How high is the average student loan debt?

Seeking higher education is a great way to improve your marketability in your career search and can help open more opportunities for you. However, the rising cost of college tuition continues to drive up the average amount of student loan debt the average American carries after leaving school.

So, what is the average student loan debt these days? We cover that, how to pay this debt off quicker, and other important student loan debt topics below.

What is the average student loan debt in the U.S.?

The total amount of student loan debt in the U.S. has reached $1.757 trillion, including federal and private student loan debt. This brings the average student loan debt balance to as much as $40,114 per borrower.

Of that total student loan debt 93.2% of it — or $1.635 trillion — comes from federal student loans. This places the average student loan debt from the federal government at $37,338 per borrower.

What’s the difference between private and federal student loans?

You’ll notice the bulk of Americans’ average debt for higher education is from the federal government. But why do college students seem to prefer federal student loans to private student loans? This may be due to the differences between federal and private student loans, which we’ll review below.

But keep in mind, federal student loans are capped — meaning there is a limit on how much you can borrow each academic year. So sometimes private loans are needed to bridge the gap between what federal loans will cover and the cost of school.

Now, let’s look at the differences between the two loan types.

Interest rate

The first big difference is the interest rate. Several federal student loans exist, including Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans, and their interest rates vary.

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For a college student whose federal loan is disbursed after July 1, 2023 and before July 1, 2024, the following interest rates will apply:

• Direct Subsidized or Direct Unsubsidized Loan for an undergraduate student: This is for someone attaining their associate’s or bachelor’s degree. The interest rate will be 5.50%. 

• Direct Unsubsidized Loan for a professional or graduate student: This is for a college student pursuing their master’s degree, doctorate, or another professional degree at a graduate school. The interest rate will be 7.05%.

• Direct PLUS Loan for a parent or professional/graduate student: This loan is available to parents of college students or to someone who is pursuing their master’s degree, doctorate, or another professional degree at a graduate school. The interest rate will be 8.05%.

On the other hand, private student loans’ interest rates can vary greatly, ranging from 4% to 15% annual percentage rate (APR). As of June 5, 2023, the average private student loan rate rings in at 7.16% for a 10-year fixed-rate loan and 6.95% for a five-year variable-rate loan.

You’ll notice private student loans offer fixed and variable APR. This is another key difference between federal student loans and private loans. Federal loans have fixed interest rates. 

Forbearance and deferment

Other key differences between loans from the federal government and private lenders are the forbearance and deferment options.

All federal student loans offer deferments if you’re in college and meet the minimum credit requirements. This means you can focus on your education instead of making student loan payments. Plus, subsidized federal student loans don’t accrue interest during this deferment — although unsubsidized loans will continue accruing interest during deferment.

The federal government also offers a range of forbearance options for students after graduation. These forbearance options allow you to stop making payments for a certain period of time if you meet specific requirements. For example, you may qualify for a hardship forbearance if you lose your job, which allows you to stop making payments for a set time frame without hurting your credit score.

With a private lender, it depends on that institution’s policies as to whether or not it offers deferment and forbearance options. You can contact your potential lenders in advance to request their terms and conditions. This will help you determine if these options exist and what you may qualify for.

Repayment flexibility

Federal student loans have a wide range of income-driven repayment plans that help reduce your monthly payment based on your income. The four plans are:

• Revised Pay As You Earn Repayment Plan (REPAYE Plan)

• Pay As You Earn Repayment Plan (PAYE Plan)

• Income-Based Repayment Plan (IBR Plan)

• Income-Contingent Repayment Plan (ICR Plan)

These student loan repayment plans lower your payment to a percentage of your discretionary income — generally 10% to 20% of your discretionary income depending on your plan.

For the REPAYE, PAYE, and IBR plans, your discretionary income is determined by calculating the difference between your annual income and 150% of the poverty guideline, which varies based on your family size and the state you live in.

For example, if you’re a single person living in New York, the poverty guideline for 2023 is $14,580, and 150% of that would be $21,870. If you earn $30,000 per year, your discretionary income would be $8,130.

For the ICR plan, your discretionary income is determined by calculating the difference between your annual income and 100% of the poverty guideline for your family size and where you live.

