Everything You Need to Know About Student Loan Debt and How to Avoid It

Did you know that the average cost of an undergraduate degree—essential if you’re looking to remain competitive in today’s workforce—has increased by nearly 600% over the past three decades? 

On the other hand, average workers’ wages have essentially remained stagnant since the mid-1960s, which means that we’re all working harder for less money, in order to buy things that are increasingly more expensive.

Ultimately, because many of us are paying for education that we can’t afford, we take out loans in order to cover the gap. This is why the average 2015 college graduate will leave school saddled with over $35,000 in student loans, making them the most indebted graduating class ever.

The average 2015 college graduate will leave school saddled with over $35,000 in student loans.

As if this wasn’t enough, even though most college students expect to pay their loans off within 10 years of graduation, the reality is that the average bachelor’s degree holder takes 21 years (yes, you read that right!) to pay off their student debt. In other words, if you’ll be graduating college soon, you might continue making monthly payments on your loans well into your 40s.

According to some, this huge debt burden—a total of $1.2 trillion by the most recent numbers—is crippling our economy by slowing economic growth, decreasing the number of jobs available, and increasing interest rates. It’s also causing graduates to delay starting families and making major purchases (such as homes and cars).

Considering this, student loans are a double-edged sword. On one hand, they help us attend college, learn about the world, and expand our employment prospects. On the other, they also saddle us with immense debt before we even enter the workforce that will take almost ¼ of our life to repay, and in many ways, can have a negative impact on the overall economy.

The average bachelor’s degree holder takes 21 years to pay off their student debt.

As such, it’s vitally important for you to understand everything you can about student loans before you (or your parents) sign on the dotted line, much of which we’ll cover in this article.

So to begin, let’s take a look at the different types of loans you can take out as a college student.

Your College Student Loan Options

Student loans basically come in 2 different options: federal loans, which are funded by the federal government, and private loans, which are funded by non-federal lenders, such as banks, credit unions, or even the schools themselves. 

Given this, let’s take a brief look at the pros and cons of each:

The Pros & Cons of Federal Student Loans

Since federal loans comprise about 80% of student loan debt upon graduation, we’ll start here first.

According to StudentAid.Ed.gov, federal students loans (also known as subsidized, or Direct Stafford loans), typically won’t have to be repaid until after you graduate, and often come with lower interest rates than private loans (more about this next). In addition, federal student loans may not require a credit check or a cosigner, interest may be tax deductible, students only have to attend part-time in order to qualify, and loans can be consolidated or postponed if you’re having difficulty repaying. 

On the other hand, federal student loans often don’t cover the full cost of tuition (requiring you to take out private loans to cover the difference), can take a long time for approval, and will require that you fill out a new loan application for each academic year. You’ll also be required to complete Entrance Counseling prior to taking out your federal loan.

With this in mind, let’s move on to private student loans.

The Pros & Cons of Private Student Loans 

Compared to federal loans, private student loans offer higher cumulative limits, can often be processed more quickly by independent lenders, and can be used for non-tuition expenses, such as personal computers and other supplies. 

Despite these advantages, private students loans can also come with higher interest rates, credit checks, and loan fees, which may require that your parents co-sign your loan. And while this might help you obtain a lower interest rate, it also means you’ll be saddling your parents with additional debt. 

On top of this, private loans are rarely subsidized, which means that you’ll have to begin repaying them (generally after a short, 1-3 month grace period).

This can be tough as a full-time student, who’s probably working full time and earning something close to minimum wage (don’t worry, though, we’ll provide some alternatives shortly!). Again, the responsibility for this first repayment may fall on your parents’ backs.

Important note: Just like any other independent business, the interest rates, and fees associated with private student loans can vary widely, so it’s important to do your research before deciding on any one option. For help with this, be sure to read Choosing a Loan that’s Right for You.

When it comes down to it, though, are these your only two options?

What about Other Types of Financial Aid?

What if you’re not interested in taking out loans in the first place? Do you have any options?

Outside of federal or private loans, the only other tuition payment options are grants and scholarships. 

Your Grant Options

Handed out by the federal government, Pell Grants are the most common type that can be applied toward college tuition, don’t need to be repaid, and are available for every eligible student.

However, the most you can obtain each school year is $5,775, although this largely depends on your financial need, the cost of your university’s tuition, whether or not you’re a full-time student, and more. 

This means unless you can prove that you’re independent of your parents (we’ll talk more about this in the next section), you probably won’t be able to obtain the maximum amount.

If you qualify for a Pell Grant, you might also qualify for a Federal Supplemental Educational Opportunity Grant (FSEOG). Similar to Pell Grants, FSEOGs are based primarily on financial need and are available anywhere between $100 and $4,000.

