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Overcoming the Student Loan Crisis

Let’s be real, y’all. The student loan crisis in this country has become way too serious to ignore. Right now, the total amount of federal student loan debt in the U.S. is coming in at $1.58 trillion (as of summer 2021) with over $1.7 trillion in total student loan debt. 1,2 That’s insane.

And you know what? I’ve been there. I was that kid who owed more than $10,000 in student loans (with $15,000 of credit card debt) after being in college for only three semesters. All that led up to me being homeless and living in my car for a season. Yeah, not cool.

I followed the Baby Steps and used the debt snowball to get out of debt, and I’m blessed to be where I am today. But you better believe I’m going to do everything I can to make sure other young people don’t go through what I did.

Let’s take a look at the simple (but painful) facts so we can understand the problem and work toward a solution—and so you can get student loans out of your life and make sure the next generation knows how to graduate debt-free.

The Sobering Stats on the Student Loan Crisis

  • At this point, federal student loan debt has way exceeded national credit card debt—by over $800 billion!3
  • Student loan debt has seen almost 157% growth since the Great Recession and is the fastest-growing portion of total household debt in the U.S.4
  • There are currently about 45 million student loan borrowers in this country.5
  • Sixty-two percent of students graduate with student loan debt.6
  • The average student loan debt is about $38,792.7

Still breathing after reading those facts? Good. Because we’re not done breaking down just how crazy student loans really are.

The True Cost of Your Student Loan Payments

There’s a reason why lenders make it pretty easy and painless to take out a loan. They know people (especially high school and college-age people) just want to take the next step in their lives and will be drawn to the fact that student loans make college seem affordable and accessible. But really, the cost of the loan is so much more than meets the eye.

Get a new student loan rate from a Ramsey-trusted company in 10 minutes.

Picture it: You’re young, so you take out student loans to major in something you’re passionate about. You’re hopeful about the future. But then, after graduating, you discover you have to make monthly payments on those loans for up to 46 years, depending on your repayment plan.8

That’s a lot of life to spend being weighed down by debt.

How Are Monthly Payments Calculated?

The average monthly payment on a student loan is $393.9 But how do loan companies come up with your monthly payment?

That number is based on several things—including the total loan amount, interest rate, number of years you’re set at paying the thing off, and any other requirements the lender of that loan might tack on. (For instance, some lenders have a required minimum monthly payment.)

Let’s look at the averages of these numbers and then some examples of how they affect your total payoff amount.

Average Student Loan Debt Per Borrower

$38,792

Average Student Loan Interest Rate

5.8%10

Average Time It Takes to Pay Off Student Loans

20 years11

Average Student Loan Monthly Payment

$393

 

Okay, so I put some of these numbers in our Student Loan Payoff Calculator. If you’ve got $38,792 total debt at a 5.8% interest rate, and you’re making a $393 payment each month, you’ll have that loan holding you down for 11 years.

But wait, the numbers get worse. Because at the end of those 11 years, you’ll have paid $14,052.09 in interest alone. That’s right, your $38,792 loan will cost you $52,844.09 when it’s all said and done. 

Also, recent college grads earn an average salary of $53,889.12 That means they’re bringing home roughly $3,400 a month. So, a $393 student loan payment will eat up around 11% of their monthly take-home pay!

But what would happen if those payments didn’t exist? What could that money do? Okay, for this example, I ran some numbers through our Investment and Retirement Calculator. Say a 21-year-old graduate started investing that $393 every month with a 10% return instead of putting that money toward a payment. They’d have over $4.5 million by the time they retire at the age of 67.

Don’t even get me started on what you could do with that kind of money. Talk about living and giving like no one else!

What About Refinancing Student Loans?

Student loan refinancing might sound like a quick and easy fix, but let’s face it, quick and easy is what gets folks into student loan debt in the first place. If you’re not careful, you could end up with a higher interest rate or longer payment terms than you had before.

So, before you decide refinancing your student loans is the winning lottery ticket you’ve been waiting for, let’s get clear on a few things.

With refinancing, you’re basically asking a bank or private company to take all your student loans, pay them off, and give you a new interest rate and payment terms. They front you the money, so now you owe them.

You don’t want to go this route if you can’t lock in a better, fixed interest rate and shorter repayment terms so you can get your loan paid off faster.

Student loan refinancing is the only type of debt consolidation that I (or Dave Ramsey) recommend. But it isn’t for everyone.