For example, if you’re married and live in Alaska, the poverty guideline for 2023 would be $24,640. If your annual income is $45,000, your discretionary income would be $20,360. 

With a repayment plan, you’ll make the modified monthly payment for 20 to 25 years. (This varies by plan and other qualifiers.) After that term, the federal government offers student loan forgiveness for any remaining loan balance.

Private student loans rarely offer these repayment options to help their borrowers.

Special student loan forgiveness, cancellation, and discharge programs

The U.S. Department of Education offers a range of programs that wipe out all balances for a student loan borrowers in specific situations. For example, the Public Service Loan Forgiveness (PSLF) program will eliminate any remaining student loan balance if you work full-time as a government employee or for a private nonprofit organization while making 120 qualified monthly payments on your loans.

A similar program for teachers wipes out up to $17,500 in student loan balances after five years of making federal student loan payments and teaching in a low-income elementary school, secondary school, or educational service agency.

The government also offers federal student aid cancellation and discharge options for specific circumstances, such as:

• Closed school discharge

• Total and permanent disability discharge

• Discharge due to death

• False certification discharge

Private student loans don’t usually offer this kind of forgiveness. However, while federal student loans are rarely discharged in bankruptcy proceedings, private student loans can be included in this.

How can you pay off your outstanding student loans?

With the average student debt sitting at $40,114, students are leaving school with more debt than ever. This growing debt can make for tough personal finance situations for students as they enter the professional workforce. Let’s review some ways to help pay off your loans a little quicker.

Pay early

Students commonly take out student loans while in college and choose not to make any payments during the deferment and post-graduation grace periods. This is well within the terms of a federal student loan, but it can lead to longer repayment periods and a higher principal balance upon graduation.

Instead, make monthly payments on your loans while you’re still in school or within your grace period. A good practice is to at least pay the accrued interest if you have an unsubsidized loan. If it’s a subsidized loan where interest doesn’t accrue, simply pay what you can afford each month so you have a lower principal balance when you graduate and when the interest starts to accrue.

Use auto pay

Some student loan servicers offer automatic payments, automatically debiting your monthly student loan payments from your bank account. This ensures you never miss a payment, which is great. On top of that, many student loan servicers will offer you a 0.25-percentage-point interest rate reduction for signing up for automatic payments.

Pay more than the minimum

Student loans have a minimum monthly payment, the least you must pay that month to avoid late fees and a potential late-payment mark on your credit report. Paying only the minimum payment will pay off the loan within its original terms and result in you paying the most interest charges.

Instead of paying the minimum monthly payment, adjust your budget to free up extra cash and apply the leftover money to your student loans. The more you pay, the lower your principal balance will be, meaning you pay less interest and repay the loan faster.

Leverage your tax refund check

Getting that income tax refund check is something to look forward to all year. However, instead of using this windfall to purchase something you have your eye on, you could use it to purchase your freedom from student debt. You can use the refund to make a lump-sum payment on your student loans and cut some time from your repayment schedule.

Consider consolidation or refinancing

If you have private student loans, you likely have varying interest rates between them. By consolidating or refinancing these separate student loans into one loan, you can make one easy monthly payment instead of several. Also, consolidation and refinance loans may offer you a lower interest rate than your private loans, saving you cash.

Pay close attention to the consolidation or refinance loan’s interest rate and only accept it if it’s lower than your private loans’ interest rates.

Look into loan forgiveness programs

The federal government offers two loan forgiveness plans, as mentioned above, which can help you save money and pay off your loans faster. By taking advantage of Public Service Loan Forgiveness or Teacher Loan Forgiveness, you may pay off your student loans quicker compared to a normal income-driven repayment plan.

The average student loan debt is rising, but you have repayment options

The average student loan debt continues rising annually, as school tuitions continue rising. Today’s student loan debt statistics place the average college debt borrowers carry at a whopping $40,114. This is a huge chunk of cash, especially for a new grad just starting their profession.

Fortunately, you can pay this debt down quicker by following our tips above, including:

• Making loan payments while in deferral

• Using autopay discounts

• Paying more than the minimum balance

• Using your tax refund check

• Consolidating or refinancing the loans

• Researching loan forgiveness plans

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