Student Loan Series: How Much Do Student Loans Cost?

The student loan crisis is nothing new. But that doesn’t mean its effects aren’t profound.

For years headlines and news stories have reported the uptick in student debt and the impact it has on people for the rest of their lives. Student loan debt is a big issue in our country and with the cost of education on the rise, it becomes an even more important topic to discuss. 

Today, our team wanted to bring you up to speed on what you need to know about student debt: what it is, how to prepare for it, and ways to keep the costs at bay. 

Startling statistics

Student debt is on the rise. According to the most recent data from the Federal Reserve, the country is in over $1.64 trillion dollars of student debt alone across about 45 million borrowers and this number is projected to increase.

To put those numbers in perspective, student loan debt has become the second-highest consumer debt category behind mortgage debt and surpassing credit card debt by almost $600 billion dollars.

Let’s take a look at this on a more granular level.

Individual borrowers’ loans average $32,731, which the Department of Education estimates to take 20 plus years to pay off. This makes student loans a crucial piece of your financial plan. Proper planning and strategy both before college and after will help shave a few years off that clock.

How long does it take to pay off student loans?

According to the most recent Cengage Student Opportunity Index, new grads think it will take about 6 years to repay their student loans, but the Department of Education tells a different story. For those with $20,000-$40,000 of debt (with the current average over $30,000), the estimated repayment period is 20 years. 

Cengage also found that 93% of new graduates expected to find a job in their field of study within 6 months (the time you have to start repaying your loan) of graduation, but the reality is only about 60% of new graduates find work in that timeframe. This brings about an important dilemma: many graduates have to start repaying their student loans while still looking for work unless they are able to enter forbearance or an income-driven repayment plan.

Why do they cost so much?

Student loans are so expensive partly because of the interest rates attached to them. Most student loans start accruing interest as soon as the loan is delivered, which means 4 plus years of compound interest to deal with before the repayment period even begins. In addition, under many income-driven repayment plans, the monthly payment is not sufficient to cover the interest that accrues each month. Some or all of that interest may capitalize (get added to the loan balance), causing the balance to balloon quickly.

If you haven’t already signed on the dotted line, one way to reduce the amount of interest paid is to limit how much money you borrow in the first place. Some options you might consider are:

  • Where you go to school

    • In-state vs. out of state

    • Private vs. public 

  • The type of degree program

    • 2- year

    • 4-year

    • Trade

    • Advanced degree

  • How much you and your family have saved

    • 529 account

    • Other savings and investments

  • Scholarships and grants you receive

    • Check both local and national opportunities

What if I already have loans?

All of these numbers might leave you feeling overwhelmed, but don’t worry. Even if you’ve already taken student loan debt, there are options to create a repayment plan that works for your lifestyle. The next posts in this series will cover strategies for repayment and forgiveness.

Our team would love to help you evaluate your options. Book a call today to learn more or sign up for a one-on-one Student Loan Analysis.

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Student Loans, Debt, Financial PlanningAngela Moore