How much will I borrow for higher education?
According to the Federal Reserve, the rising national student debt currently sits at $1.5 trillion as of the third quarter of 2019. With over 44 million Americans carrying a student loan debt, multiple generations of graduates are affected.
Only about a decade ago, students left college with about $20,000 in loans. In 2019, the average student debt has tacked on an extra $14,000 for a total of nearly $34,000 — a 70% increase. Today, student loans are part and parcel in the pursuit of higher education.
Total student loan debt in the United States
Currently, the nation’s student debt balance sits at $1.5 trillion — nearly double the amount of the United States’ credit card debt. See our graph and table below to see how the country’s student loan debt has gradually ballooned over the years.
| 2004 | $344,600,000,000 |
| 2005 | $391,000,000,000 |
| 2006 | $481,300,000,000 |
| 2007 | $546,600,000,000 |
| 2008 | $638,700,000,000 |
| 2009 | $720,900,000,000 |
| 2010 | $811,300,000,000 |
| 2011 | $872,500,000,000 |
| 2012 | $964,500,000,000 |
| 2013 | $1,078,900,000,000 |
| 2014 | $1,155,400,000,000 |
| 2015 | $1,230,800,000,000 |
| 2016 | $1,315,700,000,000 |
| 2017 | $1,386,300,000,000 |
| 2018 | $1,460,000,000,000 |
| 2019 | $1,500,000,000,000 |
Source: Federal Reserve Bank of New York
Why do we need student loans?
Student loans are designed to help future graduates tackle the costs of tuition, living expenses and everyday life so they can focus on putting their pencils to paper in school.
You can typically put student loans toward any education-related expense:
- Tuition and fees
- Dorms or other housing
- Transportation
- Books and supplies
- Meals and groceries
| Direct subsidized loans | Undergraduate | 4.53% |
| Direct unsubsidized loans | Undergraduate, graduate or professional studies | 4.53% – 6.08% |
| Direct PLUS loans | Parents and graduate or professional studies | 7.08% |
Source: https://studentaid.ed.gov/sa/types/loans/interest-rates
Changes to federal student loan interest rates
Federal student loan rates change on July 1 of every year. This year, they went down. Direct subsidized and unsubsidized loans for undergraduate students issued between July 1, 2019 and July, 1, 2020 came with an interest rate of 4.53%.
Direct unsubsidized loans for graduate and professional students came with a 6.08% interest rate, while Direct PLUS loans had a 7.08% interest rate.
Student debt at a glance
Among all totals borrowed, students are taking out a range of loan amounts to meet their educational needs. The largest group, comprising more than 12 million people, borrows between $10,000 and $25,000. Over 600 thousand people are the outliers, borrowing more than $200,000.
| $1 to $5,000 | 8,547,500 |
| $5,000 to $10,000 | 7,425,400 |
| $10,000 to $25,000 | 12,277,200 |
| $25,000 to $50,000 | 8,609,700 |
| $50,000 to $75,000 | 3,681,000 |
| $75,000 to $100,000 | 1,612,600 |
| $100,000 to $150,000 | 1,347,400 |
| $150,000 to $200,000 | 604,900 |
| $200,000 or more | 609,800 |
Source: https://www.newyorkfed.org/microeconomics/databank.html
How student debt has grown over time
As time moves on and more people go to school, they’re taking on more substantial student debt. The Federal Reserve Bank of New York reports that every generation’s student loan debt has increased between 263% and 1,423% overall since 2004.
Students younger than 40 account for around 65% of borrowers, a generation that’s grown its loan balances by more than 300% since 2004. Borrowers over 60 have jumped their borrowing by more than 1,400% since 2004.