I talk more about this in my 64-page quick read, Destroy Your Student Loan Debt, but here’s a quick checklist. You should only refinance your student loans if:

  • It won’t cost you anything to consolidate them.
  • You can replace your variable interest rate with a lower, fixed interest rate.
  • Your new net interest rate is lower than your current net interest rate.
  • You don’t sign up for a longer repayment period.
  • You don’t get so relieved by the thought of a single payment that you lose your motivation to pay off your debt fast!

That last one is key. You don’t want to do anything that gets you so comfortable with your debt that you stop trying to pay it off quicker.

Types of Student Loans: An Overview

Subsidized, unsubsidized, federal, private . . . they’re all just different ways to spell the same word: T-R-O-U-B-L-E. But it’s worth a closer look for clarity. I cover all this stuff in my book, The Graduate Survival Guide, but here are the basics on the different types of student loans.

Federal Student Loans

These types of loans come from the U.S. Department of Education’s federal student loan program. So, they’re funded by the government and have a “grace period” of six to nine months after students graduate before the payments start.

  • Direct Subsidized Loans are loans for undergraduate students based on financial need. While the student is still in college, the government pays interest on the loan. But once the student starts making payments, they become responsible for paying the interest.
  • Direct Unsubsidized Loans are loans for undergraduate, graduate and professional students not based on financial need. The amount a student can borrow is determined by their school.

           The government doesn’t pay the interest on these loans for any period of time. Instead, interest accumulates while the student is in school, and then that interest is added to the loan amount once they start making payments.

  • Stafford Loans are the most common type of unsubsidized and subsidized loans. (That last one is given out based on financial need.)

           Stafford Loans are available for undergraduate and graduate students with up to $5,500 for first-year students and more offered each year of study. The interest rates and financial need requirements for these can vary.

  • Perkins Loans are subsidized loans with a lower fixed interest rate and are intended for students with the most financial need.
  • PLUS Loans are loans for graduate students (Grad PLUS Loans) or the parents of undergraduate students (Parent PLUS Loans) to cover education costs that have not been covered by other financial aid. These are not need-based and require a credit check for you to be eligible.

It’s bad enough that an undergraduate student can borrow between $9,500 and $12,500 a year (depending on their year of study) in Direct Subsidized Loans and Direct Unsubsidized Loans. But get this: A graduate or professional student can borrow up to $20,500 per year in Direct Unsubsidized Loans.13

Just imagine if you took out loans for all four years of your undergrad and a two-year graduate program. You could owe $86,000 by the time you’re done!

Private Student Loans

These have higher interest rates than federal student loans and are available through banks, schools, state agencies or credit unions. The student has to make payments while they’re still in school, plus they’re responsible for all interest payments.

A Brief History of Student Loan Debt

Student loans haven’t been around forever. In fact, they’re a pretty recent form of debt.

They started in 1957 partly to encourage more students (especially those in the fields of science, math and foreign languages) to attend college so Americans could beat out Russians during what was called the Space Race. It must have worked. College student attendance shot up from 3.6 million in 1960 to 7.5 million in 1970.14

Know what else shot up? Student loan debt.

You might blame the crazy increase in tuition costs (up 320% from 30 years ago!) on the overall increase in inflation over time or pressures from society to get a college degree—but you can’t argue with the numbers.15

Unless we do something about it, student loan debt doesn’t seem to be slowing down any time soon.

Student Loan Debt Totals by Age

People sometimes think student loan debt is just a problem young people have. But that’s straight-up false. If you’re reading this and have been paying on your loans for years, you know what I mean.

Here’s a breakdown of American student loan debt totals by age categories:16,17,18

Age Range

Total Student Loan Debt

18–29

$333 billion

30­–39

$512 billion

40–49

$357 billion

50–59

$237 billion

60–69

$107 billion

70+

$27 billion

 

You’ll notice the group carrying the most debt is that 30–39 range.

But check out the 70+ range—they’ve got $27 billion in student loan debt! Maybe it’s debt from their own degree, or maybe it’s what they borrowed to put their kids through school.

Either way, it’s not okay. Your 70s are supposed to be your golden years. Senior citizens shouldn’t have to struggle with student loan debt.

Why Do People Rely on Student Loans?

Now that we’ve seen the facts on student loans, let’s look at the reasoning (or lack of reasoning) behind getting one.

Right now, there’s a mindset in this country that if you don’t get a degree, you can’t win. So it’s understandable that high school students are freaking out, thinking they won’t get a decent job if they don’t have a degree. And they’ve been fed the lie that the only way to afford that college degree is to take out a loan.

But neither of those ideas are true. Plenty of people who never went to college have succeeded with plain old hard work. There are lots of opportunities out there to make good money without getting a college degree.

