Student loan debt can be hard to shed -- but that's not something you're doomed to experience.
It's estimated that 43.5 million Americans owe money in student loan form. And the average borrower is carrying a balance of $37,338.
It's really not a secret that student loan debt can be a huge burden. But it's important to understand why student loans are so difficult to kick, and how you can make them a lot easier to repay.
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Why student debt is so hard to pay off
Those stories you hear of people who are still carrying student loans into their 60s and 70s? There's a reason for that -- two, in fact.
1. Interest
When you take out student loans, you don't just repay the exact sum you borrowed. For example, if you take out $20,000 in student loans, you're generally going to end up spending well more than $20,000 by the time your student debt is paid off due to accrued interest.
Let's say you borrow $20,000 for college that you're supposed to repay over 10 years at an interest rate of 7%. If you stick to that schedule, you'll end up spending almost $8,000 on interest on top of your $20,000 in principal.
2. Inflation
Inflation can drive the cost of living upward in a very big way. And the problem is that when you sign up for student loans, you can't always predict what it will cost to exist as a human after you graduate.
Plus, not everyone graduates from college with a high-paying job. And if your income isn't so high and your living costs mount, it can become easy enough to fall behind on student loans.
How to prepare to pay off student loans
When you take out student loans, it's important to know what costs you're signing up for. And you can minimize the burden of student debt by doing these things.
1. Make some payments during your studies
Many people don't begin tackling their student loan balances until they've wrapped up their studies. But if you're able to work during college, you can chip away at your loan balance so you're spending less on principal and interest after you graduate.
Let's say you're able to borrow $5,000 less for college. If you'd normally be paying off your student loans in 10 years at 7% interest, knocking out that balance means actually saving yourself more like $7,000 when you account for the interest you'd otherwise accrue on that $5,000 over a decade.
2. Avoid extended repayment periods and forbearance
If you take out federal student loans, you may be eligible to apply for an extended repayment plan. That might do the job of reducing your monthly payments individually. But it also sets you up to accrue a lot of interest on your loans that can ultimately make them harder to pay off.
Similarly, you may be inclined to pause your student loan payments at some point by applying for forbearance. But often, interest continues to accrue on student debt even when loan payments are paused. So if you can avoid going this route, you might make your life easier.
Many people who take out student loans assume they'll be paying off that debt for a really long period of time. But it doesn't have to be that way. If you're able to get ahead of your loans during your studies and avoid accruing added interest, you might manage to shed your debt much sooner than expected.
FAQs
Certain lenders may capitalize on your interest or charge interest on top of interest, which results in higher charges. Capitalized interest can make it challenging to make a dent in your total student loan balance.
Why are student loans so difficult to pay off? ›
Certain lenders may capitalize on your interest or charge interest on top of interest, which results in higher charges. Capitalized interest can make it challenging to make a dent in your total student loan balance.
What are the 2 main types of student loans that you can take out? ›
There are two main types of student loans: federal and private. Federal student loans have unique repayment options and are the only avenue for loan forgiveness programs. Private student loans may offer lower interest rates for borrowers with excellent credit.
What are some reasons why student loan debt is so high? ›
Higher education financing allows many Americans from lower- and middle-income backgrounds to invest in education. However, over the past 30 years, college tuition prices have increased faster than median incomes, leaving many Americans with large amounts of student debt that they struggle or are unable to, pay off.
Why shouldn't student loans be paid off? ›
You will need enough income to cover a higher monthly payment, which could delay saving for other goals. Furthermore, paying too much toward your student loan could cause you to fall short on essential bills like rent or a car loan. Defaulting on any loan could result in long-term effects on your credit score.
Why do people take so long to pay off student loans? ›
Factors Affecting the Time to Pay Off Student Debt
Many factors can play a role in how long it takes to get out of student loan debt, including the length of your repayment plan, your loan amount, interest rates, and your income.
Why don't people want to pay back student loans? ›
"This is a common discussion among people in their 20s and 30s these days. "They simply aren't planning to pay their student loan debt. They don't care if their credit is ruined, because they are never going to be able to afford a home anyways. So, the attitude now is, just ignore it and live for today.
Why are student loans riskier than other types of loans? ›
1. They can damage your credit record if not paid on time. One of the most significant risks of private student loans is the potential for long-term damage to your credit record if you fail to pay them on time.
What are 4 ways you can avoid taking out student loans but still go to college? ›
Tips to Avoid Student Debt
- Embrace Hybrid Learning. ...
- Determine to Pay Cash for Your Education. ...
- Transfer Credits. ...
- Apply for All Aid You Can. ...
- Test Out of Courses. ...
- Work On-Campus. ...
- Take on a Part-Time Job. ...
- Discuss Repayment Plans.
Direct Subsidized Loans made to eligible undergraduate students who demonstrate financial need to help cover the costs of higher education at a college or career school. Direct Unsubsidized Loans made to eligible undergraduate, graduate, and professional students, but eligibility is not based upon financial need.
Many experts and policymakers agree that both the rising cost of college and the existing volume of loans need to be addressed. They acknowledge that surging student debt is harming younger generations of students by preventing them from reaching their financial goals while exacerbating racial inequality.
Why are student loans so stressful? ›
In addition to long-term effects on physical health, the debt burden also puts a strain on borrowers' mental health. Among borrowers on track to receive Public Service Loan Forgiveness with 37-48 student loan payments remaining, 18% reported suicidal thoughts, per a 2022 study by the Student Borrower Protection Center.
Why are student loan payments so high? ›
The answer may lie within the fine print of your loan agreement … or it could be due to a rising interest rate environment. Depending on your repayment plan and the structure of your loan, your student loan payment can go up for various different reasons.
Is it hard to pay off student loans? ›
The average student borrower takes 20 years to fully repay their student loans, but there are many options to shorten this timeline and get out of debt quicker. Making additional payments, setting up automatic payments and refinancing are all effective strategies for paying off student loans faster.
Can I pay $50 a month for student loans? ›
Under the Standard Repayment Plan, you'll make fixed monthly payments of at least $50 for a period of up to 10 years for all loan types except Direct Consolidation Loans and FFEL Consolidation Loans. Learn about Standard Repayment Plan monthly payment amounts for consolidation loans. Was this page helpful?
How do people avoid paying student loans? ›
If you have federal student loans, you could be eligible to have some or all of them forgiven through certain debt forgiveness programs. In addition to income-driven repayment plan forgiveness, here are a few federal programs for which you may qualify: Public Service Loan Forgiveness.
How much is the monthly payment on a $70,000 student loan? ›
What is the monthly payment on a $70,000 student loan? The monthly payment on a $70,000 student loan ranges from $742 to $6,285, depending on the APR and how long the loan lasts. For example, if you take out a $70,000 student loan and pay it back in 10 years at an APR of 5%, your monthly payment will be $742.
Why are student loans so crippling? ›
It's the result of a decades-long explosion in borrowing coupled with soaring education costs. The Federal Reserve data shows people under the age of 30 are more likely to have student loan debt compared with older adults – underscoring the crippling burden on another generation of Americans.
Is it financially smart to pay off student loans? ›
Key takeaways. Paying off student loans early can benefit you financially, but it should typically come second to building your emergency fund and retirement savings. People with private student loans or without other debt tend to benefit more from paying off student loans early.
How many people don't pay off their student loans? ›
Fifteen percent of Americans with student loans are behind on their payments, putting them at risk of accumulating interest and lowering their credit scores. Those with lower incomes and less education are more likely to be behind on their payments. Source: Federal Reserve (2023). Source: Federal Reserve (2023).
