It can be hard to wrap your mind around the size of college student debts in America. When you’re talking about education-financing trends, the numbers are … huge. To the tune of $1.7 trillion in 2021.How did this happen? Experts say that as it became more and more common to pursue a college degree, the federal government made accruing student loans fairly easy to do and tuition has skyrocketed, to the tune of a 211 percent increase at public universities alone from 2002 to 2022, according to U.S. News and World Report. These three forces seem to have strengthened one another, leading to what some describe as a crisis.
Forbes magazine says that student loan debt is now the second highest consumer debt category in the nation. It is second to mortgage debt and ranks higher than credit card or auto loan debt.
In August 2022, when President Joe Biden outlined his federal student loan forgiveness plan, he said that over time “an entire generation is now saddled with unsustainable debt in exchange for an attempt, at least, at a college degree. The burden is so heavy that even if you graduate, you may not have access to the middle-class life that the college degree once provided.”
How Much Student Loan Debt Is There?
According to the latest statistics, about 45 million Americans owe nearly $1.7 trillion in student loan debt. The majority of this debt is made up of federal loans.
In March 2020, a pause was put on payments on federal student loans due to hardship caused by COVID-19 pandemic. President Biden has announced a final extension of the federal student loan payment pause until December 31st, 2022. That’s when payments must resume.
The over-two-year-long pause included the following relief measures for eligible loans:
- a suspension of loan payments
- a 0% interest rate
- stopped collections on defaulted loans
The payment pause freed up cash in the budgets of millions of Americans. But the pause has also reduced by tens of billions of dollars the amount in interest payments that the government expected to collect during this period, according to the Wall Street Journal. At the same time that President Biden announced the end of the federal student loan payment pause, a targeted debt relief was outlined. The Department of Education will provide up to $20,000 in federal debt cancellation to Pell Grant recipients with loans held by the Department of Education, and up to $10,000 in debt cancellation to non-Pell Grant recipients. Borrowers are eligible for this relief if their individual income is less than $125,000 ($250,000 for married couples).
Average Student Loan Debt in the United States
The average federal student loan debt is $36,510 per borrower and private student loan debt averages $54,921 per borrower, according to recent data from Educationdata.org. Since Spring 2020, the average student loan debt increased by 1.6%. Looking forward, the average student-loan debt holder takes 20 years to pay off what’s owed. Some professional graduates take more than 45 years to repay their student loans. The average total debt remains close to the maximum amount a student can borrow if relying solely on federal loans, says U.S. News and World Report.
The states with some of the highest average federal loan debt are the District of Columbia, Maryland, Georgia, South Carolina, North Carolina, Virginia, New York and Florida.
The states with some of the lowest average federal loan debt are North Dakota, Iowa, Nebraska, South Dakota, Alaska, Arkansas, Rhode Island, Wisconsin, and Maine.
Average Undergraduate Student Loan Debt
When it comes to undergraduate student loans, the average student borrows over $30,000 to pursue a bachelor’s degree, says Educationdata.org.
Once students graduate, drop below half-time enrollment, or leave school, their federal student loan goes into repayment. However, if they have a Direct Subsidized, Direct Unsubsidized, or Federal Family Education Loan, they have a six-month grace period before being required to start making regular payments. They’ll have a nine-month grace period if they’ve got a Perkins Loan.
Average Graduate Student Loan Debt
When you scrutinize the student loans average for graduate school, the debt can be staggering.
The average graduate student loan debt balance is $91,148 among federal borrowers, says Educationdata.org.
How it breaks down: The average debt among master’s degree holders is $71,287 and the average debt among PhD holders is $159,625. Borrowers who hold master’s degrees owe an average of $71,318 each. The average law school debt exceeds $100,000 and the average medical school debt is in excess of $200,000.
Today’s graduate students are three times more likely to borrow for school than graduate students in 1995. The average graduate school debt has also more than doubled since 1995. In almost all cases, graduate or professional students are considered independent students for the purposes of completing their FAFSA form. This means graduate students generally are not required to provide parent information.
