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Student Loan Debt 2022: Ways to Deal with It Effectively

It’s no secret that student loan debt has proliferated quickly in the United States over the years. Different individuals might have different perspectives on this matter.

 Some might see it as a great way to boost their credit scores through effective management, while others might consider it a huge financial burden. The more important thing is not how you see it but how you deal with it. To deal with it effectively, you need to know more about it.  

Student Loan Debt 2022: Ways to Deal with It Effectively

Did you know that student loan debt has surpassed all other forms of debt in America, with borrowers collectively owing more than $1.747 trillion? The cost of university education has been rising much faster than other school-related expenses, and most students now finance a good chunk of that cost with loans.

In this article, we’ll take a closer look at the Student Loan Debt 2022 and explore effective ways to deal with it. 

The Rising Cost of Higher Education

Over the last 30 years, the cost of college has steadily increased. Tuition fees, room and board, and other expenses have increased. This has made it difficult for many families to send their children to college. Grants and scholarships have not kept pace with the rising costs. As a result, many students have had to take out loans to pay for their education.

Between 1989 and 2019, tuition costs at public four-year colleges grew from $4,160 to $10,740. At private nonprofit institutions, the cost of tuition grew even more dramatically, from $19,360 to $38,070.

The reasons for this increase are varied. For public colleges, state funding has decreased, while the cost of labor and other expenses has risen. For private colleges, tuition has increased to maintain their level of quality and to keep up with the rising cost of labor and other expenses.

Whatever the reasons, the result is that college is now much more expensive than it used to be. As a result, many students are forced to take out loans to pay for their education.

Unfortunately, the loans often come with high-interest rates, making it difficult to repay them in full. The increasing cost of college is a problem that needs to be addressed to ensure everyone has a chance to get a quality education.

One of the most effective solutions to fight the cost of education mentioned earlier is figuring out how to choose, manage and deal with your student loan debt. So, the more you know, the better. And to know more about the student debt crisis and ways to deal with it please, read on.

The Different Types of Student Loans Available

Several student loans are available to help you finance your education. Each type of loan has its terms and conditions, so it’s important to compare loans carefully before deciding which one is right for you.

Generally, two major types of student loans are available in the US. These are mentioned as follows:

  • Federal Student Loans
  • Private Student Loans

For your better understanding, the types of student loans are described as follows:

Federal Student Loans

Federal student loans are available from the U.S. Department of Education, which offers loans to help students pay for college. These are financial aid that must be repaid-with interest.

Federal Student Loans are available for undergraduate, graduate, and professional students. The interest rate on these loans is fixed, meaning it will not change over the life of the loan.

There are four categories of Federal Student Loans. Let’s check them out!

Direct Subsidized Loans

Also known as the “Subsidized Stafford Loan”, the Federal Direct Subsidized Loan program offers low-interest loans to eligible undergraduate students with financial needs.

The U.S. Department of Education pays the interest on these loans while the student is in school at least half-time, during the grace period, and during deferment periods.

Direct Unsubsidized Loans

Direct Unsubsidized Loans or Unsubsidized Stafford Loans are available to undergraduate, graduate, and professional students. The federal government offers Direct Unsubsidized Loans to help eligible students pay for education expenses.

Students can apply for a Direct Unsubsidized Loan if they struggle to cover the cost of their education. This type of loan is not based on financial need, and students are responsible for paying the interest on the loan while in school.

Direct PLUS Loans

Direct PLUS Loans are a type of federal student loan that’s available to graduate and professional students and parents of dependent undergraduate students.

There are two types of Direct PLUS Loans: Parent PLUS Loans for parents and Graduate PLUS Loans for graduate or professional students.

  1. Parent PLUS Loans: Parent PLUS Loans are federal loans that parents can use to help pay for their child’s education. Parents can borrow up to the full cost of their child’s education, minus any other financial aid they may receive.

This money can be used to pay for tuition, room and board, books, and other expenses. Parent PLUS Loans have a fixed interest rate and a repayment period of 10-25 years based on your chosen repayment plan.

  1. Graduate PLUS Loans: If you’re a graduate or professional student, you might be able to get a Graduate PLUS Loan.

With a Graduate PLUS Loan, you can borrow up to the full cost of your graduate program attendance, minus any other financial aid you may receive.

