As we all know, US student debt is soaring. With a relentless rise, student debt has become the second-highest form of consumer debt in the US in recent years. In the fourth quarter, the amount of student debt outstanding hit $1.1 trillion. (This chart doesn’t show mortgage debt, which is about a dozen times as big.) But at the same time , there’s a crucial transformation going on. That’s why this chart, below, is important. It shows more people have been availing of a couple of different federal programs that lower the monthly repayments on student loans. The income-based repayment program (IBR) was instituted by the US Department of Education in 2009. It caps monthly loan payments at 15% of the borrower’s discretionary income and forgives loans after 25 years. A separate repayment plan, known as pay-as-you-earn (PAYE), was introduced in December 2012. It is aimed at helping young Americans who graduated into the miserable economy of the Great Recession. (It is only available to those who took out their first loan after Oct. 1, 2007.) It caps monthly payments at 10% of discretionary income and forgives loans after 20 years.
People seem to think these programs are a good deal, as usage of them is growing fast. In a report, analysts from Moody’s noted that the balance of all federal direct loans in repayment—which includes loans that are in forbearance and deferment—under these two programs was about 20% as of the end of March. That’s up from 14% in June 2013.