Student loans can be a worthwhile investment if they enable you to pursue a degree that significantly enhances your earning potential and career opportunities. However, it's crucial to weigh the potential benefits against the long-term financial implications of taking on debt.
On average, it takes about 10–20 years to pay off a student loan.
While student loans tend to have lower interest rates than other common forms of debt, such as credit cards, you can save money on interest by paying off your loans sooner. If student loan debt is the only type of debt you have or the highest-interest debt you have, it may make sense to pay your loans off early.
Right now, the average student loan debt in the U.S. is nearly $40,000 but many students borrow much more. Depending on your field of study and career prospects, borrowing upwards of $100,000 to fund your higher education could either be a smart investment or a big mistake.
Let's say you have $200,000 in student loans at 6% interest on a 10-year repayment term. Your monthly payments would be $2,220. If you can manage an additional $200 a month, you could save a total of $7,796 while trimming a year off your repayment plan.
Overall, only 1% of all U.S. adults owed at least $100,000. Young college graduates with student loans are more likely than those without this kind of debt to say they struggle financially.
"This is a common discussion among people in their 20s and 30s these days. "They simply aren't planning to pay their student loan debt. They don't care if their credit is ruined, because they are never going to be able to afford a home anyways.
Any borrower with ED-held loans that have accumulated time in repayment of at least 20 or 25 years will see automatic forgiveness, even if the loans are not currently on an IDR plan. Borrowers with FFELP loans held by commercial lenders or Perkins loans not held by ED can benefit if they consolidate into Direct Loans.
Student loans are a type of installment loan, similar to a car loan, personal loan, or mortgage. They are part of your credit report, and can impact your payment history, length of your credit history and credit mix. Paying on time could help your score.
The 10% Rule
Let's say, for example, that your monthly take-home pay is $3,500. Your student loan payment would need to be no higher than $350 to meet this guideline. If you owed $30,000 at a 6% rate, your payments would be $333 on a standard 10-year plan, which would fall within this limit.
Rule of thumb #2: loan payments should be less than 10% of your gross income.
You're not alone if you are still paying off your student loans from your college education years ago. In fact, many Americans are paying their student loans well into middle age. A 2019 study from New York Life found that the average age when people finally pay off their student loans for good is 45.
Many financial “experts” say you should always pay with cash when possible. They apply this rule to all debts, including credit cards, auto loans, home loans, and yes, student loans.
Based on research from Sallie Mae (2024), 30% of students at risk of leaving school cite financial challenges as the primary reason for considering dropping out.
Student loans can be another example of “good debt.” Some student loans have lower interest rates compared to other loan types, and the interest may also be tax-deductible. You're financing an education, which can lead to career opportunities and potentially increasing income.
After at least 20 years of student loan payments under an income-driven repayment plan — IDR forgiveness and 20-year student loan forgiveness. After 25 years if you borrowed loans for graduate school — 25-year federal loan forgiveness.
If you work full time for a government or nonprofit organization, you may qualify for forgiveness of the entire remaining balance of your Direct Loans after you've made 120 qualifying payments—i.e., at least 10 years of payments. To benefit from PSLF, you need to repay your federal student loans under an IDR plan.
College students are regretting taking out student loans before they even leave school, a new report from WalletHub revealed on Tuesday. Roughly 61 percent of college students said they regretted how much they borrowed with student loans, according to the report.
Neglecting Other Financial Priorities
Clearing student loan balances early shouldn't always be your top financial priority. For instance, if you're carrying credit card debt or other loans with high interest rates, it makes sense to pay off that debt before prepaying your student loans.
No, you can't be arrested or put in prison for not making payments on student loan debt. The police won't come after you if you miss a payment. While you can be sued over defaulted student loans, this would be a civil case — not a criminal one. As a result, you don't have to worry about doing any jail time if you lose.
Who has the most student loan debt by race? Black adults are more likely to have student loan debt than those in other racial or ethnic groups. They are more likely than white adults to hold student debt at every level of educational attainment.
Carrying student debt can affect your ability to buy a home if your debt-to-income ratio is too high. If you have too much student loan debt, you won't be able to save as much for retirement. Student loan debt can lower your credit score, especially if you fail to make on-time payments.
Average Student Loan Payments
As of May 30, 2023, the average monthly payment for federal student loans was estimated to be about $500 per month when adjusted for inflation. However, the final number depends on the type of loan, loan amount, interest rates, and repayment plan.