The Current State of Student Loans

Current State of Student Loans

The author of this guest post is Kristen Hawley. Kristen is a freelance writer with a special interest in student loan debt legislation thanks to borrowing six figures to finance her own education. She blogs here to help others understand exactly what’s happening in the student loan universe and how to best manage their current situations for future success.

Student loans: many of us have (or have had) them; few of us actually like talking about them. There’s a lot of misinformation and misunderstanding about the nuances of loans. Here’s a quick breakdown of the state of student loans today, why I care, and what we should do next.

The Debt

Student loan debt is the trend story du jour, as news outlets cover it extensively, calling it a “crisis,”  and likening it to the mortgage bubble in 2008. Positively, we hear that Millennials are the most-educated generation. Negatively, that leaves us saddled with a massive amount of growing debt. The last figures put current collective federal and private student loan debt at just over $1 trillion, with 37 million active borrowers. Average debt owed is around $25,000.

New York Fed Student Loan Graph

Graph created by the New York Fed

Important things to understand

By now, everyone knows that student debt won’t go away, even in bankruptcy. The Obama administration has taken steps to help make some student loans more manageable; programs like income-sensitive repayment, Pay As You Earn, and eventual dismissal can be (dim) lights at the end of a very long tunnel. But there are plenty of situations where these programs cannot help. Private loans, often those with less-than-favorable repayment terms, aren’t applicable to any of the federal programs. In fact, the federal income-based repayment program (among others) won’t take private student loans into consideration when figuring your income-to-payment ratio.

There are plenty of small nuances like these, quick to confuse former students looking into relief programs and options. It’s a changing landscape, too. Current and proposed bills contain small nuances that affect the situation, and they’re easy to miss. At times, the situation seems to be getting better, slowly. But for the individual student loan borrower, staying well-informed is paramount to success.

Why I care

I’m Kristen, and I took out loans to cover about 80 percent of my undergraduate education at a private university. After maxing out federal loans, I turned to private loans to cover the remaining balance, totaling close to $100,000. Thanks to parents with good credit, I was thankfully able to secure a private loan with fairly reasonable terms (a 20-year repayment plan and reasonable interest rate.)

Despite favorable terms, paying each month post-graduation — even with a full-time job in 2004 before the economy tanked — was a struggle. I spent hours researching my loans, trying to figure out payment options… but mostly trying to figure out how I managed to get myself into this situation in the first place. The worst part: while searching for some sort of camaraderie — or even compassion — I found lots and lots of negativity: commenters telling people (like me) who had borrowed a large sum of money for school that they were irresponsible… or even stupid. Once, a CSR for my private loan company told me I should consider moving home with my parents in order to pay. So much for loans giving me a chance to succeed.

When paying down any type of debt, the first, and often hardest step is admitting how much you owe. Staring at a six-figure amount as a 21-year-old recent graduate is terrifying. Real talk: If I’d thrown my entire salary at my student debt, it would still have taken four-plus years to pay off. It took some time, but I eventually resolved to look at the massive amount I owed as only small pieces, focusing on paying the minimum amount on time each month with a sense of accomplishment.

While I eventually got my own debt under control (still making the monthly payments I’ll make until age 43), I believe the light at the end of the student-debt tunnel will only be made brighter by the shared and open exchange of stories, information, help and understanding. I was shocked by the support I received once I mustered the courage to share my own loan situation — stories from friends and strangers in similar situations feeling similarly hopeless. National legislation is a slow-moving beast, and I don’t have faith that private lenders are going to wise-up about terms they consider less than favorable. Sweeping industry change may not come overnight, but a shift in our attitudes and understanding of the current situation will make those of us facing debt feel a whole lot brighter about the present and future.

For more information on student loans, check out our Student Loan Debt resource center. And if you want to stay updated, you can subscribe to our blog.

Image credit: lightpoet

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  • TB at

    “a CSR for my private loan company told me I should consider moving home with my parents in order to pay. So much for loans giving me a chance to succeed.” THat’s sorta the weird thing. They’re all giddy about getting you to sign on the line, and telling you how much it’ll help you succeed, but then when it comes time for repayment, they basically tell you that it’s going to make you not succeed and hold you back. What the heck kind of business model is that?
    And then of course calling people stupid about their debt after they’ve already gotten the debt is stupid in itself. How does something like that help people at all?? It doesn’t. It’s like kicking an injured dog.

    • This is so true, TB. What students hear when they’re signing up for the loans is very different than what they hear when it’s time to pay back the loans. We need to do a better job of helping students understand their options and what the repayment will entail before they sign the papers.

  • Mike@WeOnlyDoThisOnce

    Great graphics, Kristen. Seems that large scale change on the policy scale is fundamental to seeing any difference in the next decade.

    • Glad you liked today’s post, Mike! Stay tuned for more posts by Kristen in the coming weeks.

  • Kristen Hawley

    Thank you. I definitely think large-scale policy change must come, but first we need to address the stigma that is so often attached to mounting student debt. It’s hard to be taken seriously when so much of society tells you you’re stupid for incurring large amounts student debt. JUST like kicking an injured dog.

  • Tracy Shannon

    The loan payments end up being one of the largest monthly bills facing young people, and they end up being put off through deferments, forbearance, income based repayments (all saving the borrower in the short run) but eventually all that interest has to get paid…..and that is the problem. We don’t all make six figure incomes after we get educated. We cannot all afford (without living at home with mom and dad) or taking a roommate, etc. to pay the minimum payment on a balance as high as 100K. Maybe forbearance, etc. is too easy to get, or perhaps some programs to encourage repayment or a discount for paying off any balance in full over 25K at once would be helfpul. I know that over the years my ex had windfalls in the form of bonuses and he never paid his student loan an extra dime and he eventually defaulted after using all his deferments up and being unemployed twice. These loans all need paid back, the soaring costs (inflated) to get a piece of paper to get a remedial job with a lot of loans is not a good combination. Are only the wealthy supposed to get an education? We need more alternatives than a college degree to get employed. Employers want everyone to have a degree, even for the $12/hr jobs. Give me a break! And they keep throwing more classes at the students that are not even geared toward what they will be doing for a profession. With the stakes so high, education needs to change, it just is not worth what is being paid for it, in many instances.

  • Vserp

    Well, you have to admit we were stupid for taking out the loans. We believed what we were taught from childhood, believed that we were improving ourselves and it was good debt.

    That is the difference between the rich and the poor. The rich do not believe others, they make their own decisions and then tell others what to believe. The poor make up lots of stupid rules on “honor” or “responsibility” that have absolutely zero place in finance, business or economics.

    It’s a costly lesson, but you’ve learned it now. Or hopefully you learned it. Cynicism is a dirty word in the US, but it is the proper mentality to take towards the bankers and corrupt government we have in place now.

    Did you know the stock market has collapsed several times in US history? The cause ever time was a loss in faith in the banking industry. Then memories fade and the public becomes stupid again, and it takes a reality check.

    Millennials were the idealist generation. They believed in stamping out racism, sexism, homophobia and many other inequalities. Many wanted just to help others and would accept the words of those that held themselves out to be noble without looking into what they were really doing. That is not a noble trait, that naivety is a disgusting, stupid trait. When money is involved, you can not afford to be stupid, if you insist on it, you need to be punished by the market until you learn, if you ever do.

    I am a lot smarter than I was before. I don’t think it was worth the $150k I’ll wind up paying, but some people have to overpay for life lessons. Nobody is going to come save you from the mistake, you’re going to have to find your own solution, talking to other failures isn’t going to help you.