The average student borrower takes 20 years to pay off their student loan debt, according to a recent report. In the U.S. there is nearly $1.75 trillion in total student loan debt, with about 46 million Americans paying on these loans.
The fact that many of these holders of student loans require decades to pay off their debt is disturbing to not just the debt holders and their families but also to various politicians and activists. Having ongoing debt means other things have to be put on hold, critics say.
For example, about 51% of borrowers are delaying the purchase of a home because of their student debt, according to a report that the National Association of Realtors (NAR) released earlier this year. At least 60 percent of those who are delaying are millennials.
Related: Quiz: Should I refinance my student loans?
How Long It Takes to Repay Student Loans
Paying off student loans faster is a priority for many people. The question driving them is, “How long will it take to pay off my student loan?” When some students sign up for student loans in college, they might not expect repayment to go on for so long, perhaps for much of their adult lives. After asking, “How long does it take to pay off student loans?” the follow-up question is “Why does repayment take so long?”
One contributing factor: College costs more than ever. This is a reason to investigate scholarships and grants as thoroughly as possible. Over the last 20 years, the average tuition and fees at private universities have increased 144%. And out-of-state tuition and fees at public universities have risen 171% in 20 years, according to research conducted by U.S. News and World Report.
Compounding this trend is that financial aid is widely available. Among today’s college students, 65% graduate with student debt. The average student loan payment is $460 a month, according to Educationdata.org.
Federal Student Loans
More than 43 million borrowers have federal student loan debt. The average federal student loan debt balance is $37,113, says Educationdata.org. Federal student loans typically come with plans ranging from 10 to 30 years.
The amount of time it takes for someone to repay their student loan debt depends on the initial amount borrowed, the loan’s interest rate, and repayment habits, among other factors. Ten years is the ideal timeline for paying off student loan debt, according to financial experts and the U.S. Department of Education. In practice, it takes borrowers an average of 20 years to pay off their student loans.
Private Student Loans
Most private student loan lenders offer 5-, 7-, 10- and 15-year terms, but some also provide 20- or even 25-year terms. In 2020, private student loan debt increased by $16.8 billion or 14%. However, private loan borrowing still constitutes just 8.4% of the outstanding student loan debt.
The national private student loan balance exceeds $140 billion. More than 88% of that balance is for undergraduate loans while 11.5% is for graduate student loans.
Calculate How Long It Will Take To Repay Student Loan
How long does it take to pay off student loans? You can figure out how much time it will take to pay off with a student loan repayment calculator. You will insert the balance, interest rate, and length of the loan to see the projection.
How to Pay Your Student Loan Faster
There are various strategies you can try to pay down your student loans with more speed. Don’t assume that you can’t come up with any extra money to apply to this until you’ve studied your expenses and payments. Cancel streaming services you don’t regularly use; cut back on restaurant meals. There are lots of places to look.
Begin Payment As Soon As Possible
A six month grace period comes with most federal student loans, meaning you don’t have to start paying until after graduation. While in school or during the grace period, you can begin to pay, however. This way, less interest will capitalize and get added to a principal balance when you enter repayment.
Consider a Side Hustle
Some students work a part-time job while still in college to get a jump on their loans. After graduation, you can try freelancing, starting a side business, or getting a second job. This will enable you to pay off debt faster.
Make More Than the Minimum Payment
Paying extra each month can reduce the interest you pay and reduce your total cost of your loan over time, says Federal Student Aid. It’s important to notify your loan servicers to apply overpayments to your current balance and to ask if the additional payment amount can be allocated to your higher interest loans first. Try setting up automatic payments based on the extra amount, to make sure it takes place.
Speak to Your Lender About a New Payment Plan
One of the most important ways to pay down your student loan is to not fall behind. Not only will that delay the date you finish paying, but it will likely lead to compounded interest. This is why the size of some loans increases. In fact, about 21% of student loan borrowers increase their balance in the first five years of paying down their loan, says Educationdata.org.
Rather than fall behind because you can’t afford the payment, contact your federal loan server about an income repayment plan. It’s well worth a try to negotiate your student loan payment. Private servers might be open to modifications as well as the federal loan servers. You may also find an employer student loan repayment plan extremely helpful.