Graduate PLUS Loans have a fixed interest rate and offer flexible repayment options, making them a great option for graduate students. These loans are eligible for every income-based loan repayment plan.

Direct Consolidation Loans

Direct Consolidation Federal Loans can help you simplify your loan payments. If you have multiple student loans, you may be able to consolidate them into one loan with a single monthly payment.

This can help you save money on interest and make your loan payments more manageable. This can also help you keep track of your debt.

Private Student Loans

Private student loans are available from banks, credit unions, and other lenders. Private student loans are an option for students and parents who can’t afford the rising cost of tuition even after borrowing money from a federal loan.

However, it’s important to consider your options carefully before taking out a loan. Private education loans typically have higher interest rates than federal loans, so you’ll want to make sure you can afford the monthly payments.

Private student loans can be divided into several categories, like federal student loans. These categories are discussed as follows:

Degree-specific loans

Private lenders offer a wide variety of student loans, making it possible for students to finance their education even if they don’t qualify for federal aid.

Undergraduate and graduate student loans are the most common, but some private lenders offer loans for business, medical, dental, and law programs.

International Student Loans

Many private lenders specialize in offering student loans to international students. This can be a great option for those who need financial assistance to attend their chosen school.

There are a few things to remember when considering this type of loan. Make sure to research your options and compare rates before choosing a lender.

Bad-credit loans

Some lenders have lenient requirements if you need private student loans for bad credit. For example, some lenders may only require a cosigner with good credit. Others may not require a cosigner at all.

State-specific loan programs

In many states, private student loans are available through a specific state agency. These agencies offer loans to students who are attending college in the state.

The agencies also work with private lenders to provide loans to students who are not able to get loans from traditional sources.

Note that, the loan eligibility and requirements are different in different states.

Income share agreements

In an Income Share Agreement (ISA), students receive funding from ISA investors in exchange for a percentage of their future income.

This differs from traditional student loans, where borrowers must repay the loan with interest.

Benefits of Student Loans

The burden of student loans can be discouraging, but there are many advantages to taking out a loan. These advantages are:

  • A student loan can help you to finance your education.
  • It can give you the flexibility to choose your repayment plan.
  • You may be able to find a loan with a lower interest rate than other types of debt.
  • A student loan can also allow you to build your credit.
  • A student loan can help establish a good credit history if you make your payments on time.
  • It can give you peace of mind knowing that you have the funds to cover your educational expenses.
  • It can allow you to focus on your studies instead of working long hours to pay for your tuition.

Drawbacks of Student Loans

The drawbacks of student loans are many. Perhaps the most significant is the debt students can rack up. Some of the drawbacks of student loans are mentioned as follows:

  • The interest rates on student loans are often higher than other types of loans. As a result, students can pay back significantly more than they originally borrowed.
  • You may accrue interest on your loans, which can add up over time and make it more difficult to pay off your debt.
  • If you default on your loan payments, your credit score could suffer, making it harder to get a loan in the future.
  • You may be required to pay back your loans even if you don’t finish your degree, which could leave you with debt and no degree to show for it.
  • Student loans can strain your finances, making it difficult to cover other expenses or save for the future.

Average Student Loan Debt Statistics

Student loan debt is a burden for many Americans. Did you know that student loan debt is now the second-highest consumer debt in the United States?

With student loan debt now surpassing auto and mortgage debt, it’s becoming increasingly important to understand what this means for individuals and the economy.

Here are some average student loan debt statistics:

  • The total outstanding student loan debt in the United States has reached a staggering $1.75 trillion. This means that Americans owe more student debt than credit card debt.
  • About 65% of American college students graduate with student debt. This means that most young people are starting their adult lives with a financial burden. 62% of the 2019 class graduated with average student loan debts as high as $37,013.
  • Recent studies have shown that 55% and 57% of four-year bachelor’s degree recipients in public and private institutions have student loan debts with an average balance of $28,950 in federal and private loans. Among these, around 92% of the total student loan debt is federal, and 7.6% is private student debt.
  • The federal student loan portfolio has grown to more than $1.6 trillion in outstanding student loans. This is owed by 43 million borrowers across the United States. The private student debt statistics show only $131 billion in outstanding student loans.
  • Most people who incur student loan debt do so for undergraduate education. 94.8% of people with student loan debt borrowed for this purpose. This means that most people with student loan debt are paying off loans for their undergraduate degrees.

