America has reached a new economic milestone – or maybe a millstone – of $1.52 trillion. Which of the following does this number represent?
1. The latest contract for a professional athlete
2. Your current credit card balance
3. America's collective student loan debt
While the first choice sounds strangely plausible, and some days you may feel like the second choice is correct, $1.52 trillion represents America's total outstanding student loan debt as of March 2018 – according to the new consumer credit report from the New York Federal Reserve.
For perspective on how fast student loan debt is rising, consider that in 2013, the total student loan debt was under $1.15 trillion. Over the past five years, total student loan debt has increased by almost 33%. Approximately 45 million Americans – roughly one-quarter of all American adults – owe money on student loans.
According to ValuePenguin, the average student loan debt per borrower is $26,700.
Delinquency rates of student loans are over 11% – higher than any other form of consumer debt, even credit cards.
Average student loan interest rates are 4.45% for undergraduate students and 6% for graduate students for the 2017-2018 academic year. That's certainly lower than average credit card interest rates (16.71%), and in line with the average interest rate on a thirty-year fixed mortgage (4.78% as of this writing).
Even so, many Americans with student loans are in the worst position to pay them, starting out their careers with lower-paying entry level positions – if they can find work at all.
The average student loan debt for 2017 college graduates was $39,400. The average monthly student loan payment for a borrower between the ages of twenty and thirty is $351 – not unmanageable, but difficult if you are just starting out and dealing with other life expenses. If you want to reduce your interest payments and lower your debt, try the free Debt Optimizer by MoneyTips.
"For many borrowers, the promise of going to school for a well-paying job hasn't panned out," said Miranda Marquit, a money expert with financial education website Student Loan Hero. "When you consider that the Federal Reserve reports that almost half of Americans can't meet a $400 emergency, suddenly that $351 a month has a more ominous meaning."
Anyone struggling with student loan debt should check repayment options at the Federal Student Aid website run by the U.S. Department of Education. The site provides links to repayment options, including income-based plans that scale payments to discretionary income. An online repayment estimator allows you to compare options.
"If you qualify for income-driven repayment, you might be able to get your payments down to $0 a month — and still be making qualifying payments," Marquit said. "However, the interest still accrues and you need to be careful about the long-term cost of debt, which can be increased when you put off paying on your loans."
If you simply can't pay at all, deferment and forbearance options are also covered. However, be careful not to use these options as anything more than a temporary crutch. Adam Carroll, the Founder and Chief Education Officer of National Financial Educators, notes that graduates can "kick the can down the road ... by the time they start paying [a student loan] back it has capitalized on itself where the interest is now the principal ... they may have borrowed $40,000 and it's ballooned to $70,000."
If you'll be starting college soon, remember that the best way to deal with student loan debt is to avoid it as much as possible. See if you qualify for any financial aid packages. Review scholarship options at your preferred schools. Look over the long list of specialized scholarships that target individual interests.
Try not to let finances dictate your choice of college but get value from your choice. Will your desired degree from your favorite school produce enough income to pay off student loans with relative ease? Compare graduation rates and average incomes at schools for the same degree to help you assess value.
"These days, it's less about getting the piece of paper and more about your return on education investment," said Marquit. "Be realistic about your degree, the school you choose, and your prospects when you finish."
Maybe you'll be lucky. Perhaps you'll get an athletic scholarship to cover college costs and be the first athlete to sign a $1.52 trillion contract. If you do, we still suggest using your money wisely. It may cost that much to send your children to college by then.