| 2004 | $147.8 | $112.3 | $48.7 | $29.5 | $6.3 |
| 2005 | $162.4 | $127.6 | $56.4 | $36.4 | $8.2 |
| 2006 | $196.3 | $154.8 | $69.8 | $48.2 | $12.2 |
| 2007 | $219.8 | $174.5 | $80/td> | $56.4 | $15.9 |
| 2008 | $250.9 | $205.4 | $94.4 | $67.6 | $20.4 |
| 2009 | $275.9 | $232.2 | $109 | $78.5 | $25.3 |
| 2010 | $301.2 | $261.2 | $128.5 | $89.6 | $30.8 |
| 2011 | $316.4 | $282 | $141.7 | $97 | $35.4 |
| 2012 | $322.7 | $320.2 | $167.3 | $111.3 | $43 |
| 2013 | $362 | $354.1 | $188.1 | $124.9 | $49.8 |
| 2014 | $370.5 | $383.1 | $207.6 | $136.5 | $57.7 |
| 2015 | $376.4 | $408.4 | $229.6 | $149.7 | $66.7 |
| 2016 | $383.2 | $437.4 | $255.6 | $163.2 | $76.3 |
| 2017 | $383.8 | $461 | $278.9 | $177.2 | $85.4 |
Source: https://www.newyorkfed.org/microeconomics/databank.html
Who borrows student loans?
Nearly 45 million students of all ages take out student loans to cover the cost of secondary education. The largest group of borrowers are under 30 and make up nearly 38% of all people carrying student loans. Since 2004, students under 30 have sharply increased in number of borrowers — from 11.3 million to 16.8 million today.
The second largest group of borrowers are students in their 30s. They comprise about 27% of the borrowing pool. Students in their 40s and 50s make up about 28%, followed by the 7% of borrowers who are 60 or older.
| 2004 | 11.3 | 5.7 | 3.2 | 2.1 | 0.6 |
| 2005 | 12.1 | 6.1 | 3.5 | 2.4 | 0.7 |
| 2006 | 12.9 | 6.7 | 3.9 | 2.8 | 0.9 |
| 2007 | 13.4 | 7.2 | 4.1 | 3.1 | 1.1 |
| 2008 | 14.2 | 8.0 | 4.4 | 3.5 | 1.3 |
| 2009 | 15.3 | 8.8 | 4.8 | 3.8 | 1.5 |
| 2010 | 16.2 | 9.6 | 5.3 | 4.2 | 1.7 |
| 2011 | 15.5 | 9.8 | 5.5 | 4.3 | 1.9 |
| 2012 | 15.1 | 10.9 | 6.0 | 4.7 | 2.2 |
| 2013 | 17.4 | 11.4 | 6.2 | 4.9 | 2.4 |
| 2014 | 17.4 | 11.8 | 6.5 | 5.0 | 2.6 |
| 2015 | 17.3 | 12.1 | 6.8 | 5.2 | 2.8 |
| 2016 | 17.1 | 12.2 | 7.0 | 5.2 | 3.0 |
| 2017 | 16.8 | 12.3 | 7.3 | 5.2 | 3.2 |
Source: https://www.newyorkfed.org/microeconomics/databank.html
How are we doing paying off these student loans?
Looking at trends since 2004, you’ll see that the majority of borrowers are having trouble decreasing their student loan balances. Only about 16.6 million of the 44.7 million borrowers are able to stay on top of their loans and lower their balances through regular repayments.
In 2017, nearly 48% of borrowers had the same or higher balance than the previous quarter due to accumulated interest. Nearly 11% of students defaulted on their loans in 2017, and since 2004, the number of borrowers in default has more than quadrupled. With these figures, note that the number of borrowers overall nearly doubled from 2004 to 2017.
| 2004 | 8.7 | 12.0 | 1.0 | 1.1 | 22.9 |
| 2005 | 9.5 | 12.8 | 1.0 | 1.4 | 24.7 |
| 2006 | 10.3 | 14.0 | 1.3 | 1.7 | 27.3 |
| 2007 | 10.7 | 14.9 | 1.4 | 1.9 | 28.9 |
| 2008 | 12.5 | 15.0 | 1.6 | 2.3 | 31.4 |
| 2009 | 13.1 | 16.8 | 1.8 | 2.6 | 34.3 |
| 2010 | 14.1 | 18.0 | 2.0 | 3.0 | 37.0 |
| 2011 | 14.7 | 17.5 | 2.5 | 2.3 | 37.1 |
| 2012 | 15.2 | 17.0 | 2.6 | 4.1 | 38.9 |
| 2013 | 15.7 | 19.7 | 2.5 | 4.4 | 42.3 |
| 2014 | 16.4 | 19.9 | 2.4 | 4.6 | 44.3 |
| 2015 | 16.7 | 20.4 | 2.4 | 4.7 | 44.2 |
| 2016 | 16.4 | 21.2 | 2.2 | 4.8 | 44.5 |
| 2017 | 16.6 | 21.3 | 2.1 | 4.8 | 44.7 |
Number of borrowers in millions.