Paying Off Student Loans
The way it begins: your loan servicer will provide you with a loan repayment schedule that states when your first payment is due, the number and frequency of payments, and the amount of each payment.
Your billing statement will tell you how much to pay. Your monthly payment amount depends on your repayment plan. If you signed up for electronic communication, pay attention to your email. Most loan servicers send an email when your billing statement is ready for you to access online.Educationdata.org says that 48.9% of students who borrow money to attend school are still paying off loans 20 years later. On its website, the Department of Education issues the following statement: “REMEMBER: Your federal student loans can’t be canceled or forgiven because you didn’t get the education or job you expected or you didn’t complete your education (unless you couldn’t complete your education because your school closed).”
Clearly, some loan holders are struggling to keep up. One out of every ten Americans has defaulted on a student loan, and 7.8% of all student loan debt is in default, says Educationdata.org. An average of 15% of student loans are in default at any given time.
Refinancing Student Loans
To take advantage of low interest rates and flexibility in repayment time frames, some people choose to refinance their federal student loans with a private loan servicer. By comparing student loan refinancing rate, loan holders can choose a deal that works for them. The private company pays off the federal loan and begins a new loan with the customer.
There are pros and cons to refinancing. By doing so, private loan holders lose out on some benefits available to those with federal student loans. Those include:
- Losing access to Biden’s federal loan write-off and temporary loan payment relief through approved periods (deferment or student loan forbearance) when you do not have to make payments because of financial hardship, continuing your education, or military service
- No interest accumulation on subsidized student loans during periods when payments are deferred
- Access to repayment plans based on your income that provide loan forgiveness once you have been in repayment for 20 or 25 years
- Access to various forms of loan forgiveness and discharge, such as Public Service Loan Forgiveness, teacher loan forgiveness, total and permanent disability discharge, and borrower defense to repayment discharge.
The Takeaway
The nation’s student debt has grown in recent years, with the average student borrowing over $30,000 in federal loans to pursue a bachelor’s degree. When it comes to graduate school, the average graduate student loan debt balance is $91,148 among federal borrowers.
What this has led to: student loan debt now ranks as the second highest consumer debt category in the nation, second only to mortgage debt.
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This article originally appeared on LanternCredit.com and was syndicated by MediaFeed.org.
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What we know about Biden’s plan to cancel student loan debt
Whether President Biden can unilaterally cancel student debt remains cloaked in secrecy for now. According to the Wall Street Journal, the reveal will likely happen in July or August.
This announcement will happen before September 1, when student loan payments are set to resume after the extended pause. Biden’s actions (and talk of his possible actions) have long since stirred a fierce debate on whether the president can actually cancel student loan debt. The following article breaks down the latest information. Keep reading to get all the details and context.
Related: The Advantages and Disadvantages of Student Loan Refinancing
Gage Skidmore
On the 2020 presidential campaign trail, Biden ran in part on a student loan reform platform. On top of suggesting potential changes to existing federal student loan forgiveness programs, he floated the possibility — both in Tweets and in campaign speeches — that he supported a proposal to forgive $10,000 in federal student loan debt.
And in April of last year, Biden asked the Department of Education if he had the authority to cancel student debt. He received a memo in response, but no public eyes have seen it so far. Thus, the cloak of secrecy.
For now.
DepositPhotos.com
Biden recently erased $5.8 billion worth of educational debt for all former students of Corinthian College, the now-closed, for-profit school. This is the largest single student-debt cancellation ever by the United States government.
Another $6.8 billion in student loans were obliterated for 113,000 borrowers through amendments to the Public Service Loan Forgiveness Program. This allows non-profit and government employees to have their remaining debt forgiven after 10 years or 120 payments.
And more than $8.5 billion in student loans have been forgiven for 400,000 borrowers who have a total and permanent disability.
Additionally, let’s not forget the $2.1 billion for 132,000 borrowers through borrower defense to repayment. People can apply for borrower defense if their education provider deceived them “or engaged in other misconduct in violation of certain state laws,” according to the ED’s Federal Student Aid office.
fizkes / istockphoto
As many borrowers keep their eyes peeled for Biden’s summer announcement, speculation is growing about what is happening behind the scenes.