With the average student loan debt reaching such heights, it is important to know what you are getting into before taking out any loans. It is also important to be proactive in finding ways to pay off your debt as quickly as possible.

Average Student Loan Debt Repayment​​​​​​ Statistics

The average student loan debt payment is $393 per month. Around 70% of American adults with student loan debt said their debt was a source of financial stress.

In 2020 due to the Covid-19 Pandemic, 2.7 million federal loan borrowers were in forbearance. This means that they were not required to make payments on their loans for a temporary period. That number quickly rose to 24 million within 2021.

Now, that’s a massive change! Think how much it has impacted the nation’s economy.

Currently, the amount of In-school student debt of the federal Direct Loan is $118 billion from 6.4 million borrowers, whereas the repayment amount is only $16 billion from 0.5 million borrowers.

Unlike federal loans, private student loans, for-profit schools, and non-profit ones were not given any widespread forbearance. This means that borrowers with private loans still had to make monthly payments during the pandemic. For many, this was a difficult task.

According to the latest data,74% of private loans were in repayment in the third quarter of 2021. The percentage of deferred loans, grace period, and forbearance were 17.5%, 6%, and 2.4%, respectively.

Despite putting hundreds of dollars towards debt each month, balances never seem to decrease. No matter how much we budget and how little we spend, that debt just hangs over our heads.

Only 37% of all borrowers saw their student loan balance decrease. However, most borrowers are still struggling to repay their loans. The average student loan debt has increased by nearly 6% over the past year.

These numbers show that the student loan crisis is far from over. Student loan borrowers need more help than ever to get their loans under control. And until that happens, the student loan crisis will continue to grow.

Student Loan Delinquency and Default

Student loan delinquency occurs after you miss the first date of your loan payments. Until you pay the due amount, your account will remain delinquent. Other than paying the due amount, you can eliminate student loan delinquency by making arrangements such as forbearance, deferment, or adopting new repayment plans.

If you are delinquent on your student loan payments for 90 days or more, you may be considered in default. A student loan default occurs when a borrower cannot fulfill the terms of their contract or promissory note.

According to the latest statistics, approximately 5% of student debt is either at least 90 days delinquent or defaulted. Although this is a small percentage, delinquencies and defaults can burden a person. Especially defaults.

Burdens of Student Loan Default

Many college-graduates faces failing to repay their student debt. The burden of these failures can be very difficult to overcome. Thousands of dollars in debt can strain anyone, let alone a recent college graduate.

Defaulting on a loan can have many negative consequences, including ruining one’s credit score. It is important for everyone who takes out a student loan to be aware of the risks and the potential repercussions of not being able to repay the loan.

Here are some of the major consequences of student loan default:

  • Paying late fees/collection fees
  • Lower credit score
  • Losing loan benefits such as deferment and forbearance
  • Ineligibility for federal repayment plans
  • Negative impact on overall credit
  • Withholding your tax refund
  • Cosigner Involvement
  • Being Disqualified for a Job
  • Wage garnishment
  • Social Security payments garnishment
  • Serious legal actions from the lenders, such as heavy lawsuits
  • Social defamation
  • Frustration and mental stress

Considering the above consequences, student borrowers’ futures will be at high stakes if they cannot clear out their loan debt. Therefore, all student borrowers should take the necessary steps to deal with their education debt as soon as possible.

4 Effective Ways to Deal with Student Loan Debt

Student loan debt is a major issue in the United States. It has become one of the leading sources of personal debt. There are many ways to deal with student loan debt, and each person’s situation is different.

If you’re struggling with student loan debt, know you’re not alone. Millions of Americans are in the same boat. To help ease the burden, try out some of these options:

  1. Student Loan Repayment

The best option to deal with student loan debt is timely and strategic repayment.

Student loan repayment can be a difficult process. But, with the right repayment plan, you can make it work for your budget. Several repayment options are available, so it’s important to find the one that best suits your circumstances.

Student Loan Repayment Programs

Student loan repayment programs can help ease the burden of debt for graduates. These programs can make it easier to manage loan payments and save interest money. If you’re struggling to repay your student loan debt, consider enrolling in a repayment program.

