Why is debt bad for students?
Key Takeaways. Carrying
Student loan debt in the United States totals $1.727 trillion; 2023 saw the first-ever annual decline in student loan debt. The outstanding federal loan balance is $1.602 trillion and accounts for 92.8% of all student loan debt. 43.2 million borrowers have federal student loan debt.
The burden of student debt does not exist in a vacuum. Debt has multigenerational consequences and impacts the mental health and retirement plans of borrowers. Cancellation followed by intentional investments to make higher education affordable is good for the overall education and wealth of the nation.
Another study, published in April 2023 in the journal Addictive Behaviors, followed 331 college graduates and linked high debt levels with problematic drinking, anxiety and depression, especially among the most economically insecure graduates. In some cases, borrowers even expressed suicidal thoughts.
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.
Americans own $1.77 trillion in federal and private student loan debt as of the second quarter of 2023. That's up 1.25% from the second quarter of 2022. $128.77 billion of that total through March 31, 2023, is private student loan debt.
51.04% of students drop out because they cannot pay for college (What to Become, 2021). Moreover, 55% of students struggle to financially support their education, which results in 79% of them delaying their graduation (ThinkImpact, 2021).
The economy may benefit from increased consumer spending if student loan debt is canceled – it may encourage former borrowers to start families, buy new homes, create or invest in small businesses, or obtain an advanced degree.
Opponents of student loan cancellation say that one-time student loan forgiveness is a band-aid on a much larger, unaddressed problem: the growing cost of a college education. College tuition is only getting more expensive.
Freeing up funds through debt cancellation would allow millions of borrowers to spend into the broader economy. Short-term consumption levels could be boosted by as much as 4 percent, increasing real GDP by between $86 billion and $108 billion over 10 years.
Who suffers the most from student debt?
Black and African American student borrowers are the most likely to struggle financially due to student loan debt making monthly payments of $250. Asian college graduates are the fastest to repay their loan debt and the most likely to earn a salary that exceeds their student loan debt balance.
Education While student loans can be a financial burden, taking on debt to pay for education is generally considered "good debt" because more education can raise your future income. The typical college graduate earns $579 more per week (or $30,000 a year) than someone with a high school diploma.
Black college students generally take on more debt than white students, and they are more likely to struggle with loan repayment after graduating, in part because they typically have lower levels of family wealth.
Soaring college costs and pressure to compete in the job marketplace are big factors for student loan debt. Student loans are the most common form of educational debt, followed by credit cards and other types of credit. Borrowers who don't complete their degrees are more likely to default.
What is the monthly payment on a $70,000 student loan? The monthly payment on a $70,000 student loan ranges from $742 to $6,285, depending on the APR and how long the loan lasts. For example, if you take out a $70,000 student loan and pay it back in 10 years at an APR of 5%, your monthly payment will be $742.
Some ways to manage student loan debt include paying more than your minimum monthly payment, sticking to a budget, consolidating or refinancing your loans, looking into loan forgiveness, and exploring different payment programs.
Behind the numbers (WSJ): Due to escalating tuition and easy credit, the U.S. has 101 people who owe at least $1 million in federal student loans, according to the Education Department. Five years ago, 14 people owed that much. More could join that group.
Only a small percentage—about 6% of borrowers—owe $100,000 or more. Nationally, the average student loan balance per borrower is $39,032, so if you have $100,000 in student loan debt, you have about 2.5 times the national average balance. But your loan principal is just one part of the problem.
The rule of thumb about too much student debt
Higher education expert Mark Kantrowitz recently explained this good rule of thumb in an interview with CNBC News: “If your total student loan debt at graduation is less than your annual starting salary, you should be able to repay your loans in 10 years or less,” he said.
In California, the key barrier to college affordability is the rising cost of housing, which financial aid usually does not fully cover — unlike tuition, which is paid by the state's generous Cal Grant program for lower-income state students.
Why is college debt worth it?
Student debt can be worth it if you... Complete the education you borrow the money for. Use the borrowed funds to earn a marketable degree. Research careers.
The federal government or a commercial entity owns your student loans. Private companies own all private loans. The U.S. Department of Education holds most federal loans. Both the Department of Education and private institutions partner with third parties called student loan servicers.
“Having that shock where you see that bill come to them is going to affect their spending.” If the debt forgiveness program is permitted to move forward, at a time when consumer spending already is high, it could lead to more inflation, Jones said.
Nearly a quarter of Americans with student loan debt (24 percent) say borrowing too much for their education is their biggest financial regret, according to a Bankrate survey conducted in June.
When part of your debt is forgiven during the debt settlement process, this forgiven balance is viewed by the IRS as taxable income. You will owe taxes on the portion of the debt that you do not pay as if you had earned that money. For debts of $600 or more, you will receive a 1099-C from your lender.
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