A Study: Student Debt Loan Statistics in the U.S.

Average student debt is on the rise. Student loan debt statistics show that only a few short years ago, student debt surpassed credit card debt to become the second largest source of household debt after mortgages.

So what?

The Long-Term Impact of Student Debt

The impact goes well beyond an extra bill or two each month to pay. An extensive study by the Federal Reserve of Boston revealed that households with student debt are less likely to own their homes. They take out fewer auto loans, suggesting a heavier reliance on older, used vehicles or public transportation. They accumulate less wealth throughout their adult years, making it more difficult to invest, to travel, or to retire comfortably.

Conventional wisdom suggests that student loans generally pay for themselves thanks to the professional opportunities a college degree provides. There are certainly elements of our student loan debt statistics which suggest this is still true for many students. It’s not at all the certainty it once seemed, however. As average student debt continues to rise, career security continues to waver.

Even traditionally high-brow pursuits are showing mixed results in recent years. Medical school debt and law school debt have always been substantially more daunting than, say, my ed debt or yours, but students felt virtually guaranteed lucrative careers upon graduation. Their balances weren’t a significant concern. Unfortunately, that’s not always the case today.

Are Today’s Students Financially Irresponsible?

Despite our cultural tendency to mock and belittle Millennials and “Generation Z,” there’s no real data in terms of student loan statistics or overall student money management to suggest they’re any worse with money than their parents or grandparents were. In some ways, they’re better.

A recent joint study by Sallie Mae, the nation’s best-known student loans and money management company, and Ipsos, a global independent market research company, turned up some interesting facts about modern college students. As they summarized it in the introduction to their full report

The report finds the majority of American college students are handling their finances responsibly, and they are looking for opportunities to understand and improve their credit management.

--Majoring in Money: How American College Students Manage Their Finances

How so? Here are a few examples pulled from the report:

  • More than 3-out-of-4 (77%) college students pay all of their bills on time.

  • More than half (55%) are already setting aside savings every month.

  • Over half (56%) keep track of their spending.

  • 3-out-of-5 (60%) report they never spend more than they have.

  • Nearly two-thirds (65%) have a paying job while in college.

I’m sure you know that credit card companies particularly target college students. Irresponsible credit card use and early credit card debt can put students in a serious financial bind before they’ve even graduated. And yet, according to Sallie Mae, there’s good news on that front as well.

Of students who had their own credit cards…

  • Nearly 60% reported they were intentionally using their cards to build credit.

  • 2-out-of-3 (66%) reported they’d reviewed their credit report.

  • Nearly 3-out-of-4 (73%) pay their credit card bill themselves every month.

  • Nearly 2-out-of-3 (63%) report paying off their full credit card balance each month.

  • Over 2-out-of-3 (69%) keep their average monthly credit card balance under $500.

  • Nearly a quarter (24%) have an emergency fund already established for, you know… emergencies.

Whatever else is going on with student loans, then, it doesn’t appear that the issue is just crazy, irresponsible college students living large and ignoring online overdue notices.

On the other hand, there were a few hints of bad news underneath the numbers. Fewer than 1-in-3 college students were able to successfully answer three basic questions on credit and interest. One involved how interest accumulates on savings, a second was about credit card payments, and a third about how the length of a loan impacts total interest paid over time. At the risk of overgeneralizing, it suggests that while a majority of college students are mostly doing the right things, they may not always understand exactly why those are the right things to do – at least not in hard numbers.

How Does This Impact Student Loan Debt Statistics?

It’s difficult to prove a hard correlation between a 22-year old understanding exactly how quickly late fees and interest pile up when you miss a few credit card payments and their inability to get a decent home loan a decade later, but it’s not an irrational leap. A more difficult possibility to measure involves that overarching idea that these are young people “doing the right thing” without having substantive understanding of what makes it a good idea. In other words, is a four-year (or longer) college the best financial choice for them in the first place?

The authors of that Federal Reserve study I mentioned a bit ago put it this way:

More importantly, few existing studies have managed, or even attempted, to answer the question of ultimate interest:  are students making optimal decisions regarding how much education to pursue and how much to borrow to fund this learning? For instance, some observers have voiced the concern that some students may be borrowing too much for college and instead would have benefitted more, on net, from less costly, alternative training.

Wait – Blaine! Are you suggesting we shouldn’t go to college unless we know we’re going to make lots and lots of money as a result? Are you trying to convince us the only purpose of higher education is to fill our bank accounts? What about X? What about Y? WHAT ABOUT Z?!?

Easy there, friends. I’m not telling you anything about what you should or shouldn’t do. Nor am I evaluating the larger goals or benefits of education, higher or otherwise. I’m simply highlighting one possible quirk of available student loan debt statistics – the hint that maybe one reason so many of us are having trouble managing student debt is because we have too much student debt for the income we’re able to bring in as a result. And I’m not even insisting on that myself so much as sharing what some experts in Boston think.

