the promise of 18 For the purposes of Figure 15, we will be oversampled at equal rates. forgiveness of qualifying loans if the say a borrower has received help if borrower successfully follows their at least one month’s worth of the 12 For all borrowers over 60, we calcu- IBR-determined repayment schedule year’s reported payments came late how old the borrower was at the for the full term of twenty years. from outside the borrower’s account. origination of the borrower’s oldest Because of the recent beginnings Specifically, if the difference in a loan that is open during our sample of IBR programs, the first year that borrower’s reported and observed period. The distribution of these ages IBR forgiveness can occur is 2034. payments is greater than reported is plotted in Appendix Figure A2. payments divided by twelve. 16 Note that our other analyses do 13 Other research has found that include deferred borrowers, most 19 Discretionary income, as it relates older individuals are more notably the calculation of short- to IDR programs, is the difference likely to use paper checks between the borrower’s income and (Kumar and O’Brien 2019). fall in Figure 6. We felt this was appropriate because a person in 150 percent of the federal poverty 14 Longer repayment terms can deferment with a scheduled payment guideline for the borrower’s state occur when a borrower con- near zero is still allowed to make of residence and family size. In solidates their loans; current payments, which would constitute contrast, we observe take-home Department of Education policy pre-payment. They are also allowed pay in our data, which does not gives a thirty-year repayment for to make zero payments which include any tax withholding or the largest consolidated balances would constitute a full payment. other paycheck deductions. (Department of Education 2020). 17 The Black-White and Hispanic-White 20 Currently, student debt is only 15 This is could be because they are ratios in take-home income among dischargeable under Chapter 13 currently in enrolled in Income- student loan borrowers (0.78) are (debt restructuring) when a debtor Based Repayment (IBR) programs, slightly larger than those reported can convince a judge that they have which cap the scheduled payments among a larger sample of Chase cus- extreme economic hardship and if based on income, sometimes tomers, among whom the Black-White the debtor completes a rigorous yielding a scheduled payment of $0. ratio was 0.71 and the Hispanic-White five-year repayment program. In IBR programs can lower schedule ratio was 0.74 (Farrell et al. 2020). practice, this happens very rarely. payments to below interest charges

Student Loan Debt: Who is Paying it Down? Endnotes 39 Acknowledgments

First and foremost, we thank Malu Menon and Bernard Technology teams of data experts, including, but not limited Ho for their outstanding analytical contributions to the to, Anoop Deshpande, Andrew Goldberg, Senthilkumar report. We are additionally grateful to Natalie Cox and Chen Gurusamy, Derek Jean-Baptiste, Anthony Ruiz, Stella Ng, Zhao for their support and contributions along the way. Subhankar Sarkar, and Melissa Goldman. The project, We are also thankful for the invaluable support we received which encompasses far more than the report itself, also both from JPMorgan Chase Institute colleagues, including received indispensable support from our Internal partners Anna Garnitz, Sruthi Rao, and Maggie Tarasovitch, as well in the JPMorgan Chase Institute team, including Elizabeth as the constructive feedback we received from external Ellis, Alyssa Flaschner, Carolyn Gorman, Courtney Hacker, academic and industry policy experts, including Jason Chris Knouss, Sarah Kuehl, Carla Ricks, Gena Stern, Parita Delisle, Rajashri Chakrabarti, Christa Gibbs, Thomas Shah, Haley Dorgan, Tremayne Smith, and Preeti Vaidya. Conkling, Dubravka Ritter, Joelle Scally, Donghoon Lee, Finally, we would like to acknowledge Jamie Dimon, CEO Andrew Haughwout, Darrick Hamilton, Seth Frotman, Kristin of JPMorgan Chase & Co., for his vision and leadership Blagg, Sandy Baum, and Brian Kreiswirth. We are deeply in establishing the Institute and enabling the ongoing grateful for their generosity of time, insight, and support. research agenda. Along with support from across the This research was possible because of the vital partnership, firm—notably from Peter Scher, Max Neukirchen, Joyce data, and knowledge from Experian, in particular Chang, Marianne Lake, Jennifer Piepszak, Lori Beer, Joyce Hwang, Thomas O’Neill, and Erin Keyser. Derek Waldron, and Judy Miller—the Institute has had the resources and suppor t to pioneer a new approach This effort would not have been possible without the diligent to contribute to global economic analysis and insight. and ongoing support of our partners from the JPMorgan Chase Consumer and Community Bank and Corporate

Suggested Citation

Farrell, Diana, Fiona Greig, and Daniel M. Sullivan. 2020. "Student Loan Debt: Who is Paying it Down?" JPMorgan Chase Institute. http://www.jpmorganchase.com/corporate/institute/household-debt-student-loan-debt.

For more information about the JPMorgan Chase Institute or this report, please see our website www.jpmorganchaseinstitute.com or e-mail [email protected].

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