Many believe a debate continues in the Biden administration over the political and financial ramifications of wiping out billions in student loans. On one hand, the November midterm elections would be a good reason to come through on a campaign promise. On the other hand, inflation, which the Federal Reserve is fighting by raising its interest rates, could be exacerbated by the sudden cancellation of billions of debt.
While the political environment is evolving quickly, here’s an overview of some ways Biden might tackle the issue…
DepositPhotos.com
So, can the president unilaterally forgive student debt? Senate Majority Leader Chuck Schumer and Senator Elizabeth Warren, among others, are pressuring Biden to take this controversial step, with the former repeatedly saying, “You just need the flick of a pen.”
Now that Biden has frozen repayments until Aug. 31, 2022, people are waiting for what happens next. Will it include a student loan forgiveness executive order? If not Biden, which president will forgive student loans in the future?
The coming announcement could impact how things unfold in the years to come.
DepositPhotos.com
The president reportedly plans to cancel $10,000 in student loan debt per borrower. According to the Washington Post, the latest plan is for limiting debt forgiveness to Americans who earned less than $150,000 (or possibly $125,000) in the previous year or less than $300,000 (or possibly $250,000) for married couples filing jointly.
But Biden is hesitant to cancel the debt with the stroke of a pen. So despite the mystery surrounding the memo from the Department of Education to Biden, he continues to act through them to avoid Congressional challenges to an executive order.
Youngoldman / istockphoto
Some want to see all student loan debt canceled. But reports about forgiving $10,000 are saying it would be for federal loans only. If you’re looking for private student loan relief, namely to lower your payments, you may want to consider refinancing.
DepositPhotos.com
Borrowers have been in limbo, waiting to know if and how much student loan debt the Biden administration will cancel. But with interest rates climbing, it could be a good idea to focus on the aspects of your educational debt that you can control.
One place federal borrowers can start is to determine if they qualify for existing federal student loan repayment programs — including income-driven repayment, deferment, and public service student loan forgiveness.
Another place, as mentioned earlier, is to look into student loan refinancing, it’s important to understand the refinancing process. When federal student loans are refinanced through a private lender, the borrower forfeits eligibility for federal repayment programs as well as federal protections like forbearance and deferment. (With private loan refinancing, a new private loan replaces the borrower’s existing educational debt — generally including new loan terms and rates).
Certain private lenders offer hardship programs to provide a cushion for the unexpected — like being laid off for no fault of your own. (Not all lenders offer these programs, so it’s key to read the lender’s terms and fine print).
When weighing whether to pursue student loan refinancing, some borrowers find it useful to research the rates and terms offered by lenders, including any fees or penalties.
Michael Krinke
When will student loans be forgiven?
There is no single answer to this. It depends on the type of loan you take out and your specific circumstances. The Student Loan Forgiveness page from the Department of Education has all the current details to help you understand more.
Do student loans go away after seven years?
Sorry, there is no program currently in place for that. This belief stems from the fact people see student loans disappear from their credit report after this amount of time. Seven years after the first missed payment that led to a loan either defaulting or being charged off, the main three credit bureaus (Equifax, Experian, and TransUnion) erase the default status and late payments from reports.
Are student loans forgiven after 25 years?
The answer to this is a “yes but.” Yes, you can have your student loans forgiven after 25 years, but only if you pay them under an income-driven repayment plan, and this only applies to federal loans. The U.S. government offers four income-driven repayment plans.
Deposit Photos
Major news outlets reported in late May that the president plans on forgiving $10,000 of federal student loans for each person who makes less than $150,000 (or $125,000) annually. He’s expected to make an announcement this summer, no later than when the Cares Act payment freeze is scheduled to end (August 31).
But if you are thinking of refinancing, it may not pay to wait for an official word. After all, interest rates are on the rise from their historic lows. Instead, you could refinance all but $10,000 (or whatever amount you think will be forgiven) and lock in today’s low rate.
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This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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