It's estimated that 43.5 million Americans owe money in student loan form. And the average borrower is carrying a balance of $37,338.
It's really not a secret that student loan debt can be a huge burden. But it's important to understand why student loans are so difficult to kick, and how you can make them a lot easier to repay.
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Why student debt is so hard to pay off
Those stories you hear of people who are still carrying student loans into their 60s and 70s? There's a reason for that -- two, in fact.
1. Interest
When you take out student loans, you don't just repay the exact sum you borrowed. For example, if you take out $20,000 in student loans, you're generally going to end up spending well more than $20,000 by the time your student debt is paid off due to accrued interest.
Let's say you borrow $20,000 for college that you're supposed to repay over 10 years at an interest rate of 7%. If you stick to that schedule, you'll end up spending almost $8,000 on interest on top of your $20,000 in principal.
2. Inflation
Inflation can drive the cost of living upward in a very big way. And the problem is that when you sign up for student loans, you can't always predict what it will cost to exist as a human after you graduate.
Plus, not everyone graduates from college with a high-paying job. And if your income isn't so high and your living costs mount, it can become easy enough to fall behind on student loans.
How to prepare to pay off student loans
When you take out student loans, it's important to know what costs you're signing up for. And you can minimize the burden of student debt by doing these things.
1. Make some payments during your studies
Many people don't begin tackling their student loan balances until they've wrapped up their studies. But if you're able to work during college, you can chip away at your loan balance so you're spending less on principal and interest after you graduate.
Let's say you're able to borrow $5,000 less for college. If you'd normally be paying off your student loans in 10 years at 7% interest, knocking out that balance means actually saving yourself more like $7,000 when you account for the interest you'd otherwise accrue on that $5,000 over a decade.
2. Avoid extended repayment periods and forbearance
If you take out federal student loans, you may be eligible to apply for an extended repayment plan. That might do the job of reducing your monthly payments individually. But it also sets you up to accrue a lot of interest on your loans that can ultimately make them harder to pay off.
Similarly, you may be inclined to pause your student loan payments at some point by applying for forbearance. But often, interest continues to accrue on student debt even when loan payments are paused. So if you can avoid going this route, you might make your life easier.
Many people who take out student loans assume they'll be paying off that debt for a really long period of time. But it doesn't have to be that way. If you're able to get ahead of your loans during your studies and avoid accruing added interest, you might manage to shed your debt much sooner than expected.
