Students & Debt

Student Loans

For you and many students like you, graduation from college does not come with a job. It can come with a pile of student loan debt. The average borrower in the college class of 2017 is expected to carry more than $38,000 in student loan debt, which may be accompanied by growing credit card debt, as well as an auto loan and maybe even a mortgage.

Student Loan Facts

The costs for a higher education are among the fastest-rising costs in American society today. Since 1980, tuition costs at public universities has risen from $2,119 to $9,410, a jump of 344%. Private college tuition is up from $9,500 in 1980 to $32,410 in 2017, a jump of 241%. By comparison, food and electricity costs have risen about 150% and gasoline prices have risen more than 200% over the same period of time.

A college education is an important requirement for entry into many of the highest earning professions and jobs. A college graduate can expect to make about $1.3 million more than high school graduates over the course of their working lives. How much you borrow, at what terms, and how you manage your student loan repayment can have a serious impact on your budget, your credit score and your ability to take out a car or mortgage loan in the future. If you or a family member are struggling with student loans, or have questions about your financial situation, speak with one of our skilled student loan specialists.

Student Loan Misconceptions

There are nearly as many misconceptions about student loan debt as there are ways to obtain and pay for it. Too often, college students rely on peers for advice on rules on responsibilities. In the process, a lot of half-truths or just plain misinformation is passed along.

Some of the more popular misconceptions regarding student loans include:

• It’s good debt. It is, if you get a diploma and job. The total amount you take as a loan should not exceed your first-year salary.
• Loans automatically renew until I graduate. Loans typically are for one school year. If you or your family’s financial situation changes, your loan awards could, too.
• Federal and private loans are the same. There are many differences, some of them enormous. Interest rates, loan modification and student loan forgiveness programs are examples.
• I can always just declare bankruptcy. Not to solve student loan problems, you can’t. Only in extremely rare cases can federal and private loans be forgiven by bankruptcy.

Impact Of Student Loan Debt On Young People

The latest studies say that 70% of college graduates leave school with student loan debt that averaged $38,000 in 2017. That much debt at that age does not go away quickly and the impact of this is being felt in several areas, notably purchasing a home, starting a business, delaying marriage and contributing to retirement accounts.

A 2017 survey of Millennials found that 63% of them owed more than $10,000 in student loan debt and 42% of the women surveyed owed more than $30,000. Home ownership among those under-35 has dropped 21.2% since the housing collapse of 2009.

The burden of student debt is the key factor in young graduates not starting a business and the marriage rate for Millennials is plummeting. A 2016 study showed that 81% of women born in the 1990s had never been married and 38% of women born in the 1980s still haven’t married. Economists say that the Millennials will have to put away twice almost twice as much as their parents for retirement savings to be able to maintain a comfortable lifestyle when they quit working.

The good news is that there is a considerable payoff for those who got the diploma. More jobs require a degree so there should be more opportunities; the starting salary is higher for college graduates and they can expect to make about $1.3 million more over their lifetime than those who didn’t get a degree.

Trends in Student Loans

The soaring cost of college is slowing slightly in 2017, but the amount of student loans needed to cover it is not.

The price of tuition at four-year, in-state universities went up 2.4 percent, the smallest gain since 1975. Borrowing from federal loan sources for the first quarter of 2017 was $136.3 billion, about 3% less than students from the 2016 year borrowed. Per student borrowing was at $5,460 in 2016. The National Center for Education Statistics says that 59.1% of undergraduate students received Scholarships and grants (free money!) to attend college.

That is a positive trend. Sadly, it is dwarfed by negative trends over the last 10 years.

Student loan debt has soared from $260 billion in 2004 to $1.4 trillion in 2017; average debt jumped from $18,650 to $38,000 over that same period; and the number of people over 60 with student loan debt has quadrupled in the last decade from 700,000 to 2.8 million. That group’s share of the debt has skyrocketed from $8 billion to $67 billion and many are having loan payments deducted from their Social Security checks.

Average Monthly Payment for Student Loans

The average student loan debt for 2016 college graduates who borrowed to get through school was $37,172.

If a 2016 graduate took the standard repayment plan for the $37,172 borrowed – 10 years, at 4.29% interest rate – they would be paying $382 a month for the next decade. Experts estimate that you will need a starting salary of $47,000 to afford to pay off the loan if you remain single. If you marry, that number goes up to $52,000.

In all, you will pay $8,607 in interest and a total of $45,779 for the privilege of earning a college degree.