The Federal government offers several repayment programs to deal with your federal debt. These are discussed as follows:

  • Standard Repayment Plan

The Standard Repayment Plan is the default repayment plan for federal student loan borrowers. It’s designed to repay your loans in 10 years. All borrowers and loans are eligible for this plan.

Your monthly payments will be higher than with other repayment plans, but you’ll save money on interest in the long run.

This plan isn’t a good option if you seek Public Service Loan Forgiveness (PSLF).

  • Graduated Repayment Plan

Like standard repayment plans, the graduated repayment plan is also eligible for all borrowers, and the loans are paid off within 10 years. This payment plan is also not a good option for Public Service Loan Forgiveness (PSLF).

The basic difference between a standard and a graduated repayment plan is that federal student loan payments are lower initially but usually increase every two years. This initiative allows for some financial relief, but you’ll need to be prepared for the eventual increase.

  • Extended Repayment Plan

The extended repayment plan is much different from the above plans. In this case, direct borrowers must have more than $30000 outstanding direct loans to be eligible. Loans are paid off within 25 years, but the payments can be either fixed or graduated.

Extended repayment plans offer a lower monthly payment than the above plans but are similar to them in the case of PSLF.

  • Revised Pay as You Earn Repayment Plan (REPAYE)

The revised pay-as-you-earn repayment plan or REPAYE applies to any Federal loan borrower with Federal Direct Loans, Graduate PLUS Loans, and Direct Consolidation loans.

In this case, the monthly payment is 10% of discretionary income. The payments are updated with the borrower’s income annually.

If the borrower is married, the couple’s income and loan debt will be considered combinedly. Hence, you’ll have to pay more than the above plans.

Federal student loan forgiveness will be granted if the loan isn’t repaid in 20 years for undergraduate loans and 25 years for graduate or professional loans.

However, the forgiven amount may be adjusted through an income tax payment obligation. Moreover, unlike the above plans, this plan is a good option for PSLF.

  • Pay As You Earn Repayment Plan (PAYE)

Eligibility is a specific issue in the case of the Pay as You Earn Repayment Plan (PAYE). You will be eligible for this plan if you have received a Direct Loan disbursement on or after October 1st, 2011, and are new federal loan borrowers on or after October 1st, 2007.

Like the REPAYE plan, the monthly payment is also 10 percent of your discretionary income on this plan. However, it will not exceed the amount paid under the standard repayment plan.

  • Income-Based Repayment Plan (IBR)

Under the Income-Based Repayment Plan (IBR), eligible borrowers must have a relatively high debt compared to their income levels. The monthly payments will be 10-15% of the discretionary income, but like the PAYE plan, it’ll not exceed that of the standard plan.

Loan forgiveness is granted if the loan debt isn’t repaid in full after 20 or 25 years. Even if the borrower’s debt is forgiven, they may have to pay income tax on the forgiven amount.

  • Income-Contingent Repayment Plan (ICR)

The Income-Contingent Repayment Plan (ICR) is based on your income and family size. This plan has two monthly payment options: you can either pay a fixed monthly amount over 12 years according to your income or pay 20% of your discretionary income.

And if you still have a balance after 25 years, it will be forgiven.

  • Income-Sensitive Repayment Plan

The income-sensitive repayment plan is eligible only for the Federal Family Education Loan Program (FFEL). Here, the monthly payments are based on annual income and are paid within 15 years.

Note that FFEL loans are also Federal loans, but unlike direct federal loans, these are funded by private lenders.

  • Student Loan Consolidation

If you’re struggling to make your student loan payments monthly, consolidation could be your answer. Student loan consolidation allows you to combine your federal student loans into one new loan with a new repayment term.

Loan consolidation can simplify your monthly payments and give you some much-needed relief. This can be beneficial for borrowers who have multiple loans with different interest rates, as it may lower monthly payments by extending them.

Students who consolidate their loans may also have a better chance of qualifying for loan forgiveness programs.