Refinance Your Loan
When grappling with how long it takes to pay off student loans, consider refinancing. Speeding up repayment may be one of the benefits of refinancing. This will mean applying to a private lender such as a bank for a loan. The bank will buy your federal loan or loans and issue you a new loan — this is how some people achieve lower interest rates. It is also a way to potentially shorten the term of the loan, though it often means higher payments.
The disadvantage to refinancing is you will no longer be eligible for federal loan forgiveness programs, such as the pause in payments due to the pandemic begun in March 2020. There are many different student loan forgiveness programs.
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This article originally appeared on LanternCredit.com and was syndicated by MediaFeed.org.
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What happens to your debt when you die?
Do you know what will happen to your debt when you die? Some debts are forgiven while others may be passed down to heirs. Read on for the answers to some of the most frequently asked questions related to death and debt.
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In order to accurately answer this question, we need to examine the most common types of debt people accumulate. In other words: Not all debt is equal. The type of debt you have and when you accumulated the debt will determine how and if your debt is passed on to others when you die.
The Most Common Types Of Debt
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If you die with credit card debt, there are two things that may happen:
- Your debt may be forgiven and written off by the credit card company
- The debt will be passed on and the responsibility of a survivor
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If you are the sole owner of the debt when you die, (not married or a cosigner) the credit card companies will be involved in the probate process. The money left in your estate, any retirement accounts, or other items worth money will be sold and the outstanding debts will be paid.
If there is not enough money in your estate to pay off the remaining credit card balance, your children or beneficiaries will not be required to pay the remaining balance. The outstanding debt will be “forgiven” by the credit card company.
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If the credit card is a joint account with a living spouse or a cosigner, the other account holder will be responsible for the debt. If you have authorized users on the account but they are not the account owner, the users will not be responsible for the debt.
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This is one of those myths that continues to live on. Credit card debt does not go away after seven years. The confusion with the seven-year time frame comes from the credit report time requirement.
After seven years, old debts begin to fall off of your credit report. Your debt, however, is still very much alive and owed. Lenders can and will continue to pursue the amount owed until it is paid, settled, or charged off. Do not be fooled into thinking your credit card debt will go away after seven years.
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The quick answer? It depends. There are several factors that determine if a deceased spouse’s credit card debt will be passed along to the surviving spouse. If the credit card debt was incurred before marriage and the deceased spouse was the sole owner of the account, in most cases, the debt will not be the responsibility of the surviving spouse.
If the credit card debt was incurred after marriage and the deceased spouse was the sole owner of the account, the state you live in determines the surviving spouse’s responsibility. If you live in one of these community property states and the debt was incurred after marriage, the surviving spouse is responsible for the credit card debt of their spouse regardless of the account ownership:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
If you do not live in one of these states, generally the surviving spouse will not be responsible for the credit card debt if they were not a joint owner of the account. If you are a joint owner on the account, you are now solely responsible for the debt.
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Again, where you live determines what can happen to your medical bills when you die. Generally speaking, children and heirs will not be required to pay back the outstanding medical bills of their parents. With that being said, there are a couple of instances where a child could be responsible for the medical debt of their parents.
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When a child cosigns admission paperwork acknowledging financial responsibility if the adult is unable to pay their bills, this debt may be passed down to the child.
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There are 26 states that have filial responsibility laws that state a child may be responsible for a deceased parent’s medical debt in certain situations. The states that have filial responsibility laws are:
- Alaska
- Kentucky
- New Jersey
- Tennessee
- Arkansas
- Louisiana
- North Carolina
- Utah
- Indiana
- Nevada
- California
- Maryland
- North Dakota
- Vermont
- Connecticut
- Massachusetts
- Ohio
- Virginia
- Iowa
- New Hampshire
- Delaware
- Mississippi
- Oregon
- West Virginia
- Georgia
- Montana
- Pennsylvania
- South Dakota
- Rhode Island
Now, before you become overly concerned about living in one of these states, understand that the enforcement of filial responsibility laws is extremely rare. If you have significant medical debt, consult with an attorney in your state to see exactly what responsibility your adult children may be required to pay back.
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Student loan debt may or may not be passed on to survivors when the borrower dies. What happens to the loan depends on what type of loan was taken out and when it was established.
