College Graduates Slowing the Pace of Loan Repayment
At the end of 2016, college students carried a total of 1.6 trillion dollars in student loan debt, which rose over 170% in the last decade. With college tuition rising faster than inflation and states reducing funding for education to meet budgetary restraints, college students have increasingly turned to loans to fund educational needs. At the end of 2005, students completed school with an average of $20,000 in student loan debt. A decade later, that number surpasses $34,000.
Loan balances obtained by graduation tells only half the story. Recent changes in loan repayment options have successfully lowered default rates, but increased the time it takes to eliminate student loan debt. Now former students can spend 2.5 times the original ten-year repayment time frame to pay the debt, increasing the total cost of their education.
A college graduate with $34,000 in student loan debt can expect a monthly payment around $370 if they have an average interest of 5.5% and make 120 on-time payments. Extending repayment to 25 years could lower the bill to approximately $200 a month. Choosing an income-based repayment model could further lower payments. However, taking longer to settle the debt raises the total loan costs due to ongoing interest.
A ten-year payoff will result in paying approximately $44,400 in total loan costs. Extending repayment could more than double the original loan amount due to accumulating interest. Adding deferments or other delays will lead to even higher loan costs.
Slower loan repayment has a lasting impact on finances well beyond school. A student graduating college with $100,000 or more in student loan debt, pays an estimated 25% of the loan balance in the first decade after completing school. It could take more than half their working career to pay for their college degree.