5 Ways Data Analytics Helps Us Understand the Student Lending Crisis

Big data technology is helping us get a better understanding of the student loan crisis to provide solutions.

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Data analytics is giving us more insights into many of the most pressing challenges that we have faced as a society. More policymakers are using data to make more informed decisions.

Analytics Insight shared a list of 10 major ways that big data is changing politics. The biggest benefits relate to using big data to understand voters and create models of voting patterns in various districts. However, more politicians are also using data analytics to get deeper insights into some of the biggest concerns facing their constituents.

One of the biggest examples of policymakers using big data is to get a better understanding of the student loan crisis. This is just one of the many applications of data technology in education.

Big Data Helps Understand the Nature of the Student Loan Crisis

Student loans have helped millions of Americans access higher education and kick off their career. So, why are over three-quarters of students anxious about their current finances?

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Coupled with higher interest rates and the whopping amount of student debt, the rising cost of education is taking a toll on students’ hopes for their financial futures. But what should today’s borrowers really expect?

Big data is helping us better understand the nature of this fiasco. Sarah Riley, a research economist with the University of North Carolina wrote an paper in 2020 titled Predictive Analytics for Reducing Student Loan Default. As the title suggests, it is geared towards using data analytics to anticipate the risk of a borrower defaulting on their student loans. The goal is for financial institutions to use big data to identify high risk borrowers and avoid giving loans that they will default on.

Riley’s paper addressed the use of applying big data to understand the student loan crisis at the individual level. However, there are ways to use big data to understand it from a microeconomic perspective instead.

Here is what the data is telling us about the growing student loan crisis – and how it can help solve it!

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Amounting to $1.58 Trillion Student Loan Was the Second-Largest Debt Component in the US in 2021

At the end of 2021, American consumers reported a cumulative debt of over $15.24 trillion and that figure is growing each year. Most of this is due to mortgages, which account for $10.44 trillion. However, totaling $1.58 trillion, student loans represented the third-largest type of debt in the US, even before credit card and personal loan debts.

At the same time, credit card and student loan debt go hand-in-hand, and those borrowers who are highly educated are also the ones with higher-paying jobs, more expensive lifestyles, and higher credit card debt.

Big data technology is giving us real-time insights about the evolving nature of student loan debt. Policymakers will be able to anticipate future student loan debt levels with predictive analytics tools.

Graduates Walk into The Workplace With an Average Student Debt of $37,113

For many students, the first step into the workplace comes with an already-severe financial burden. Today’s students who have borrowed a federal student loan have an average of $37,113 in debt at graduation, while those who opt for a private lender have an average outstanding balance greater than $40,900.

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This is an area where companies using data analytics can benefit as well. They can use data-driven insights to have a better understanding of the situation their customers are facing. Rather than rely solely on the national level student loan averages, they can use data analytics to nuance the data and estimate the data of their own employees based on whether they have a graduate degree, the schools they attended and years they graduated. This will help them come up with the best compensation packages.

Since 1970, Student Debt at Graduation Increased by 2,807%

Student loan debt has been constantly rising since the 70s, skyrocketing by 2,807% over the past 50 years. Even accounting for inflation, student debt has increased by 317% since 1970 and by 157% since the 2008’s Great Recession.

Thanks to the government-supported 0% interest rates introduced as a response to the Covid-19-related financial crisis, the student loan debt dipped slightly at the end of 2021 for the first time since its introduction in 1958.

Bigdata is also helping see how this figure will increase.

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In 2021, There Were 44.7 Million Americans With Outstanding Student Loan Balances

Student loans might be the root of most students’ financial worries. However, in 2021, they have helped over 45 million American students access college and higher education. And, nearly 80 million US professionals have accessed a student loan at some point. 

At the same time, nearly 62% of graduates carry student loan debt and over 42 million borrowers still deal with a federal student loan balance.

On Average, Students Take Over 20 Years To Repay Their Loan

Student loans provide value for many years – especially if they allow a student to pursue a high-paying, meaningful career. However, the average borrower can take 20 years to fully repay a graduate student loan. And, for professional graduates who opt to continue their education with a Master’s degree, the repayment period can be as long as 45 years!

While this can be instrumental in helping students access the right job opportunities, it can significantly compromise their ability to regain financial independence over time.

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Got Student Debt? Here’s How You Can Pay it Back Faster

Student loans are extremely powerful tools, and, when used correctly, they can help young Americans access high-paying job positions and long-term financial wealth.

Nonetheless, for most households, it can be hard to keep at bay multiple types of debt, including mortgage, credit card balances, and personal loans. That is why your focus should be on paying back your student loan.

Tools such as consolidation loans, refinancing, early repayments, and a professional student loan payoff calculator can help you better understand where you stand and how to pay down debt. Taking advantage of these tools early on is essential to prevent your student loan from becoming unmanageable and continue enjoying benefits from your investment.

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Big Data Helps Provide a Better Understanding of the Student Loan Crisis

Big data helps policymakers make better decisions. One of the ways that they are using big data is to get a handle on the student loan crisis. These data-driven insights can help significantly.

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Sean is a freelance writer and big data expert. He loves to write on big data, analytics and predictive analytics.