Taking out a student loan definitely doesn't have to be a bad thing. In fact, it could be the difference between getting a quality education or not. The key to taking out a student loan successfully is being financially responsible and doing all the research to figure out which lender is going to be best for you.
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.
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.
While accepting scholarships and grants is often harmless, you should be careful about how much you accept in student loans. While borrowing money is often necessary for many students, borrowing more than you need can wind up costing you a lot more in the long run.
The most important thing you can do to maintain healthy credit is make sure you're paying your bills on time — student loans are no exception. Even one missed payment can lower your credit score, and late payments can stay on your credit report for up to seven years.
According to a recent Forbes Advisor and Talker Research survey of 2,000 adults, one in three respondents said they regret using student loans to finance their education and would not choose that route again if given the opportunity.
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.
There's a general rule that you shouldn't borrow more in student loans than you expect to make in your first year out of college. A bachelor's degree recipient's average student loan debt in 2021 was $29,100. In theory, a graduate with a salary above this could handle a 10-year standard repayment plan.
If your monthly payment does not cover the accrued interest, your loan balance will go up, even though you're making payments. Unpaid interest will also capitalize each year until your total balance is 10% higher than the original balance. This means you will pay interest on your interest.
You don't need a credit check to qualify for most federal student loans, making them an ideal first choice for borrowing with no or bad credit. Federal student loans also offer flexible repayment options, fixed interest rates and forgiveness programs.
You can borrow to pay for living expenses, but that doesn't mean you always should. You may be better off getting a part-time job while in school, tapping your savings or building up some cash by working during school breaks.
Getting ahead of your student loan debt is generally a smart move. But, if it meansavoiding higher-interest debt or delaying an important financial goal, paying your student loans off ahead of schedule may not be worth it in the long run.
The average monthly student loan payment is an estimated $500 based on previously recorded average payments and median average salaries among college graduates. The average borrower takes 20 years to repay their student loan debt.
Among borrowers who attended some college but don't have a bachelor's degree, the median owed was between $10,000 and $14,999 in 2023. The typical bachelor's degree holder who borrowed owed between $20,000 and $24,999. Among borrowers with a postgraduate degree the median owed was between $40,000 and $49,999.
While $30,000 is about average for student debt, you can take steps to pay it off sooner than average.
With $50,000 in student loan debt, your monthly payments could be quite expensive. Depending on how much debt you have and your interest rate, your payments will likely be about $500 per month or more. Your potential savings from refinancing will vary based on your loan terms.
If you are delinquent on your student loan payment for 90 days or more, your loan servicer will report the delinquency to the national credit bureaus, which can negatively impact your credit rating. If you continue to be delinquent, you risk your loan going into default.
The Consumer Financial Protection Bureau (CFPB) recommends limiting monthly student debt payments to no more than 10% of your gross monthly income. Borrowers with a relatively low income may pay considerably less if they opt for an income-driven repayment (IDR) plan.
Due to escalating tuition and easy credit, the U.S. has 101 people who owe at least $1 million in federal student loans, according to the Education Department.
Some of these penalties include added interest, higher fees, or even wage garnishment. As mentioned above, this also affects your credit score, having a rippling effect on big purchases you plan to make. Staying on top of your loan payments is crucial for your financial success.
If you make your monthly payments on time, student loan debt won't necessarily harm your credit score. On the other hand, if you are late on payments (considered "delinquent"), in default (late on payments for 270+ days) or see your debt go to collections, this can cause your credit score to drop.