A Snapshot of America’s Student Loan Debt Student loans and student loan debt are a topic of frequent political and educational debate. Different organizations and political parties differ in their perception of the problem and how to resolve it. However, they do agree on one thing: more and more students are taking on student debt.
A Snapshot of America’s Student Loan Debt
Student loans and student loan debt are a topic of frequent political and educational debate. Different organizations and political parties differ in their perception of the problem and how to resolve it. However, they do agree on one thing: more and more students are taking on student debt.
As of 2017, American students collectively owe more than $1.4 trillion dollars in student loan debt. The average amount of money loaned per student rose 6% from the graduating class of 2015 to 2016, with the average student owing just over $37,000. This amount is expected to rise again for the class of 2017. Nearly 66% of public university graduates took out student loans. 75% of graduates from private, not-for-profit universities took out student loans. At private, for-profit universities, 88% of students took out student loans.
Furthermore, 11.2% of student loan holders are delinquent, meaning that they are 90 or more days late on a payment. This means that more than one in 10 students who take on debt for their education are unable to repay their debt. This is an intimidating prospect for future students and graduates because federal interest rates are set to rise for the first time since 2014.
Student Loans Set to Rise
Starting July 1st, interest rates for federal loans will rise. Undergraduate Stafford loan rates will increase from 3.76% to 4.45%. The graduate Stafford loan will increase to 6% from 5.31%. Current students can borrow at their current rates and current loan rates will not change. However, all new federal loans taken out on or after July 1st will be subject to these new interest rates. These changes will affect students entering college for the first time or current students who need to borrow additional money.
Federal PLUS loan interest rates, which are available for parents of students, are also set to increase. On July 1st, PLUS loan interest rates will rise to 7%.
Federal loans may continue to arise each year as they are tied to the market rather than set specifically by Congress. This means that interest rates for students who need to make new loans may increase. However, Congress did set a loan interest rate ceiling at 8.25% for undergraduates and 9.5% for graduate students. Similarly, Federal PLUS loan interest rate caps are set at 10.5%. Again, it is important to note that rates for each loan are fixed. Loan interest rate increases only affect new loans.
Effects of the Increasing Federal Interest Rates
Increasing student loan interest rates will have several effects on borrowers and potential effects on the economy. Perhaps most obviously, students who follow the standard or graduated repayment plans will pay more to borrow the same amount of money. There is no penalty for repaying student loans early, so students who can afford additional loan payments or early an early loan payoff can negate some of the effects of the increased interest rates.
There is some speculation that increasing federal student loan interest rates will hurt taxpayers. There are several income-based repayment programs that enable students to make less than the standard minimum repayment. Some students use these programs temporarily if they are unable to find employment. Other students use these programs for 20 years and have the remainder of their loans forgiven. The amount per payment is income-based, meaning that the amount students would pay monthly would not be influenced by the increased interest rate. For students whose loan is forgiven, this means that a larger percentage of money owed and larger dollar amounts would be forgiven. This could result in a decrease in the federal government’s revenue from student loans.
How to Prepare
There are several ways that potential student loan borrowers can negate some of the effects of the increasing student loan interest rates. First, students can explore various scholarships and grants. By dedicating time now to finding and applying for scholarships and grants, students can decrease the amount of money they will need to borrow and therefore repay.
Second, students can apply for part-time work-study positions, on campus positions, and off-campus jobs. Pay isn’t always luxurious but money paid upfront for tuition, room and board, textbooks, and other related expenses is interest free.
Finally, students can make financially-conscious decisions about where to attend schools. Students should look seriously at the cost of tuition, scholarships and grants that they have been offered, whether those scholarships or grants will continue after their first year, and the cost of living in the school’s area. Students can also examine the median income for their expected career, loan forgiveness programs available to them, and their expected monthly student debt payments. Expensive is not always better and students may find themselves moving towards more affordable options as interest rates continue to rise.