If $382 a month is too much and you decide to use one of the alternative repayment programs like Income-Based Repayment or Pay As You Earn to stretch payments out over 20 years, the monthly payment drops to $231. Unfortunately, that means that the interest you pay jumps from 122% to $18,262 and your total payback leaps to $55,434.

Those numbers go up or down based on how much you actually have to borrow to get through college, but with more than 30% of graduates leaving school with more than $30,000 in debt, it’s worth figuring out whether borrowing is the right direction to pay for college.

If $382 a month for 10 years just to get a college degree sends shivers down your spine, it might be time to reconsider how you want to pay for that diploma. If you’re a doctor, dentist or lawyer, your student loan payments may be significantly higher. However, you have the most to gain by refinancing your dental school debt, medical school loans or law school student debt.

» Learn More: How to Pay Back Your Student Loans

What to Do Before Applying for a Student Loan

Every student and family should know what FAFSA stands for before applying for any student loans. For the record, it’s an acronym for Free Application For Student Aid and is the starting point for all financial aid decisions.

The U.S. Department of Education (DOE) gives you an indication of just how important FAFSA is when it brags on one of its website pages that: “We provide more than $150 billion in grants, loans, and work-study funds each year, but you have to complete the FAFSA to see if you can get any of that money.”

So what is FAFSA? It stands for “Free Application for Student Aid.” The information you provide on a FAFSA form helps the DOE determine your unmet financial needs for college and what they can do to address them with federal money. Many states and colleges also use the information from FAFSA to award the grants or student loans they offer.

There are other situations students and parents can investigate before signing up for a loan – cost of in-state schools vs. out–of-state; public vs. private; stay-at-home vs. going away; interest rates for various student loans – but nothing is going to happen until you fill out the FAFSA.

If you want a ballpark number, the College Board estimates that a moderate budget for in-state schools in 2017 will be $24,610 and $49,320 for a private college, depending on the school and its location.

But the big thing is to jump on the FAFSA as early as possible. Most of the information requested should be on your tax filings. Use that as a guide and where necessary, estimate income or costs. Don’t forget: $150 billion in grants, loans and work study funds is at stake.

Student Loan Interest Rates

Interest rates are best defined as the cost of borrowing money and should be regarded as a significant factor in whether someone can afford to take out a student loan to attend college.

Interest rates are calculated as a percentage of the unpaid principal on a loan. The total cost varies, depending on the interest rate charged and type of loan.

All federal loans made after June 30, 2006 carry a fixed interest rate. The rates are set by Congress and during the 2017-2018 academic year, range from 3.76 for undergraduates to 6.31 for graduate students and parents using Direct Plus loans.

It is important to understand when the interest rate is applied to your federal student loan. Students with subsidized loans do not have to pay interest until six months after graduation. They also don’t pay interest during deferment periods. Students with unsubsidized loans start paying interest as soon as the money is dispensed to them.

There are loan fees associated with student loans. For 2017, the fees are 1.068% for undergraduate and graduate loans; and 4.272% for Direct PLUS loans.

Direct Loans are “simple daily interest” loans. This means that interest accrues daily. The amount of interest that accrues per day is calculated by dividing the interest rate on your loan (as a decimal) by the number of days in a year, and then multiplying that by the outstanding principal balance.

For example, on a $10,000 Direct Unsubsidized Loan with a 3.76% interest rate, the amount of interest that accrues per day is $1.03:

(0.0376 / 365) * $10,000 = $1.03

If you are in a deferment or forbearance for 6 months, the loan will accrue interest totaling $186.

If you don’t pay the interest, it is capitalized (added to the outstanding principal balance). You will be charged interest on the increased outstanding principal balance of $10,186. The amount of interest that accrues per day will increase to $1.04:

(0.0376 / 365) * $10,103 = $1.93

Under most repayment plans, this capitalized interest will increase your monthly payment and the total amount you pay over the life of the loan.

Alternatives to Student Loans

There is a simple, increasingly popular way to graduate from college without an overwhelming amount of student loan debt: live at home while earning your four-year degree.

The savings can be staggering. A Bachelor of Arts degree could be had for under $50,000!

That would mean two years at a local community college where the average tuition/fees ($3,520), books ($1,390), transportation ($1,760) and other expenses ($2,270) add up to $8,940 a year. Spend the next two years at a local state university where average tuition and fees ($9,650), books ($1,250), transportation ($1,160) and other expenses ($2,110) total $14,170 per year.

As long as Mom and Dad supply room and board (four-year savings of $37,000), your degree runs approximately $46,220.

If you don’t live at home, you can still cut costs by finding a roommate to share expenses; reduce personal spending; take extra classes so you graduate in three years; or live away from home for two years and spend two at home.