Source: https://www.newyorkfed.org/microeconomics/databank.html
How to pay off student loans
Don’t sacrifice your financial future when paying for your education. Stay on top of your student loans and avoid unnecessary interest by paying your loan installments by their due dates.
Regular repayments can ultimately improve your credit score. They let lenders know that you’re a trustworthy, less risky borrower when you’re in the market for a future car, home or personal loan.
Use these tips to take charge of your student loans:
- Consolidate multiple federal loans.
- Refinance your loans at a lower interest rate.
- Pay interest on your loan while you’re still in school.
- Set up an automatic withdrawals to avoid late fees.
Alternatives to help pay off your student debt
With over 7 million of the U.S. population having defaulted on their student loans, recent graduates are desperate to land themselves in a high paying job in order to start paying off their student loans. However, a higher income is not the only way you can accelerate the speed at which you pay off your student loan.
Public Service Loan Forgiveness
Opting to work for the government or specific nonprofit organizations can result in your federal student debt (95% of total student debt according to Federal Student Aid) being forgiven after 10 years if you meet the right conditions.
After you’ve made 120 qualifying monthly payments under a qualifying repayment plan – while working full-time for a qualifying employer – the Public Service Loan Forgiveness (PSLF) Program forgives the remaining balance on your Direct Loans.
Although the program is only applicable on Direct Federal Loans and not on Federal Family Education Loans or Perkins Loans, they can still be forgiven if you consolidate them into a Direct Federal loan.
Very few people have successfully qualified for PSLF and gotten their loans forgiven. Here’s what you need to qualify:
Qualifying monthly payments:
- After October 1, 2007;
- Under a qualifying repayment plan;
- For the full amount due as shown on your bill;
- No later than 15 days after your due date; and
- While you are employed full-time by a qualifying employer
Qualifying repayment plan:
Any income-driven repayment plans (plans where your monthly payment is based on your income)
Qualifying employer:
- Government organizations (federal, state, local or tribal)
- Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code
- Other not-for-profit organizations whose primary purpose is to provide certain types of qualifying public services
Qualifying federal student loan:
Any non-defaulted loan received under the William D. Ford Federal Direct Loan (Direct Loan) Program.
Case study: with PSLF Program vs. without PSLF Program
| State | New Hampshire | New Hampshire |
| Loan type | Federal Direct Unsubsidized Loan | Federal Direct Unsubsidized Loan |
| Fixed interest rate for Direct Loans | 4.53% | 4.53% |
| Loan amount | $38,000 | $38,000 |
| Loan term (months) | 120 | 132 |
| Weighted average income of people with at least some college credits | $54,000 | $54,000 |
| Repayment plan | PAYE | PAYE |
| Total amount paid | $43,878 | $48,532 |
Source: finder.com, Federal Student Aid
Potential amount saved: $4,654 – that’s 12% of your original loan of $38,000
Potential time saved: 12 months
Employer-provided student loan repayment assistance
Some companies are willing to offer incentives to potential graduate employees to assist them in paying off their student loan debt.
A poll of 3,227 HR professionals by SHRM found that 4% of employers offer employer-provided student loan repayment assistance. Finding the right employer can help you reduce the amount of time needed to pay off a student loan significantly. However, these payments aren’t exempt from payroll or income tax.
Companies such as Aetna, Fidelity, Natixis Global Asset Management and PWC offer their employees a lifetime maximum of $10,000 towards their student loans. Nvidia offers a maximum of $30,000 – that’s potentially 79% of a $38,000 loan! Other companies will offer a certain capped amount each year until the loan is paid off.
Volunteering your time
Organizations such as SponsorChange offer direct student loan payments in exchange for volunteers who complete skill-based projects. While volunteer work isn’t technically employment, this is another avenue through which your time and services can result in money being directed toward reducing your student loan. Plus, volunteer work will look great on your resume.
In addition to doing something positive for the community, you’ll be paying off your student debt in the process.
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