Why is it so hard to pay off student loans?
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.
Capitalized interest can make it challenging to make a dent in your total student loan balance. If you're wondering, why do student loans take so long to pay off? Capitalized interest may be the culprit.
Private lenders base their lending decisions on various factors. The biggest factor is your credit history. It can be incredibly difficult to get a private student loan with no or bad credit from large financial institutions. Most large banks and student loan lenders have very strict underwriting criteria.
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.
They can be considered good debt because the money you're borrowing to attend school is your ticket to earning a degree and getting hired at a well-paying job. That debt should pay itself off over time with a lucrative career in place.
Of those who have failed to make any payment since October 2023, 63% said they could not afford to do so at all. More than half of those who only made a partial payment expressed a similar sentiment. Deason says she works a 9-to-5 and has a side gig at a local arena, but still struggles to make ends meet.
If you don't have money to go to college right after high school, that's something to consider. But if you take out student loans to cover the cost, that debt will take a major toll on your future goals and dreams. Depending on the repayment plan, it can take up to 30 years to pay off student loans.
Higher student debt was correlated with higher stress. In short, “if you have more student debt and you feel like things are unstable, you have higher levels of stress and anxiety,” Lindgren explains.
At the end of 2023, 43.2 million Americans have federal student loans. Approximately 13% of all Americans had federal student loan debt in 2021. In 2023, 9.9 million borrowers have between $20,000-$40,000 of student loan debt.
Signs of trouble with student borrowing began to appear by the late 1980s. In 1986, parents and students had incurred nearly $10 billion in federal student loans – then considered an outrageous amount.
Who struggles most with student debt?
The borrowers who struggle the most with their student loans are more likely to come from low-income backgrounds or to have never completed a degree. Those are some of the takeaways from data released this month by the Department of Education on its portfolio of defaulted student loans.
U.S. student loan debt totals $1.74 trillion as of September 2023. Eliza Haverstock is a lead writer and spokesperson on NerdWallet's education team, where she focuses on student loan repayment and college alternatives.
The debt burden not only impacts that generation, limiting their employment options and slowing their financial progress, but it also impacts future generations. A family will have a hard time saving up for college costs for their children if mom and dad are still paying off their loans.
Economists say the loan payments alone aren't expected to dent the economy. Instead, they're more likely to deliver a small ding, thanks in part to recently launched federal repayment programs and forgiveness efforts that are blunting the initial impact.
Fifteen thousand dollars is well within the limit of Federal Direct Student Loans available to dependent, undergraduate students. (These loans come with very reasonable interest rates.) In normal times, if you graduate, and get a “real” job, you should be able to easily pay back your loans in the prescribed ten years.
Failing to pay your student loans can have devastating financial consequences. Eventually, your student loans will be put into default and you may lose federal loan benefits, have your wages garnished, get barred from federal student aid among other consequences. Your loan holder may sue you, as well.
Congress recently passed a law preventing further extensions of the payment pause. Student loan interest will resume starting on Sept. 1, 2023, and payments will be due starting in October. We will notify borrowers well before payments restart.
| Education | Percent behind on payments |
|---|---|
| Some college or technical degree | 28% |
| Associate's degree | 19% |
| Bachelor's degree | 7% |
| Graduate degree | 6% |
A college degree is a great investment for many students, but it's not the slam dunk that it once was. A college degree is still correlated with higher earnings and greater wealth, but the cost is considerable and rising. Depending on your intended profession, you might consider an alternative education path.
A survey from Morning Consult found that 77 percent of people say that college is difficult to afford, while 52 percent say that even in-state, public universities—which are typically intended to be more affordable options—are not affordable [6].
How much college debt is normal?
| State | Average Debt |
|---|---|
| State Arizona | Average Debt $35,525 |
| State Arkansas | Average Debt $33,830 |
| State California | Average Debt $37,162 |
| State Colorado | Average Debt $37,103 |
The study found high levels of mental health issues, including feeling depressed, stressful feelings and worrying thoughts, were associated with student loan debt, performance pressure and negative academic and personal outcomes.
Our findings suggest that student loans may have hidden costs in the form of worse physical and mental health, more medical problems and diminished use of medical and mental health care. Stress from student loans can affect students while they are still in college, harming both mental and physical health.
“If you cannot make the payments, the lender can sue to get access to wage garnishment, asset seizure such as bank accounts, and that's for both the borrower and the cosigner,” Mayotte said. As Mayotte pointed out, many private lenders require students to get a cosigner who is equally liable for the debt.
The federal government or a commercial entity owns your student loans. Private companies own all private loans. The U.S. Department of Education holds most federal loans. Both the Department of Education and private institutions partner with third parties called student loan servicers.
