At present, many students are struggling to pay off their loan debts. A recently concluded study has sought to shed light on the matter. More specifically, the study centered on the repayment methods employed by borrowers when it came to paying off their debts.
After compiling anonymized data from 270,000 borrowers between January 2013 and October 2017, the Bureau of Consumer Financial Protection office was able to ascertain the various ways borrowers were repaying their loans whilst leading normal lives and covering typical and miscellaneous expenses
Remarkably, the report was able to comprehensively determine that many borrowers actually paid off their student loan debts promptly, some ahead of schedule. Amazingly, many of those who clear their debts did so in lump sum payments.
This particular statistic is interesting because the typical one-time payment is almost 55 times more than the normal monthly payment. Even more interesting was the fact that about 94 percent of the final payments were noticeably more than the scheduled payments. Only a small fragment of borrowers was able to make the exact final loan payment totaling exactly what they were owed through monthly payments.
The study was also able to come to the conclusion that the clearing of student debts allowed borrowers ample time and space to clear off other debts that may accrue during their lifetimes. The data shows that credit card debt payment was the most prevalent type of debt that borrowers resorted to clear after sorting out their student debts. Analysts believe that this is made possible by borrowers creating ample leg room for the covering of other expenses.
Oddity
It remains unclear why numerous borrowers prefer to make a lump sum payment of their student loans
As an economist who carries out his duties with close ties to the CFPB, Thomas Conkling has shared that data collected from the study has enabled the bureau to gain an understanding on how student loans influenced the path families took when it came to clearing the debts. On CFPB's website, a blog highlighted that the data compiled was crucial in depicting the fact that all matters finance were interdependent. The website mentioned that upon repayment of one debt, all other debts were likely to be paid back in full.
Data from the research showed that borrowers had enhanced odds of 0.68 percent when it came to landing their landing their very first mortgage deal. On average it took about 12 months for borrowers to get their hands on a mortgage right after clearing their student loans.
Research indicates that the one-off student loan payouts are probably caused once borrowers stumble upon large funds of money or receive substantial income increments. However, the study did not manage to come up with concrete reasons why many people paid off their debts in one go. The only things analysts were able to agree is that continued research on the matter would be able to provide better insight.
Strategy
What this means is that borrowers should strive to ensure that they clear up payments as soon as they can. At the same time, he shared that borrowers can opt to send checks on two-week intervals instead of the regular monthly deposits. In doing so, Katz noted that the benefits soon start becoming noticeable. Early clearance of loans means that there is more free cash to be invested and put into initiatives like house construction, retirement savings, and other investments.
According to Clayton Shearer, who works as a wealth manager at A&I Financial Services, the best way for borrowers to ensure swift payment of their debts is by making 3-5 year plans for the loan payment. Shearer mentioned that many borrowers are happy to have a timeline in place on when they expect the debt to be repaid in full.