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
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.
Why you might not want to pay off your student loans early? ›
Federal student loans are eligible for various loan forgiveness programs, such as Public Service Loan Forgiveness and Teacher Loan Forgiveness. If you're eligible for a forgiveness program, you may not want to pay off your student loans early and miss out on this valuable benefit.
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.
What are the 2 main types of student loans that you can take out? ›
Direct Subsidized Loans are available only to undergraduate students who have financial need. Direct Unsubsidized Loans are available to both undergraduates and graduate or professional degree students. You are not required to show financial need to receive a Direct Unsubsidized Loan.
Why shouldn't student loans be forgiven? ›
Student loan forgiveness is an abuse of the loan system. People must be held responsible for their personal economic choices. A 2020 survey found 46% of Americans believe student loan forgiveness is unfair to those who have paid off their loans…
Why does it take so long to pay off student debt? ›
Interest rates also increase the total cost of your loan and the amount of your monthly payments. So a loan with a higher interest rate can take you longer to pay off, depending on your income and budget.
Why you shouldn't pay off student loans fast? ›
No opportunities for student loan forgiveness: If you're eligible to have your student loans forgiven after a certain amount of time based on your career, it doesn't make sense to repay your loans early. You're better off making your required payments until the debt is forgiven.
What are the cons of paying off student debt? ›
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.
Is it better to pay off student loans early or invest? ›
Paying off student loans early can bring peace of mind, in addition to reducing the amount of interest you pay over time. On the other hand, investing works best when you start early and be consistent. The potential returns might outweigh what you're paying in interest.
What problems do student loans cause? ›
Carrying student debt can affect your ability to buy a home if your debt-to-income ratio is too high. If you have too much student loan debt, you won't be able to save as much for retirement. Student loan debt can lower your credit score, especially if you fail to make on-time payments.
Borrowers can face collection fees; wage garnishment; money being withheld from income tax refunds, Social Security, and other federal payments; damage to their credit scores; and even ineligibility for other aid programs, such as help with homeownership.
Why are student loans so stressful? ›
“Oftentimes, student loans feel overwhelming because they seem like such a huge hurdle to overcome.” Sometimes, making a plan is half the battle. Start with creating a realistic goal for where you want your debt load to be within a year and then calculate how much you can contribute each month to reach that goal.
Which student loans is better? ›
A subsidized loan is your best option. With these loans, the federal government pays the interest charges for you while you're in college.
What can student loans not be used for? ›
Non-school food: Don't use your loan for take-out pizza and beer for your roomies or taking your family out to dinner. Vacations: Sure, spring break travel is fun, but it's not necessary for your education. Debt: Don't use your loan to pay off credit cards, a car note, or other debt.
What is a Type 2 student loan? ›
Plan 2 student loans are those taken out on or after September 2012 to July 2023 in England or Wales. You'll be on Plan 2 if: You're studying an undergraduate course. You're studying for a Postgraduate Certificate of Education (PGCE) You take out an Advanced Learner Loan.
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.
How hard is it to pay off 100k in student loans? ›
If you have $100,000 or more in student loans, paying off your full balance may seem impossible. After all, monthly payments on a 10-year, six-figure loan at 5.5% interest can set you back more than $1,000 a month. On top of that, you'll have to pay thousands of dollars in interest over the life of the loan.
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.
Why is student loan debt the worst kind of debt? ›
Key Takeaways. Carrying student debt can affect your ability to buy a home if your debt-to-income ratio is too high. If you have too much student loan debt, you won't be able to save as much for retirement. Student loan debt can lower your credit score, especially if you fail to make on-time payments.
