The cost to achieve the American Dream continues to head higher for college-bound students. According to The College Board, the average price of attending a four year private college has has climbed by an inflation-adjusted 146% in the past 30 years, and the price to attend a four year public school has increased by a staggering 225%. As a result, students are embarking on their post-college lives burdened with an increasingly larger amount of student loan debt.
On the rise
According to the St. Louis Federal Reserve Bank, the total amount of student loan debt outstanding has grown from $509 billion in 2006 to $1.31 trillion as of the third quarter of 2014.
As you can see in the following chart, the pace of growth in student loan debt significantly outstrips the growth in debt for revolving credit, which is primarily made up of credit cards. Importantly, since overtaking credit cards in 2010, only mortgages serve as a bigger burden on borrowers than student loans.
How do you stack up?
In order to see whether or not your student loan debt outstrips the student loan debt held by others, it's important to remember that averages can be misleading. For example, those who have borrowed to attend a private four year school tend to have more student loan debt outstanding than those who have borrowed to attend a public college.
That being said, according to Equifax there are 40 million Americans that have at least one outstanding student loan. Of them, the average owes $29,000, up from $23,000 in 2008.
That's a pretty staggering amount of debt, but as I said averages can be misleading. After all, the average must be significantly skewed higher by those more expensive Ivy League schools, right?
Not really. According to The College Board, the average person who has borrowed money to attend a public four year college is sitting on $25,600 in student loan debt. That's 24% more student loan debt than the average borrower graduated with just 10 years ago. If you divide the amount of student loan debt owed by all graduates of a public four year college, including those that didn't borrow any money, then the average amount of debt per bachelor's degree awarded totals $15,100, which is up 9% in the past decade.
What may be even more concerning to parents, students, and industry watchers is that the rising cost of education is driving far more students attending public four year colleges to borrow money to pay their tuition, room and board, and fees. In 2001, 52% of four year public college graduates borrowed money. In 2013, that percentage had jumped to 59%.
The increase in the number of people seeking out student loans may offer some insight into why it is that the private schools aren't more significantly affecting the average student loan debt held by graduates.
If your student loan debt balances are higher than those averages, don't despair. Small changes today could end up making a big impact on your future financial security.
People who have higher than average debt levels should consider paying more than their monthly minimum payment or doing an extra monthly payment over the course of the year. Those payments will go a long way toward reducing those balances and keeping those monthly payments from denting your income later in life.
For example, according to this very helpful student loan repayment estimator from the Department of Education, graduating with the average debt from attending a public four year college, at a 3.9% interest rate, would mean that your monthly payments would be $272 per month. Over the 120 month payment period, you would pay $5,638 in interest on your student loans. If you paid $300 per month instead, you would only need to make 107 months worth of payments and you'd pay 11.8% less money in interest.
If your student loan payments are so high that they're eating up a lot of your income, and you're struggling to make your monthly payments, don't hesitate to reach out to your lender. Increasingly, options are becoming available that cap borrower payments at between 10% and 15% of their monthly discretionary income. According to the Department of Education, 2.5 million borrowers in its Direct Loan program are enrolled in income-driven repayment plans. However, borrowers should realize that such programs could extend the life of the loan, causing an additional burden, and potentially increasing the total amount of interest paid. For example, consider the following table from the Department of Education that shows the different interest amounts that would be paid by a person graduating from a public school with the average amount of student loan debt when using different repayment options.
Since borrowers could end up paying more money overall if they take advantage of lower monthly payment programs, it may be best to look in your budget for other places to cut your spending or boost your income instead.