It’s also worth considering that many forms of student loans, grants, and other sorts of student aid, apply to degrees and certifications other than that “Exploration of the Self in 20th Century British Literature” program you’re considering. (I’m not making this one up; that was the official label of my custom degree program for the first year-and-a-half I was in college. I ended up changing it when I realized that once we moved past Rudyard Kipling, I pretty much lost all interest.)

You want that degree? Go get it, tiger! But if you’re just kinda trying to figure out what to do with yourself after high school and you’re pretty sure you need a job beyond those summers at the burger place or lifeguarding at the retirement villa, consider all of your options – associate’s degrees, professional certifications, two-year schools, four-year schools, community college, private universities, state schools, even online courses. If you’re going to be a small part of tomorrow’s student loan debt statistics, let’s at least try to make sure it’s for a good reason.

It’s not about me telling you what to do; it’s about making more informed decisions. Start with a general overview of different types of debt and the major pros and cons of each, then dig a little deeper on the specific sort of loan or line of credit you’re considering. If we’re talking student loan debt statistics, most debt starts – logically enough – when you’re first thinking about college or other training past high school.

What is the FAFSA Everyone Keeps Talking About?

The FAFSA is the “Free Application for Federal Student Aid” created and processed by the U.S. Department of Education. Most post-secondary educational institutions use it as their primary means of establishing whether or not you qualify for grants, scholarships, loans, or other aid, but you don’t have to start with them. It’s available online and is THE starting point for all things student aid-related.

Please note, however, that while the FAFSA should absolutely be where you start, it should not be where you finish. Ask any schools you’re considering attending what other sources of aid are available. Check with your workplace or your parents’ employers to see what they might offer. Get online and look at state and local resources, starting with government sites. Search local newspaper archives for stories about students who’ve received grants or scholarships in your area, and note the sources of each.

Now, normally I won’t actually tell you what you should or shouldn’t do. I prefer to poke and prod you a bit, share some insights, then let you be you. But I’m going to break that rule for one thing related to student loan debt statistics, or – more specifically – to seeking student aid to begin with. Are you ready?

Don’t pay anyone or anything to hunt down financial aid for you.

There are any number of “services,” locally and online, who will promise you all sorts of pipelines to the money reservoir for only a few hundred dollars. But here’s the thing – there are no secret back doors to this stuff. It’s all out there with a little Googling and asking around. There aren’t that many people who fund a scholarship and then says, “but keep it a secret or someone will use it to go to college!”

Ask the financial aid people at the schools you’re considering (they want to help you find the aid because it increases the chances that you’ll come to school there and that’s how they make their living). Do the FAFSA and any legit alternative applications you come across from local groups or institutions. Visit your local library and ask someone at the desk to point you the right direction (I promise you, they live for that stuff). But don’t type in your credit card info on some site promising you, well… anything.

What Sorts of Financial Aid for Education Are There?

That’s a great question, and one more people should ask. There are several common types of aid you may be offered as a result of filling out the FAFSA, speaking to those financial aid officers, doing that online research, and visiting your local library.

Scholarships

Scholarships don’t normally show up in student loan debt statistics because they don’t have to be paid back. They’re “free money” for use in pursuing your education, although individual scholarships may have specific limits or requirements about how they’re utilized. They can come from the federal government, state or local government, various community groups, small businesses, corporations, churches or other non-profits, etc.

Scholarships are generally awarded based on merit – something you’ve achieved. Good grades, athletic prowess, musical ability, SAT or ACT scores, etc., are all common reasons schools or other institutions offer scholarships. Obviously, if you qualify for one or more scholarships which allow you to go the direction you’re wanting to go, accept these first. Gratefully.

Grants

Grants, on the other hand, are need-based. They’re less about what you’ve already accomplished and more about “leveling the playing field” so you have a better shot going forward, despite whatever existing financial limitations are in play.

Grants don’t normally have to be paid back, but be careful to note the specific requirements associated with any grants you accept. Some require that you remain in school full-time, or maintain a certain GPA, or that you commit to several years working in a particular field or high-needs area. If you don’t meet and continue to meet the requirements of the grant, the terms may stipulate that you must repay part or all of it. That can be tricky, especially if your circumstances have changes unexpectedly.

Work Study

These are often sponsored by the school you’re attending, and the details will vary with the institution. The federal government has its own version as well, though, and may – after you’ve submitted your FAFSA – offer to hook you up with a local non-profit or government agency where you’d put in an agreed-upon number of hours. You’re paid for your time, but the assumption is that you’re using this money primarily to offset school expenses. As always, make sure you pay attention to the details of any offer you’re considering.