  • Student Loan Forgiveness

If you can’t pay off your student debt, the best way to deal with it is to become eligible for student loan forgiveness. But to be eligible for a student loan forgiveness, you must fulfill some requirements based on the following loan forgiveness criteria:

  • Public Service Loan Forgiveness (PSLF): To be eligible for PSLF, you must be employed by a qualified government organization or NGO and make at least 120 on-time loan payments.
  • Closed School Discharge: In this case, eligible borrowers are students whose schools were closed during or after enrollment.
  • Total and Permanent Disability Discharge: Exclusive only to permanently disabled student borrowers.
  • Student Loan Rehabilitation

As mentioned earlier in this article, not maintaining your loan payments can put you in “default.” This status can be lifted if the borrower rehabilitates their loan.

To do this, they must make nine voluntary, on-time, full monthly payments based on their income for 10 consecutive months. But rehabilitation is a one-off i.e. it can only be used once under normal circumstances.

The options mentioned above are proven ways to deal with your student loan debt, but there are other options out there that might suit you better. By understanding your options, you can find the best program for you and start getting rid of your student loan debt.

11 Action Steps to Reduce Student Loan Debt

Here are some action steps we suggest that might help reduce your total student loan debt:

Step 1: Start by understanding your student loan debt and repayment options

Step 2: Create a budget and try sticking to it

Step 3: Get a part-time job or start freelancing to make more money

Step 4: Negotiate with your loan servicer to get a lower interest rate

Step 5: Consider refinancing your student loans for a lower interest rate

Step 6: Calculate and consolidate your student loans

Step 7: Apply for federal loan consolidation

Step 8: Sign up for an income-driven repayment plan

Step 9: Request a deferment or forbearance

Step 10: Make extra payments on your student debt whenever possible

Step 11: Payment Automation

To sum it up

Student loan debt is a massive problem in the United States. In this blog post, we have explored how this debt has become a financial burden for those seeking higher education., discussed ways to deal with it, and suggested a few action steps that can be taken to reduce the burden.

All these data are based on actual research and statistics. So, if you are currently dealing with student loan debt, remember that you are not alone. Many resources are available to help you manage your student loan debt and get back on track financially.

By acting now, you can make repaying your student loan debt much easier in the long run.

Student Loan Debt 2022 FAQ

1. What do delinquency and default mean for a student loan?

Delinquency occurs when student borrowers miss the first student loan payment date. This can happen for several reasons, including forgetting to make a payment, being unable to afford the monthly payments, or simply not choosing to pay.

Once a loan becomes delinquent or past due, it remains until the due amount is repaid or arrangements such as loan consolidation, deferment, forbearance, or forgiveness are made. On the other hand, if the loan debt remains delinquent for 90 days and above, your debt can risk defaulting.

Student loan default means not being able to make student loan debt payments according to the contract or promissory note. This can lead to losing eligibility for further federal student loans and benefits such as loan deferments and federal student aid.

Loan defaults also risk heavy lawsuits by servicers.

2. Are there income-based student debt repayment plans for low-income individuals?

Yes, there are income-based student debt repayment plans for low-income individuals. But these are only allowed for federal student loans.

These plans help make the debt more manageable by basing the monthly payments on a percentage of the borrower’s income. This can be a great option for those struggling to keep up with their student loan payments.

3. Who Services My Federal Loans?

The US Department of Education funds federal loans for students. But the loans are serviced by authorized loan servicers such as FedLoan Servicing (PHEAA), Great Lakes Educational Loan Services, Inc., HESC/Edfinancial, MOHELA, Aidvantage, Nelnet, etc.

4. Are student loans forgiven after 25 years of payments?

The answer is yes, the max repayment period is 25 years. After this period, any outstanding student loan debt will be forgiven.

Note that the forgiven amount is considered taxable; hence, the borrower will be obligated to pay income taxes for the 25 years on the forgiven amount.

5. Do you have to repay your student loans while still in school?

You don’t have to pay back your outstanding student loans while still in school except for Direct Unsubsidized Federal Loans. But you’ll have the option to do so, which can be beneficial in the long run due to steady inflation in the economy.

6. Why Is Student Loan Debt So High in the United States?

Many factors contribute to high student loan debt in the United States. For one, the cost of tuition has been rising steadily for many years. This means that more and more students are taking out loans to afford college.

In addition, many students are pursuing degrees that may not lead to high-paying jobs. This can make it difficult to repay loans after graduation.

Finally, the economy has been struggling in recent years, making it hard for recent graduates to find well-paying jobs. All these factors combine to create a high student loan debt in the United States.

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Originally posted 2022-08-30 13:48:07.

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