7 things to know about student loan debt

Student loans can be a powerful pathway to pay for college when savings fall short. However, unlike scholarships and grants, student loans must be repaid with interest. As of the first quarter of 2024, the total outstanding student loan debt in the U.S. has reached $1.75 trillion according to the Federal Reserve. 

Before you borrow money to pay for school, here are seven things you should know about student loan debt. 

1. The majority of student debt is federal

When comparing federal and private student loans, the majority of education loan financing comes from the federal student loan system. During the 2022-23 academic year, federal student loans totaled $83.5 billion. Private education loans, meanwhile, amounted to $14.7 billion, up from $10.3 billion in 2010-11. 

Federal student loans offer many advantages, which helps explain why they make up the bulk of student debt. These benefits include low-fixed interest rates, income-driven repayment plans, options for temporary relief, and loan forgiveness programs.

2. Most graduates owe nearly $30K

Over half of bachelor’s degree graduates from public and private nonprofit four-year institutions leave school with student loan debt. The average debt among these borrowers is $29,400 according to the College Board.

Paying off nearly $30,000 in student loans can be costly. For example, with the 10-year Standard Repayment Plan and an average interest rate of 6.5%, your monthly payment would be $341. This means you’ll pay a total of $40,877 over the life of the loan, including interest. Choosing a longer repayment plan means it’ll take longer to pay off your debt and you’ll owe even more in interest. 

3. Your debt can grow over time 

The student loan debt you're responsible for repaying can increase over time. When you took out a student loan, your loan agreement stated that the debt would incur interest charges based on a percentage of the unpaid balance. Interest is a financing cost that means you’ll ultimately pay more than you originally borrowed.

Additionally, unpaid accrued interest can capitalize when your loan goes into repayment status. Capitalization occurs when accrued interest is added to the principal balance owed, leading to interest being charged on this higher balance once payments start.

This scenario can happen if you didn’t make at least interest-only payments while you were in school and instead chose to defer all payments until after your grace period ended.

4. Not everyone qualifies for loan forgiveness 

Loan forgiveness can provide significant relief by canceling a portion of your debt. As of July 2024, 4.76 million Americans received a collective $168.5 billion in student loan forgiveness under the Biden-Harris administration according to the U.S. Department of Education. However, not all borrowers qualify for this benefit.

The type of student loans you have affects your eligibility for loan forgiveness. Private student loans are not eligible for federal forgiveness programs like Public Service Loan Forgiveness (PSLF), Teacher Loan Forgiveness (TLF), or forgiveness under an income-driven repayment (IDR) plan.

Each federal forgiveness program also has specific requirements regarding your profession, employer, and service contract. For example, the TLF program requires you to teach full-time at a low-income school or educational agency for five complete and consecutive years. 

Check out: How to get student loan forgiveness

5. You may be able to reduce the amount of debt you owe 

With so many repayment strategies available, figuring out how to pay off your student loans can be challenging. One approach that might help you reduce your overall debt is student loan refinancing.

Student loan refinancing is offered by private lenders such as banks, credit unions, and online lenders. When you refinance, the private lender repays your original loan and creates a new loan with a new interest rate and repayment terms. Ideally, this new rate will be lower than your original one, helping you save money over time.

However, beware of refinancing federal student loans since it would mean losing access to benefits like income-driven repayment plans, temporary relief options, and possible loan forgiveness. Only refinance your federal loans if you’re certain you won’t need these federal program benefits now or in the future. 

Check out: Should I refinance my student loans?

Current refinancing rates

6. Student debt can impact your credit

How you manage your student loan debt can impact your credit, either by helping to build a positive credit history or by creating challenges for future borrowing.

Making consistent, on-time payments can improve your credit score. Each timely payment shows lenders that you’re a responsible borrower, which can be beneficial when you apply for other types of credit, like mortgages or car loans.

On the other hand, missed or late payments can harm your credit score. Delinquency and default on student loans are reported to credit bureaus, which can lead to a lower credit score and make it harder to qualify for future loans or favorable interest rates.

7. Student loan borrowing is decreasing 

The amount of student loans borrowed by students and parents has been declining year over year. According to the College Board, full-time undergraduate students borrowed an average of $3,860 during the 2022-23 school year, down from $6,970 in 2010-11. Full-time graduate students also borrowed less, averaging $17,490 in federal loans compared to $22,930 in 2010-11.

Overall, students and parents borrowed a total of $98.2 billion in federal and private student loans during the 2022-23 school year. This is a significant drop from the $152.8 borrowed in 2010-11, representing a 35% decrease in education loan borrowing.

Check out: Is college worth the cost?

FAQ 

What is the average student loan debt? 

The average four-year bachelor’s degree recipient in 2021-22 amassed $29,400 in student loan debt, according to the CollegeBoard. As many as 51% of all graduating bachelor’s students that year left school with debt.

Why did my student loans disappear from my credit report? 

Student loan data can drop off of your credit report if the account is considerably old. For fully paid accounts with positive repayment history, this typically happens 10 years after the account is closed. Derogatory information, like a defaulted student loan, can disappear from your credit report seven years after the first missed payment date.

Will I get my tax refund if I owe student loans? 

You’ll receive your federal tax refund even if you owe a federal student loan balance, as long as the loan account isn’t delinquent. Private student loan debt typically doesn’t affect whether you receive your federal refund. 

What happens if I pay off my student loans and then they are forgiven? 

Under certain federal loan cancellation programs, like borrower defense discharge, you might be eligible for a refund of past payments that would have qualified for loan forgiveness. Contact your student loan servicer to see if your situation qualifies for a refund. 

Do student loans affect credit scores?

Yes, repayment activity on federal and private student loans is reported to the national credit bureaus. This data, along with other information on your credit file, is used by credit scoring models, like FICO, to determine your credit score.