Loans

Here’s a term we know. While there are a few unique features to student aid loans, most of the general rules for accepting any loan apply when considering financial offers for education:

Who is actually loaning you the money? Student loans can come from the federal government, from traditional lenders like banks or credit unions, from modern online lenders, or from other organizations. Federal government loans usually have the best terms, since – as you’ve probably noticed – the government isn’t generally concerned with balancing its books or making any sort of a profit. They print the money, after all… they can distribute it pretty much however they wish. We can debate whether or not this is an ideal system, but in the meantime, if they offer you higher education financing at a killer interest rate and deferred terms, take it.

What are the terms for paying it back? Do I have to start right away, or is it deferred for a year or two? Maybe you don’t have to start paying it back until you graduate, or until you’re employed, etc. What’s the interest rate? Is it fixed, or does it adjust based on national averages or other factors? Is it low interest for a time, then suddenly goes up? Pay attention to the details!

What happens if I’m late on a payment? I know we never plan on being late, and you should avoid being late on student loan payments or any other payments if at all possible. But life happens, and it’s worth knowing ahead of time whether there are grace periods, manageable late fees, or draconian punishments should things get off track. There’s a reason we’re spending so much time talking about student loan debt statistics, after all – because there’s plenty of student loan debt to sort through.

What happens if I default (if I’m really late or quit paying it back altogether)? This is never the plan, but we should know what the possibilities are in the case of job loss, medical crises, or other unanticipated tragedies or shifts in our worlds. Most student loans aren’t eligible for bankruptcy, so even in a worst-case scenario, you’re expected to pay them back in full one way or the other. In some cases this simply means more damage to your credit history – which is bad, of course, but perhaps manageable. In others, however, penalties may be more aggressive.

Did I mention you should always read through the terms and ask questions about anything you aren’t sure about?

Are There Advantages to Student Loan Debt?

I’m not sure I’d put it that way, but there are a few things which certainly might offset the downside of all these student loan debt statistics.

First and foremost, of course, is the fact that you’re able to get a quality education as a result. For all the distress over the job market and career choices and long-term debts, let’s not overlook the value and power of a Associate’s, Bachelor’s, or Master’s Degree, or professional certification in a field (or two) of your choice.

I mean, you take out a loan and you get an education. That ain’t nothing.

There are tax benefits as well. The American Opportunity Credit allows you to claim up to $2,500 per year for the first four years of school as you work toward a degree or similar credential. The Lifetime Learning Credit allows you to claim up to $2,000 per year for any college or career school tuition and fees, as well as for books, supplies, and equipment that were required for the course and had to be purchased from the school.

Interest on student loans is also deductible (so far). You’ll use the 1098 e, which is a short, easy add-on showing your interest payments towards education. They don’t even have to be federal loans, as long as you can establish them as being used for their appropriate purpose.

If you’re a student, file a tax return each year whether otherwise required to or not (unless you’re still on your parents’ tax return, in which case they’ll receive any benefits). You can’t get the tax benefits if you don’t file!

Are Student Loans Just For Tuition?

Well, mostly, yes. Things like textbooks and specific required supplies are usually covered as well. Sometimes housing, but you’ll have to check the specifics of the loan.

So, yes – official student loans are for immediate school expenses. No fudging! That kind of thing almost always comes back to bite you if you try to stretch the funds beyond their legally designated intentions. Besides which, it’s just wrong.

That doesn’t mean there aren’t other valid reasons to consider a small personal loan as a student. While I very much discourage taking on additional debt just because you can, students might sometimes benefit from personal loans for the same reasons as anyone else – credit card consolidation, reduced interest rates, or establishing a credit history in the first place. I highly recommend this piece from my colleague Sherry on personal loans for students. She discusses the ins and outs of various options in a clear, friendly manner. It’s well-worth your time.

But, I mean… come back here when you’re done. We’re not finished with student loan debt statistics!

Another common sort of loan for students which isn’t actually a student loan is the student travel loan. As the name implies, these are small personal loans to finance trips – usually abroad, but possibly just across the state or some other part of the country. While designed to be educational journeys, they’re not technically part of a specific course or curriculum, and thus not covered by traditional student loans.

As with any debt, it’s important to ask yourself whether or not a trip of this sort is genuinely appropriate or necessary. What do you hope to gain or learn as a result? And, realistically, can you afford this sort of debt on top of whatever else you’re taking on as part of your educational pursuits?

I won’t lie – I wish more young people would travel. Honestly, it gets much more difficult after you graduate and have a “real job.” Those first few years, you may not even have the vacation time available to you. That’s assuming you make enough to afford the flights, the hotels, the food, the entertainment, etc. And of course many young people start having kids at some point. Setting aside the joys or trials of parenting, it certainly makes backpacking across Europe trickier than it would have been at 22.

