by Valerie Wallace
As we are looking at the next chapter in our lives, there are a lot different expenses to pay for. There is college, housing, food, entertainment, and many more things to spend money on. The main expense would be college alone, including tuition and fees. According to data reported to U.S. News in an annual survey, the average cost of tuition and fees for the 2020–2021 school year was $41,411 at private colleges, $11,171 for state residents at public colleges, and $26,809 for out-of-state students at state schools (usnews.com). This is just the amount of money spent on 1 year of college, and there can be up to 16 years if one wanted to complete med school. Granted, the costs would lower as students earned scholarships and other fees that the school would cover for financial aid; however, college is still an immense expense for one person. Since college students don’t have this kind of ‘pocket money,’ they take out a loan from a bank. According to Kimberly Porter, the CEO, and president of Microcredit Summit, “Student loan debt in 2020 is now $1.56 trillion in the United States, with borrowers on average owing $37,172 in debt. Graduates of the most recent class of students leave college with $29,200 in student loans” (MicrocreditSummit.org). This loan can take years upon years to pay back, and the main hassle is that you have to pay back the loan plus interest on the loan. Therefore, there are many different ways to pay back this debt.
Student loan debt remains the second-highest debt cost, just behind mortgage loans. Paying off student loans is so extremely hard because of the interest that builds up, specifically compound interest. The interest is different based upon what type of loan you take out and where you take it out from. There are many different kinds of loans that you can take out based upon if you are going into undergraduate or graduate school, if you need financial aid or not, or even if you have an adverse credit history or not. At the end of the day, there are 2 main types of loans: federal student loans, and private student loans. Every type of loan has some type of interest rate. According to Madison Miller, a Research Analyst who focused on student loans and personal loans, “The 2019-2020 federal student loan interest rates are currently 4.53% for undergraduate loans, 6.08% for unsubsidized graduate loans and 7.08% for direct PLUS loans” (valuepenguin.com). This means that each year, for undergraduate loans, 4.53% of the loan that is not paid back, will be added as interest at the end of the year. Typically, the interest will be charged per month so it would be 4.53/12 to get .378% interest each month. This money can add up fast if the student loans don’t start to get paid off. For example, if you were to take the average student loan debt of $29,200 and the average interest rate of undergraduate students of 4.53% each year, $1,322.76 would be added to your debt each year just off of interest alone. After the first year of $1,322.76 is added to your student debt, the next year, 4.53% of your new total would be charged for interest since it is compounded interest. That would be $1,382.68 of interest alone added to your student debt. If you were to wait 5 years to start paying off your student loans, that would leave you with $36,512.31 in student debt after 5 years of interest is added. That is only 5 years. The average amount of time it takes to pay off student loans is 21.1 years (cnbs.com). This shows how you can not just pay off your student debt in a couple of years, it takes many years. A key is to start paying off your debt early so that you don’t end up paying double your total student loans because of the interest that has built up. If you start paying off your student debt, the interest will still be charged at the same rate, but it will be charged towards a lower amount. As more and more of the debt gets paid off, the less total interest will be added to the debt. To help keep the total amount of interest added low, students should start to pay it off as early as possible.
There are many different circumstances to paying off student loans based upon what your income might be. Jimmy Karnezis, a conductor of clinical research at the University of Athens Medical School, says that a good rule of thumb is to put 10-20% of your savings towards student loans a month (credible.com). Although this could be very challenging for students fresh out of college who are living paycheck to paycheck, it would be extremely helpful to them for the future. The 10-20% could also vary as students start to get older and the percent could raise as the students make more money. The percentage could start as 5% of your income towards student loans right out of college and grow 1% each year until the loans are paid off. As long as a good basis is met and the loans are starting to get paid off as soon as possible, the amount of interest will not be as high. Some people are ages 62+ who still have student loans to pay off. If you look at the graph, the amount of student debt goes down as people age because they pay it off, but there is still an abundant amount of debt of people ages 62+. This shows how important it is to start paying off student debt early because nobody wants to still have student debt when they should be retiring. Student debt may be the second-highest debt rate in America, but for each person, it can be paid off in a reasonable amount of time if started early and a good percent of income is put towards paying it off each month.
