A Guide to the Effects of Student Loan Debt

Students all over the country rely on private and federal student loans to afford education. For both college and graduate school, many students are not otherwise able to afford tuition to pursue degrees. However, the rise in student loan debt combined with a tight employment market has made it very hard for those with debt to move forward if they can’t land a job with solid pay.

New graduates face a difficult student loan system and myriad options to pay off their debt, but plenty of questions remain for those trying to understand it. Nearly 70 percent of the class of 2019 took out student loans to help finance their education. Many different student loan debt facts cast a shadow over the future of current and upcoming graduates who might be looking at a lengthy payback period with stacked up interest. 

Financial hurdles awaiting today’s students and graduates are high. Indeed, student loan debt in America is 70 percent higher than even credit card debt—lower only than mortgage debt.

And the problem doesn’t seem to be slowing. Forbes reports that U.S. student loan debt hit a record $1.6 trillion in 2020.

What Is Student Loan Debt? 

Student loan debt refers to money students owe when they graduate from college or graduate school for loans they took out to pay for their education. The vast majority of students will pursue federal student loans before turning to the private sector. Federal loans are currently serviced by Navient. 

The high cost of tuition at many schools makes it nearly impossible for students to cover their fees, room and board with grants, and scholarships alone. Since most students don’t have enough money to pay for tuition they have to turn to student loans. 

Most students who take out these loans are counting on getting a good job after graduation in order to pay back these loans in addition to their other bills. The danger is that some may not be able to find a well-paying job after graduating, inhibiting the ability to seamlessly repay their student loan obligations.

Students see student loans as an investment, thinking that a degree will make them more marketable to employers, especially when it comes to graduate school. Some students take on this debt without a full understanding of what it means for their future.

Discharging Student Loan Debt Through Bankruptcy

While students may hope that declaring bankruptcy will allow them to discharge their student loan debt, the process is complicated and doesn’t always work. According to the U.S. Department of Education, a person wishing to discharge their student loan debt through bankruptcy has to declare Chapter 7 or Chapter 13 bankruptcy and sufficiently demonstrate that repayment of the loan would impose an“undue hardship” on them and their dependents. Undue hardship can mean a number of things, such as being unable to maintain a minimal standard of living and showing that the hardship will continue for a significant portion of the loan repayment period. The debtor must also show that they have made good faith efforts to repay the loan prior to turning to bankruptcy.

Most student loan debt cannot be discharged in bankruptcy, meaning that students have to find an avenue to re-pay it. 

Paying Back Student Loans 

There are a number of options for graduates to consider when it comes to paying back student loan debt. For those who took out student loans directly from the federal government, working in certain public service roles may help eliminate some of their debt. There are options to pay a monthly amount based on income, paying it off over a certain time period, and more. A graduate can work with their student loan servicer to see what payment options they might be eligible for. Income-based repayment allows someone to have the balance of their debts forgiven after paying for 20 years. An employer can be contacted by a student loan servicer if the borrower goes into default and is not making payments. Increasingly, borrowers are finding it difficult to keep up with repayments and so more of them are facing defaults and other issues, like mounting interest. 

US Student Loan Debt Statistics 

Student loan debt is a major hardship for plenty of people who have already graduated from college as well as those who will do so in the next few years. In 2017, the U.S. Federal Reserve reported that student loan debt increased for the 18th consecutive year and was expected to continue growing. 

Research also shows that 6 percent of borrowers owe $100,000 or more in student loan debt and that 26 percent of borrowers are those who took out loans to go to grad school. 

More than 20 percent of student loan recipients use the funds to help with living expenses, too. Studies have shown that students take out up to $30,000 to fund other expenses, such as books, rent, room and board, car payments, and groceries. 

What Is The Average Student Loan Debt?

Over $1.4 trillion in student debt is owed in the United States. On average, borrowers took out $37,173 in loans in 2017. However, many students have significantly higher amounts of debt; 30 percent of student loan borrowers will owe more than $30,000 when they graduate from undergraduate programs. 

Debt.org explains that for a $37,173 loan, a student would normally agree to a 10-year repayment plan with a 4.29 percent interest rate. At this rate, a student with $37,173 in loans would owe $382 per month.

This is a significant burden and can take quite a toll on a salary, particularly an entry-level wage. Debt.org says that a borrower would need an annual salary of $47,000 to make the payments. A married couple would need to make a starting salary of $52,000 to pay $382 in student loans per month. 

Though there are longer loan repayment plans that reduce the amount of money owed per month, they come with their own costs. Most extended repayment plans include hefty interest fees that increase the total amount paid over the life of the loan. 

Additionally, it is not usually possible to pause student loan payments without consequences. Two ways that borrowers can do this, however, is by putting a loan into forbearance or by deferring their loans. 

Forbearance can be a good option if a borrower is experiencing temporary financial hardship. When a loan is in forbearance, interest does continue to build up. A borrower can put their loans into deferment if they are facing longer-term financial hardship, such as unemployment. Unlike forbearance, deferment is free from interest, says NerdWallet.

What Are the Effects of Student Loan Debt?

The pressure of keeping up with payments, or not knowing what to do when payments are missed, can have far-reaching consequences. Some might go into default and have their credit impacted. Even exploring bankruptcy will only help with the discharge of other debts.  

Some graduates might feel forced into taking on multiple jobs or retraining in a new area to make a bigger paycheck and pay down their loans. Medical conditions like anxiety and depression can also impact those who feel like they’re never getting ahead with their student debt. 

Those who fall behind might end up stuck in a cycle where they can’t repay what they owe and are being contacted over the phone and through the mail by their debt collectors. Even when the collector is reaching out about a legitimate debt, there are still laws in place about how lenders must do this properly. 

On an economic scale, student loan debt slows the growth of new businesses and limits consumer spending, among other things.

How to Find a Student Loan Debt Lawyer 

If you are struggling with your student debt or believe that your lender is taking advantage of you and harassing you to repay the money, you need to speak with a student loan debt lawyer. The support of an attorney can make a big difference in helping you understand your legal rights and responsibilities. Educating yourself about these situations is an excellent way to feel more prepared for the future and gain control of your debt. If student loan statistics show anything, it’s that these issues will continue to impact students and grads in the U.S. for the long haul. 

Filing a lawsuit can be a daunting prospect, especially while you’re also dealing with the stress of seemingly insurmountable student loan debt, so Top Class Actions has laid the groundwork by connecting you with an experienced attorney. Consulting an attorney can help you determine if you have a claim, navigate the complexities of litigation, and maximize your potential compensation.

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This article is not legal advice. It is presented
for informational purposes only.