But still, sometimes you definitely need a degree to go into the field you want. Just remember a degree is a degree no matter where it’s from—it’s 100% possible to get a degree without loans by choosing an affordable school. And if that means a community college, who cares?

Again, I’ve been there. I totally remember what it was like to believe there was no way to get an education (or pay for anything expensive in life) without taking out loans and piling up debt. But once I started learning about all the different things I could do to graduate debt-free, I knew it didn’t make sense to pay for college any other way.

The truth is, while student loans are meant to make life easier for students, they do just the opposite, creating harmful money habits while students are in school. And the negative effects of student loan debt aren’t just financial.

In our own research at Ramsey Solutions, we found 53% of those who took out student loans say they regret it. And 43% of those who took out student loans regret going to college altogether. Living in regret isn’t emotionally healthy for anyone.

And regret isn’t the only emotional effect people deal with. That research goes on to show Americans with consumer debt (like student loans) are nearly twice as likely to lose sleep over their personal finances than those without. And 54% of Americans with consumer debt worry daily about money. 

Listen: I’m all for higher education. But young people have to know that taking out a loan isn’t the way to get it. Not only is student loan debt weighing down their future (and stressing them out), it’s affecting the future of our country too.

The Economic Impact of Student Loan Debt

As it turns out, having piles of student loan debt makes millennials less likely to be able to afford things like houses and families. Go figure.

That research from Ramsey Solutions also showed nearly half (47%) of those who used student loans to pay for school are putting off other big life moments—like buying a home, getting married, or having kids—because of their student loan debt.

It’s pretty simple: When people have to put a huge chunk of their income toward paying their student loan debt, they have less money to spend on other things—like growing a family and spending on products and services that keep the economy going strong.

Are Universities Fueling the Student Loan Crisis?

I’m definitely not saying that every university is contributing to the problem, but it’s no secret that college tuition isn’t getting any cheaper. The cost of getting your degree has tripled in the last 20 years, and it continues to rise. Private universities are especially pricey—with students spending an average of over $54,000 for the 2020–21 school year!19

Income Share Agreements: The Misleading “Alternative” to Student Loans

Rising tuition costs are bad enough, but have y’all heard about income share agreements? That’s a contract between a college and a student. The school loans money to the student to cover education costs, and the student commits to paying a percentage of their income later on. When their income increases, their monthly payment increases.

Some people think this is better than a student loan, but is it really? Truth is, students who do this are still in debt because they borrowed money—and they’ll have to keep making payments for years.

Nobody wants to graduate from college, get an exciting new job with a dope salary, and then face the fact that thousands of dollars of that salary will be going right back to their college. Kind of a letdown.

Bucking the Trends—How Some Universities Are Combating the Student Loan Crisis

Thankfully, there are some colleges out there that are actually trying to do something about the student loan crisis. One of those colleges is the University of Wyoming.

The University of Wyoming Story

The University of Wyoming (UW) is a land-grant university on a mission to make higher education affordable and accessible to everyone in their state. Making tuition “as nearly free as possible” for in-state students is mandated in the Wyoming Constitution! How cool is that?

According to their website, this college has been “bucking the system since 1886.” They’re not afraid to rebel against the world’s popular money habits, which include taking out student loans.

In other words, they have no problem being weird in a culture where debt is the norm.

UW’s also promoting a fundamental change in the way people interact with money by making sure high school kids form good financial habits while they’re young. They’re actively helping students in their state become equipped with the tools they need to handle money wisely and go to college debt-free.

How? By sponsoring Ramsey Education’s curriculum, Foundations in Personal Finance, which has impacted the lives of over 5 million students! That sponsorship means this industry-leading curriculum will be available to every high school in the state.

And they’re not the only ones. Arkansas Tech University, Georgia Military College, and Chadron State College (in Nebraska) are just a few examples of colleges that promote accessible, affordable education by keeping their in-state tuition costs low. (Chadron even has an initiative to make the price of in-state tuition the same as out-of-state!) Plus, they sponsor the Foundations curriculum in multiple high schools near them to help as many students as possible know how to be wise with money. Now that’s what I like to see.

Bottom line: Affordable universities do exist, and helping your teen find the right one for them is just one of the ways you can make sure they graduate debt-free!

Trending Topics in the News on Student Loans

Want to read more trending topics on student loans? Check out these articles:

Average Student Loan Debt
Can President Joe Biden Forgive Student Loans?
Overcoming the Student Loan Crisis
How to Pay Off Student Loans Quickly: 10 Steps for Success

How to Prepare Your Kids to Go to College Without Student Loans

If you’ve got kids, it’s easy to fall into the trap of thinking there’s absolutely no way to send them to college without the “help” of student loans. But trust me. I’ve talked to students all over the country who have cash flowed their degree and graduated with a bright, debt-free future ahead of them—and your child can too.

