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.
Paying off student loans in 5 years or less is no easy task, but depending on your financial situation, it may be doable. Even if you can't manage meeting that timeline, you may still be able to save money on interest and become debt-free sooner than expected.
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.
On average, people with student loans have spent just over 21 years paying back their loans. Federal student loans offer repayment plans that last from 10 to 30 years. Private student loan repayment terms vary.
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.
What is considered a lot of student loan debt? A lot of student loan debt is more than you can afford to repay after graduation. For many, this means having more than $70,000 – $100,000 in total student debt.
Stick to the standard repayment plan
It splits up your total debt (plus interest) into 120 monthly installments spread over 10 years. The federal government also offers income-driven repayment (IDR) plans, which can lower your monthly payment based on your income.
The debt avalanche is a systematic way of paying down debt to save money on interest. Individuals who use the debt avalanche strategy make the minimum payment on each debt, then use any remaining available funds to pay the debt with the highest interest rates.
Refinancing is great if you can save money and time, but it's not always the right move for everyone. In these instances, you should avoid refinancing. You have low-interest loans. If you can't guarantee a lower interest rate on your student loans than what you're currently paying, refinancing usually isn't worth it.
Regardless, one rule of thumb for student debt is that you should try not to borrow more than the first year salary you can expect in your chosen field. For example, if you expect to earn $38,000 in the first year of your career, you should try to borrow $38,000 or less for your degree.
Best repayment option: standard repayment. On the standard student loan repayment plan, you make equal monthly payments for 10 years. If you can afford the standard plan, you'll pay less in interest and pay off your loans faster than you would on other federal repayment plans.
Roughly 42.7 million Americans have outstanding federal student loan debt — that's about 12.5% of the U.S. population, per census data.
Here's the average debt balances by age group: Gen Z (ages 18 to 23): $9,593. Millennials (ages 24 to 39): $78,396. Gen X (ages 40 to 55): $135,841.
By most measurements, Gen X is deeper in debt than other generations. Members of Gen X — born roughly from 1965 to 1980 — have the highest average debt stemming from student loans, credit cards and more.
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.
In practice, it takes borrowers closer to 20 years to pay off their student loans. 45% of student loan borrowers decrease their balance in the first five years of repayment. 21% of student loan borrowers increase their balance in that same period.
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.