Unlike Pell Grants, though, each qualifying university only has a specific amount of money available for FSEOGs and once this limit is reached, no more can be awarded until the following school year. As such, it’s important that you speak with your school’s financial aid office as early as possible (always a good idea, whether you’re seeking grants or not).

Next, if you’re planning to become a teacher, TEACH Grants are available up to about $3,700 per year, although they come with some fairly strict guidelines. 

This means that you’ll have to teach in a highly needed field “at an elementary school, secondary school, or educational service agency that serves students from low-income families” for at least 4 years. If you fail to meet these requirements, your grants can be rolled over to Direct Unsubsidized loans.

Finally, if you served in Iraq or Afghanistan, you may qualify for an Iraq and Afghanistan Service Grant of up to $5,775 per academic year.

Your Scholarship Options

Another source of college funding that doesn’t have to be repaid is scholarships, which are offered through a wide variety of sources, including companies, non-profit organizations, and even the school you’re attending.

In addition to these sources, scholarships are also available for a wide variety of accomplishments, including academics, athletics, character (such as those who volunteer or display strong leadership qualities), field of study, and more.

Looking for a College Scholarship or Grant? Watch Out for Scams

Speaking of which, uncovering free money for an otherwise expensive investment is extremely tempting. After all, the more you can reduce your debt load after graduating from college, the better. This is why you’ll find hundreds of companies offering to help you find grants or scholarships.

However, there are thousands of scammers out there just waiting to steal your money and provide nothing in return, so it’s important to be wary when you’re on the hunt.

Keep in mind that no legal scholarship or grant-finding service will require you to pay an upfront fee, and in no way will they be able to improve your chances of obtaining a scholarship or a grant by paying them money. In fact, if one of these services requires you to pay any money at all, run away quickly.

More on This Topic: The Money Hunt: Ins & Outs of Scholarship Scams

Outside of grants and scholarships, though, are there any other ways to reduce your student debt upon graduation, or to prevent it altogether?

How To Reduce Your Student Loan Burden

Mind Your Costs

Of all the methods you can use to reduce the amount of student debt you’ll incur, attending an accredited college with the lowest tuition (one that offers a degree you’re passionate about, of course) is perhaps the most effective, along with graduating in 4 years or less. And if you can find one near home that allows you to continue living with your parents, this could save you an additional $7,500 to $9,000 per year!

Not only will these two options reduce a number of loans you’ll need to take out, but they can also help you avoid purchasing necessities (like food) using high-interest credit cards, which can further compound your debt problem upon graduation.

Quick note: An alternative (although admittedly extreme) method of increasing your grant or scholarship award is by declaring yourself independent of your parents. However, this can only be accomplished by being 24 or older, getting married, having a child, or becoming a member of the military. As such, it shouldn’t be considered a viable option in most instances.

Tuition vs. Expected Income

Another effective way to reduce student loan debt is by calculating the level of debt you’re expected to graduate with, and comparing it with your expected income. After all, your college degree is an investment, and you want to get the best possible return.

For example, if you’re planning on becoming an engineer, attending a top-tier university with an excellent engineering program might be worthwhile, since on average, you’ll earn $20,000 more per year upon graduation than someone with liberal arts or humanities degrees.

In fact, you don’t even have to wait until you graduate to leverage your employment options since landing a relatively high-paying job while you’re in school can go a long way toward reducing your debt.

Those Who Fail To Plan, Plan To Fail

Last, but certainly not least, is planning years in advance for your child’s college education costs. Unfortunately, only about 38% of parents do this, despite recognizing that college is an investment in their child’s future.

This can be accomplished through a 529 plan or an Education Savings Account, much of which is covered on SallieMae’s College Planning Calculator website, in addition to many of the topics we’ve covered here, including room and board, books, scholarships, grants, loans, and more.

What’s Your Experience with Student Loans?

We’ve covered a lot of ground here, providing the actionable information you can use to understand more about your student loan options, as well as to reduce your overall debt burden as soon as you graduate.

Now, it’s your turn. Are you currently enrolled in college and had avoided (or at least minimized) your student loans? Or, did you graduate with a massive debt load and have found that it significantly impacted your life?

In either instance, we want to hear from you, so be sure to leave a comment below and share your experience with the world!

More Resources for Student Loan Debt:


Derek Lakin

Senior Editor at HighYa. With more than a decade of experience as a copywriter, Derek takes a detail-oriented, step-by-step approach to helping you shop smarter. Whether it’s nutritional supplements or new scams, he believes an informed consumer is a happy customer. Connect with him on Twitter: @DALwrites


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