Works Cited
Hess, Abigail J. “College Grads Expect to Pay off Student Debt in 6 Years-This Is How Long It Will Actually Take.” College Grads Expect to Pay off Student Debt in 6 Years—This Is How Long It Will Actually Take, CNBC, 19 June 2019, www.cnbc.com/2019/05/23/cengage-how-long-it-takes-college-grads-to-pay-off-student-debt.html.
Karnezis, Jimmy. How Much Income Should Go Towards Repaying Student Loans?, Credible, 28 Mar. 2020, www.credible.com/blog/personal-finance/how-much-income-should-go-towards-repaying-student-loans/.
Miller, Madison. Student Loan Interest Rates 2019: Your Guide to Understanding the Numbers, Value Penguin, 14 June 2020, www.valuepenguin.com/student-loans/student-loan-interest-rates.
Porter, Kimberly. “Student Loan Debt Statistics - Updated September 2020 - Average Debt Amounts.” Microcredit Summit, 18 Aug. 2020, www.microcreditsummit.org/student-loan-debt-statistics/.
Powell, Farran. “What You Need to Know About College Tuition Costs.” U.S. News & World Report, U.S. News & World Report, 17 Sept. 2020, www.usnews.com/education/best-colleges/paying-for-college/articles/what-you-need-to-know-about-college-tuition-costs.
“What Types of Federal Student Loans Are Available?” Federal Student Aid, American Mind, 2019, studentaid.gov/understand-aid/types/loans.
This is an awesome blog post Valerie! I love your statistics and examples. It really helps me understand the concept better. This is a super relevant topic for all of us because most of us are going to college in 1-2 years. It's something that is super important for us to understand and have knowledge of. One question I have for you is How do I know what loan is the best for me?
ReplyDeleteWow! I realized that after college people will always be in debt but I really never took into consideration on the interest the debt gains over the years. It's incredible to see how much debt people are still in from college, especially if they don't start paying off the debt right out of college. This blog post made me realize the importance of paying off debt as soon as you can because this is a situation I'll be in soon. Since you mentioned that the interest rate of undergraduate loans sits at 4.53%, will there soon be a time where this interest rate decreases, or will it continue to increase? And what decides that interest rates on our student loans?
ReplyDeletethis blog post really gave me the insight and knowledge i needed for future reference. by wanting to become a doctor now i know what i am dealing with college loan payments if i should or not or take it out the long way. the graphs and stats really helped me too. on how important it is to pay as soon as you can and not wait untill your older
ReplyDeleteI do think more and more people are not even considering college to help their career path. I think a growing amount of new workers with be either not going to college or going for only a short time simply due to high prices. The graph shown in your blog perfectly shows that college students can accumulate thousands of dollars of debt, and more and more people are trying to avoid it by not getting a higher education.
ReplyDeleteThis blog post makes me want to do something about this. It makes me want to get a job and start saving. Not just throw away the money I get for Christmas and get all new things. I need to save a little bit of it. College is expensive and I need to look out for it.
ReplyDeleteThis has been on my mind constantly recently as I know how many people still struggle paying student loans off. I think a good way to avoid it, is going into college with a lot of money saved up. But not everyone can do that unfortunately and money can be hard to save if you don't have a lot of time.
ReplyDeleteThis article was very insightful and provided very relevant information to all of our circumstances. As most of us are gearing up for College next year this article helped provide us with the obstacle of student loans coming up. Of course student loans are incredibly stressful and a financial burden, one thing that caught me by surprise, was hearing that compound interest grows on some loans. This is how the bank makes money, and me realize it is very important to pay back your loan as soon as possible so the interest doesn’t grow. With having two siblings in college I understand what they are going through with college loans and how often they are paying them, so the interest doesn’t build. Very good article.
ReplyDeleteI think the daunting threat of endless college debt has many people scared to go to college. Many more people are avoiding college altogether now despite the need for a degree in today society to be at an all time high. In the long run this is going to hurt the number of scholars and highly educated people America has to offer to the world. Having college be so expensive will hurt the economy of the future and if we can't change that then America may fall lower on the world stage. Overall a very good article that presented the facts really well.