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If you have federal student loans, they will be forgiven upon death. Federal student loans do not pass on to others as long as a death certificate is presented to the lender. Federal student loans that fall into this category are:
- Direct Subsidized Loans
- Direct Consolidation Loans
- Direct Unsubsidized Loans
- Federal Perkins Loans
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On Nov. 20, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act was amended. The added section releases cosigners of a private student loan from financial responsibility if the primary borrower dies. Due to this, all new private student loans with cosigners are not required to repay the loan upon the student’s death.
However, student loans with cosigners taken out before Nov. 20, 2018, may still require the cosigner to be held responsible for the debt.
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Federal Direct PLUS Loans are also forgiven upon the student’s death. In the past, the parent who signed for the PLUS loan was required to bear the burden of the tax responsibility and file the forgiveness as “income” after a child’s death.
Currently, The Tax Cuts and Jobs Act of 2017, is in effect and releases parents from this tax responsibility. This tax stipulation remains in effect until the year 2025.
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There is several different scenarios involving vehicle loan debt upon the borrower’s death. If the auto loan has a cosigner or the vehicle was purchased in a community property state after a couple was married, the cosigner or spouse is responsible to repay the auto loan.
If the loan was obtained before marriage and is only in the deceased spouse’s name, generally the surviving spouse is not held responsible for the debt. The bank will take possession of the vehicle to settle the outstanding debt or the surviving spouse can pay off the vehicle loan.
If the borrower is not married, the survivors can either pay off the vehicle loan and keep the vehicle, sell the vehicle and pay off the loan or return the vehicle to the bank. Heirs do not inherit vehicle loan debt.
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Payday loan debt is very similar to credit card debt when you die. If there was not a cosigner or someone else listed as jointly responsible for the loan, then the company writes off the debt as a loss. Payday loan debt is not transferred to heirs but may be the responsibility of a surviving spouse if the debt was incurred after marriage in a community property state.
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In probate, the home must be paid off with the funds from the estate or the mortgage company must agree to let someone else inherit the loan. If you still owe money on your home, your spouse or heirs usually have three separate options:
Option 1: Sell the home to pay off the outstanding mortgage. The executor of the will can initiate a home sale to fulfill the outstanding debt obligations. If the home is not worth what is owed, additional money from the estate will be used to pay off the mortgage. If additional money is still required, the bank can take possession of the property.
Option 2: If there is enough money in your estate, your heirs can use that money to pay off the mortgage. Or the beneficiaries can use their own money to pay off the loan in full.
Option 3: If there is not enough money in the estate to pay off the loan, an heir may elect to contact the lender in an attempt to take over the loan. The loan would need to be transferred into the new borrower’s name which would require the heir to meet the credit obligations for a loan.
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Lenders can force the sale of a property to fulfill the outstanding equity loan balance if the estate does not have enough capital to pay it off. This is another scenario where the heir may be able to apply with the lender to take over the payments.
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If you have federal tax debt when you die, the IRS gets the first chance at your estate. Legally, the executor of the state is unable to pay any other debt or obligation until the federal tax debt is settled.
If a substantial amount is owed, the IRS will quickly put a lien on any property owned by the deceased in an attempt to satisfy the debt. The federal government will get their money one way or another – but the heirs will not personally be liable for the outstanding tax debt.
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There is not an automatic notification process when a person dies. The next of kin or executor of the state is required to contact the bank and provide a copy of the descendant’s death certificate.
When the death certificate is presented, the financial institution will freeze all of the associated accounts until the probate process is completed. If money is not owed to other lenders, the beneficiaries will be given access to any monies left in the deceased person’s accounts.
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Even though most debts will not be passed on to your heirs when you die, you may not want them to deal with the hassle of paying off all your debt with your estate – only to be left with nothing.
If you have struggled with debt your entire life, a cheap term life insurance policy may be an option to leave a small inheritance to your heirs. Most life insurance policies are dispersed tax-free and are not accessible to creditors.
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Leaving debt behind is a fear many seniors face. On the bright side, your heirs will usually not be personally responsible for paying off your outstanding debts. However, the sooner you can clean up your own financial mess, the better.
Do your best to start paying off your debt so your executor is not faced with a long probate process. If you need help getting started, check out this related post The Debt Payoff Playbook.
This article originally appeared on Arrest Your Debt and was syndicated by MediaFeed.org.
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