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.
Should student loan debt be forgiven Why or why not? ›
Student loan debt is slowing the national economy. Forgiveness would boost the economy, benefiting everyone. Student loan debt slows new business growth and quashes consumer spending. A Federal Reserve Bank of…
Why you might not want to pay off your student loans early? ›
However, early debt payoff comes at a price. 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.
Why is student debt a problem today? ›
More debt and less support have undeniably led to long-term debt burden and severe financial consequences. Although more students of color are attending college and pursuing the “American Dream,” student debt has delayed them from purchasing homes, starting businesses, and building generational wealth.
Why are student loans interest so high? ›
There rates have been rising significantly over the last few years, mainly due to inflationary pressures and the Federal Reserve raising interest rates to combat it. The 2024 - 2025 rates are all over 1% higher than the previous year.
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.
Why is student debt so expensive? ›
Increased demand for a college education, less funding from state governments and increases in administrative and operating costs have contributed to a higher cost. Students can afford college by seeking funding sources such as scholarships, student loans and work-study to help foot the bill.
The federal government only has the specific, enumerated powers given to it by the Constitution, and the authority to fund education, either directly or through loans, is nowhere among them. Cancellation would thus be a double violation of the Constitution.
Is it good to have no student 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.
Should we pay off student debt? ›
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 does it take so long for people to pay off their student loans? ›
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 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.
How do most people pay off student loans? ›
Stick to the standard repayment plan
Federal loans offer income-driven repayment plans, which can lower your monthly payment but also extend the payoff timeline to 20 or 25 years. You can also consolidate student loans, which stretches repayment to a maximum of 30 years, depending on your balance.
Why is student debt not worth it? ›
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.