But that doesn’t mean it’s worth another decade of poor credit or debt you can’t manage. It might be a great idea, even if it requires some creative budgeting and extra hours to pay for everything. Then again, it might not. If you’re considering a personal loan for travel or any other reason, whether you’re a student or not, start by understanding some general personal loan statistics to help you make a more informed decision about what makes the most sense for you.

What Do I Need In Order To Complete the FAFSA?

The first step is to create an FSA ID online. This is a username and password much like you create for many other sites, but a bit more serious than some. The FSA ID gives you access to Federal Student Aid’s online systems and can serve as your legal signature when applying for financial aid.

The second thing is determining whether or not you’re a “dependent” or an “independent” student. There’s a whole checklist of things to help you make this decision, but chances are you already know the answer. If you live at home or if your primary source of support is mom or dad, or if someone older than you claims you as a “dependent” on their taxes, you, my friend are a “dependent.” You will need your income and tax information and that of your parents to fill out the FAFSA. If you are married, or in the military, or live on your own and support yourself, or you’re, like, 42 years old, you’re probably an “independent.” You’ll report your own information and that of your spouse if married.

Third, you need your and your parent’s income information and tax returns, generally from a year or two before the school year for which you’re applying. It used to be for the current year, but because aid started being determined in January of each year and most W-2s and other tax information wasn’t sent out until February and filing is traditionally done in April, it created extra stress and scramble for everyone involved. Now they use information from the most recent year which should be settled and done. If you were applying for to begin school in the Fall of 2019, for example, the FAFSA will ask about tax returns from 2017.

The advantages of this change are clear, but it does make things tricky for those whose circumstances have changed dramatically in the past year or two. You may be exploring going back to school specifically because things have taken an unexpected turn south. Based on numbers from over a year ago, however, you may not qualify for much. You’re not alone – there are sometimes workarounds for this – but you’ll have to take it up with the financial aid office of the school to which you are applying.

Finally, you need to know which colleges you’re most seriously considering. You’ll list them on your FAFSA and the results will be sent to those schools directly, which substantially moves things along.

Is Student Loan Debt A Good Idea?

There’s no single right or wrong answer to this which applies to everyone.

Like buying a home, financing an automobile, or starting a small business, student loans are a risk. But they’re a risk taken in order to improve your future – at least that’s usually the idea. No one I know of has gone to school specifically in hopes of making their lives worse.

When you consider buying a home, you look at the various factors that go into the purchase. You learn more about mortgages and interest rates and you speak to several different financial institutions in order to fully understand your options. You look at mortgage statistics and you listen to advice, but in the end, you try to do what makes the most sense for you and yours. Which is exactly what you should be doing.

The same thing is true when you consider starting a small business. You examine different legal structures for the business, and the tax obligations, and – of course – whether or not you can reasonably make a living doing whatever it is you’d like to do. You look at the startup stats and the failure rates and which businesses are most likely to succeed and which ones don’t, but most of us aren’t entrepreneurs based solely on the statistics. You pursue something because it’s a passion, or a skill, or a belief – rarely because you picked it off a list of “most likely successes.”  

And yeah, it might not work. But then again, it might.

Even buying an automobile carries some risk. Is it better to go with a nicer, newer vehicle that has everything you want, or compromise on a more practical or older car or truck? Should you finance through the dealer, try your local credit union, or explore online lenders? Will you be happier in a month, or a year, based on Choice A, B, or C?

Conclusion

So student loan debt statistics say more and more people are a major source of debt for many people. Total outstanding student debt rose $29 billion in the first quarter of 2019. Over 10% of that – one dollar out of every ten – is more than 90 days past due. And the amounts owed by individual students continue to rise as well. The problem is so pronounced that it’s become an issue in the early rounds of the 2020 Presidential races. Several candidates are promising some rather drastic measures to free up folks for student loan debt.

The fact that we’re having so much trouble paying off our student loans suggests perhaps the degrees or certificates earned through that education aren’t panning out to the extent most of us no doubt hoped. There are also discussions to be had about whether or not we pressure too many kids to go to four-year colleges when that’s not the best answer for everyone, or about rising costs due to the competitive nature of recruitment, or any number of other factors best left to those more qualified to discuss them.

Pay attention to the statistics, absolutely. It matters what college costs, and it matters what various professions pay. But it also matters what you care about and what you’re willing and able to do with your life. It even matters if you desperately want an art history degree just because you love art. Dive in with your eyes open and with all options on the table, but once you’ve decided, do go ahead and dive.

If we can be of any assistance along the way, let us know.