ReplyDeleteThis was a very insightful blog! I was very intreagued especially since many of us are going off to college soon. You did a good job including real life in your writing, such as percentages of income, examples of student debt prices, and anual tuition fees. This is important for us to be educated on especially because some of us will be making decissions on college during this school year. The graphs you included were very helpful and were easy to connect to your writing. Overall, good job with the article!
ReplyDeleteYou did a great job writing a blog on a topic unique to yourself as yours wasn't about the pandemic and was instead about student loans. This is a topic that will be helpful to us all as we move on with our lives and go onto college. We will need to know this stuff so that we don't have such financial issues in our future that we have to deal with for a long time. You were talking about how we should pay our debts off as soon as we can and gave us some useful advice on how to do that. I think it's interesting that you say to put 10-20 percent of our savings into paying off our debts as that leaves enough money for us to pay for our daily needs but prevents our interest from getting out of hand. You also did a great job citing sources and showing numbers/evidence how significant this issue is.
ReplyDeleteI thought this was a well-written, insightful blog! I liked it even more because seeing as I'm going off to college next year, a lot of the financial topics that you talked about directly apply to me because things like student loans are things that I will need to deal with next year so it was great to learn more about this. I also thought your advice on how to pay off debts as a student was really helpful, but unfortunately, not everyone can do this due to their financial situation, especially in a pandemic like this where people are loosing their jobs. How do you think COVID-19 is affecting student loan debt?
ReplyDeleteI often think about this topic a lot. Coming from a family where my parents aren't going to pay for my college tuition I'm constantly trying to figure out how I'm going to pay for school. Will I fall back and take out student loans like my sister? Who is now like your blog post living "pay check to pay check" racking up credit card debt. or do I take a year off and work full time to save money? These are all questions we as young adults should not have to face, but nonetheless we have to. I financially decided to graduate from high school early so that I can work and save as much money as possible. The student debt crisis is a serious issue and it becomes even more frustrating when you look at the salary of entry level jobs out of college. Some of them not nearly high enough to live comfortably take advantage of these fresh graduates because they know they can pay them 1/2 to even a 1/3 of what they would pay a seasoned worker in the same position.
ReplyDeleteI really liked the numbers that you calculated out so that people could really see how much they were paying for college upfront - not just the upfront loaned cost, but also the thousands of dollars in interest. I find it really surprising that although colleges are an example of economics of scale, the cost for out-of-state is often 2 - 4 times greater just because they support the school with in-state tax, although the students are just receiving the same education and process in the schooling. I find that it landlocks people into their home state, which is a bit confusing to me, as graduates will always migrate over to places with better job opportunities. I think your blog really helps to point out these kinds of issues in the college funding process and makes me worry about the costs of college for 2021, especially considering the general loss of funding for these schools.
ReplyDeleteI can see why you would say to pay off your student loan as quickly as possible, because as time goes on it's gonna get harder and harder to squeeze in that money for paying everything off. And according to your info, the price ranges can definitely be insane. I really like how you use sources in your writing as well as include lot's of solutions to the problems that you're talking about.
ReplyDeleteIt is crazy to think about how many people have student debt and how much that student debt is. It can change the way you think financially as you always have that student loan debt on your mind. You also always have the interest on your mind which can be a nightmare as it adds up. All of this shows how important it is to start saving up money for college early. Creating something like an edvest can be a very beneficial way to keep money put away for college. Also, trying to get a well paying job in high school can help as well. The more you work, the less money you will have to pay for college. Also, you can work extremely hard to get scholarships. These can be academic scholarships, athletic scholarships, etc. It might take hard work, but with focus you can get these scholarships to remain debt free. There are many ways to combat student loan debt, everyone just has to find the best way for them.
ReplyDeleteConsidering student loan debt is one of the most important aspects of going to college. That's why preparing early on is really important. If you're lucky enough to have your parents thinking about college for your from a young age, you could have an Edvest account, or some type of 529 plan. It was crazy to me that out of state can often cost 2-4 times, which I think is just incentivizing people to want to stay in their own state. It stops migration to different states to happen as easily.
ReplyDelete