Here’s a checklist of a few things you can do to get them there:

  • Talk to your kids about money. Do this early and often. Make money a common conversation in your household.
  • Discuss career goals. And then talk about how to make them happen. Does this mean a college degree or other training?
  • Find an affordable college. Remember, public in-state schools are the best for affordability.
  • Help your kids find scholarships. Scholarships are a key part of graduating debt-free, and there are hundreds of them available to students. Look for ones available based on academics, skills, financial needs and more. 

For even more info, check out my Debt-Free Degree College Savings Calculator and get a copy of Debt-Free Degree so you can start planning for the best future for them—without student loans.

How to Get Yourself Out of Student Loan Debt

If you’re in the middle of this student loan crisis—carrying that debt around, handing over a chunk of every month’s income to slowly dig your way out—please know you don’t have to stay here forever.

You can get yourself out of student loan debt for good. Here are four steps to do that:

1. Decide to destroy your student loans.

First things first: It all starts with you. Make the decision to get out of this student loan debt. When things get tough and you’re making sacrifices to pay it all off, remember this moment.

Think about what it’ll be like when you’ve freed up your income to spend on stuff you want—and to start building wealth for the future. Think about the things in life your debt has been holding you back from all this time. Use those things to help you say, “It’s game on.”

You can destroy your student loan debt. But first you have to decide you will.

2. Get on a budget.

I get asked all the time how to get out of debt, or start saving more money, or get your finances in order. You guys, it’s all about the budget.

You’ve got to get on a budget—and you’ve got to stick to it.

When you start budgeting, you’ll see where all your money is going so you can know where to cut back (which we’ll talk about in the next step). You’ll find extra money you didn’t even know you had! Nice. Throw all that extra money toward your student loan debt!

You can’t make anything happen with your money if you aren’t on a budget. So, get started. Check out EveryDollar, my favorite budgeting app that’s super easy to use.

3. Make some sacrifices.

I mentioned cutting back on some of your spending. I know how that sounds, but it will be worth it. Sacrificing on some stuff now will get you where you want to be in your future.

Cut back on your spending in areas like entertainment and restaurants. (By the way, meal planning and prepping is one of the best ways to save money on your food budget. Just saying.)

Say “not now” to those extras in life. It isn’t forever! But you’ll save a ton of money—which you can put toward those student loans—so you’ll make progress like never before.

4. Use the debt snowball method.

Okay, so you’ve got that extra money now from budgeting and cutting back. How, exactly, do you put it toward your debt? The best plan of attack for paying off those loans is the debt snowball method.

Here’s how: First, list all your loan debts from smallest balance to largest. Then, start paying on the smallest student loan balance first. That’s the one you attack with the extra money you freed up in your budget. While you’re doing that, keep paying the minimums on everything else.

After you’ve paid off the first debt, move to the second-smallest balance. Take everything you were throwing at the first one and add it to the minimum payment of the second balance.

Once that one’s paid off, move on to the next one and the next until you’re finally rid of your student loan debt.

Listen, this isn’t going to happen overnight. But the debt snowball gives you quick wins early so you can keep your motivation going until the debt is gone. Forever.

Can I give you a quick tip? Don’t do this on your own. Take a class like Financial Peace University (FPU) where you can learn how to stick with the debt-free grind and get rid of your debt quicker than you ever thought possible. You can try out FPU today (and the premium version of the EveryDollar budgeting app) with a free trial of Ramsey+.

Look, guys, I know the student loan crisis seems too huge to even think about. I mean, $1.58 trillion is no joke. But that $1.58 isn’t something you have to take down yourself. Focus on how you can get out of the debt you have and teach your children to avoid student loans completely.

Don’t let this national crisis create a personal crisis. Make the choice to get out. And take the steps to move forward with your life. You got this!

Anthony ONeal

About the author

Anthony ONeal

Anthony ONeal is a #1 national bestselling author, financial expert and host of the popular online series “The Table” on his YouTube channel. He has appeared on Good Morning America, the Tamron Hall Show, the Tom Joyner Morning Show and the Rachael Ray Show, among others. Since 2015, Anthony has served at Ramsey Solutions, where he teaches young adults how to budget, live without debt, avoid student loans and build real wealth for their future. Learn More.

Get Rid of Your Student Loans Faster!

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Get Rid of Your Student Loans Faster!

Find a new, lower interest rate in about 10 minutes.
Learn How

Get Rid of Your Student Loans Faster!

Find a new, lower interest rate in about 10 minutes.
Learn How