- Forty-three million Americans owe $1.6 trillion in student loan debt.
- Borrowers see college as a path to a higher income, and are incurring debt to get it.
- Easy-to-get federal student loans are adding to debt woes.
- You should attack your loan debt aggressively to avoid letting it snowball.
The student loan debt picture—in total and average borrowing terms—isn’t a pretty one in 2022.
With a weakened economy and the soaring cost of paying for college in play, student loan borrowers face a steep, uphill climb in paying their debts off for good.
“The current student loan debt landscape is at the worst it’s ever been,” says L.J. Jones, a financial planner at Developing Financial in San Diego. “The cost of tuition has increased dramatically over the years. This, coupled with more and more students going to college to pursue higher education, has left more Americans with student debt; and of these Americans with student debt, they owe a larger amount than prior borrowers.”
Who’s carrying that debt load? Currently in the U.S., there are over 43 million borrowers with federal student loans.
“Those 43 million borrowers owe over $1.6 trillion in student loans,” says Jones. “While the average student may owe roughly $37,000 in student loans, students that pursued graduate and professional degrees may owe in excess of $200,000.” The U.S. Federal Reserve places total student loan debt—which includes private student loans—even higher, at $1.75 trillion, a number that’s growing six times faster than the pace of the U.S. economy.
To find the best approach to wrangling in your debt, it may help to understand how this crisis came to bear.
Why all the debt?
How did student loan borrowers accumulate so much debt—and so fast? There are many factors at play, including:
The lure of stronger earnings potential
More than ever before it’s important for people to get their degrees because with a higher level of education, people are likely to receive higher earnings and lower chances of unemployment. “There’s an incentive for more people to go to college,” says Jones.
The cost of tuition has more than doubled over the past 35 years, while wages for jobs that college students can perform while maintaining a full course load have not kept up. “Prior generations could work and go to school and graduate with minimal debt,” says Jones. “Today, it’s not as easy as it once was.”
Less lending risk for the government
“Student loans are rarely discharged in bankruptcy, meaning there is low risk for the government as a lender to not receive a return on their investment,” says Jones.
The government doesn’t recover all their funds, though: It gets about 80 to 85 cents on the dollar for defaulted loans, after collection charges.
Rising interest rates
High interest rates also make it difficult for borrowers with high balances and entry-level wages to make any progress on repaying their loans. “If students experience financial troubles or job loss, the interest on loans compounds, making it incredibly difficult to escape from,” says Jones.
An ever-expanding program
Looking back in history can help explain why student loan debt is so high today.
“The increase in student loan debt correlates with the cost of college and graduate school over the past several decades,” says Seth Connell, a professional financial coach in Virginia Beach, Virginia, and founder of CoachConnell.com. This has led to an expansion of the federal student loan program (which made student loans more accessible) and contributed to rising tuition prices.
Connell, a third-year graduate school student, avoided taking out student loans to pay for law school by running his own business while in school and using scholarship aid.
But this plan is not a feasible one for all students. Student loans are now practically the only form of financial aid for borrowers. Each year there are new borrowers increasing the amount of student loan debt that’s outstanding—faster than borrowers can repay student loan debt. This is in part because student loans now have longer repayment terms. So it’s the ever-increasing amounts being borrowed that are aiding the student debt crisis, creating a vicious cycle.
Making loan repayments easier
With the odds stacked against many student loan borrowers, experts advise getting both disciplined and creative in paying down significant college loan debt. Start with these tips to beat the system and pay down student loan debt quickly.
While there are plenty of opportunities to pay off your college debt slowly through deferment, forbearance or income-based repayment plans, all of these options are going to come with the drawback of letting your debt snowball.
Carving out an amount to make interest-only payments while you’re in school and during your loan’s grace period can help keep your balance from going up.
Consider a repayment plan
Struggling student loan borrowers can expand their payment options with income-driven repayment plans (i.e., payment plans based on your salary and ability to pay) and refinancing student loans through private lenders. Both strategies can minimize student loan payments.
“Often, these plans may offer lower monthly payments,” says Jones. “Better yet, income-driven repayment plans can even result in student loan forgiveness.”
Ask your employer to help
Ask your employer for student loan assistance when negotiating your salary—there are benefits for both parties in doing so.
“It’s tax-deductible for the employer if they’re part of a qualified educational assistance program,” notes Jones. “Plus, employers who help out with student loan payments can relieve some financial stress, which can increase an employee’s work output.”
If you have a stable income as a borrower, split the monthly repayment in two and pay it every two weeks rather than the entire bill once a month. At the end of the year, you’ll have paid an extra month’s payment and you most likely won’t even notice it in your budget. Just alert your lender that your extra payments should go toward paying down the principal on your loan and not the interest.