InDebted Solutions: What can we do about student loans?
When people in the halls of South Carolina ETV and Public Radio first got wind of the InDebted project, more of them asked me if I would be covering student loans than anyone has ever asked me about anything I’ve done in my 22 years in journalism.
Yes, Virginia, and yes, South Carolina, we’re going to be talking about student loans.
I can’t say it surprised me that so many of my fellow SCETV/SC Public Radio employees would have asked me about this. A lot of jobs around here require a college degree, so a lot of people with them are distressingly familiar with what college costs.
Here’s where I have to confess my dirty secret – I have a college degree, but I’ve never been in student loan debt.
If you’re inclined to hate me for that, know that it took me 13 years to get that bachelor’s degree; seven if you throw away the years I left college to become a film director (a career I did well enough in to work in endless, low-wage retail jobs until the eve of my 30th birthday).
Thinking about my coworkers dodgy marriages with student loans and my own slumming through lousy jobs to avoid them compelled me to also think about solutions for student loan debt.
So let’s start with the big one:
The Biden-Harris Administration’s Student Debt Relief Plan
If you’ve been following news about the many twists, turns, and splashdowns surrounding the Biden administration’s $400 billion student loan forgiveness plan, you might by now know the name Elizabeth Prelogar, the solicitor general of the United States. She, as of the moment of this writing, is the person being credited with possibly saving the plan from being overturned by the U.S. Supreme Court.
But also at the moment of this writing, the plan is blocked by a lower court order. So while no new applications are being accepted at right now, that could change any day.
Also at the moment, student loan payments (at least federal student loans, as opposed to private ones) might be paused for you. But be aware of two things:
- If the debt relief program has not been implemented and the litigation has not been resolved by June 30, payments will resume 60 days after that; and
- If your loan is in forbearance, it is still accumulating interest. It’s a really, really good idea to keep making payments even if you don’t have to right now. (More about this snag in episode 2 of the InDebted podcast: Degrees of Debt.)
Writ large, The Biden-Harris Administration’s Student Debt Relief Plan is looking to give students nationwide as much as $20,000 in college loan forgiveness. If SCOTUS doesn’t amend or stop the plan, 681,100 South Carolinians stand to get at least some relief from their student loan debts.
You might not get the $20,000. That depends on the size of your outstanding loan. and you need to know that. But you might – might – be able to get some money taken off that balance.
If you want to receive notifications about the process, you can sign up at the Department of Education subscription page. You’ll have until Dec. 31 of this year to apply. But you might be in limbo for a spell, while the courts hammer all this out.
It takes how long to pay these things off?
Student loans are like a mortgage to a lot of borrowers. A 2021 report by EducationData.org spells things out rather starkly:
- “The average student borrower takes 20 years to pay off their student loan debt.
- “Some professional graduates take over 45 years to repay student loans.
- “21 percent of borrowers see their total student loan debt balance increase in the first 5 years of their loan.
- “The average medical school graduate’s salary is not sufficient to make their student loan payments.” (PS, Episode 7 of InDebted gets into this area.)
Why does paying off a student loan take this long? Well, as usual, it’s complicated. The amount you borrow has a lot to do with it; so does the amount you pay towards your balance every month. Like a mortgage or a credit card bill, if you only pay the minimum amount due every month, it’ll take a lot longer to pay your loan off.
For student loans in particular, that ever-moving goal post is due to the loans being front-loaded – which means the payments are structured so that you’re first paying off the interest and not the principle balance of the loan. That interest accrues over the span of your payments, so …
- Solution: if you are so able, pay more than the minimum balance monthly and pay that extra money directly to the principle.
Interlude: Why do we even need these loans?
It’s easy to dump on student loans. They’re usually pricy, they take forever to pay down, and having that kind of debt on your credit record could inhibit your ability to borrow for a home (which is a way to build wealth for many people).
But David Maxfield, a law professor at the University of South Carolina, makes a case for their necessity.
“You gotta have student loans,” Maxfield says. “To get an education can be really expensive. So I mean, that has to be out there.”
Student loans are among the lowest-rate loans going. Typical student loan interest is somewhere around prime, but if you know anything about the prime rate, you know that’s another ever-moving goal post. Currently, the interest rate on a federal undergraduate loan is 4.99 percent and the interest rate for an unsubsidized graduate loan is 6.54 percent. PLUS loans, which help parents borrow for their children’s degrees, currently have a 7.54 percent interest rate. All these loans come with additional fees between 1.05 percent for undergrad and graduate loans and 4.228 percent for PLUS loans.
That of course, is true only for federally backed student loans. Private label student loans directly available through some private and for-profit universities can have different rates. By which I mean worse.
“Some of … those places basically existed to just get people to take out student loans,” Maxfield says. “And they were making a lot of money that way. Some of them, fortunately, are gone now.”
And all of that can be scary. I mean, it all scared me enough to take a teenage number of years to get through school just so I wouldn’t carry that kind of debt.
Generally, though, Maxfield says, “it can be a good calculated risk to go to a professional school or a college. But it can be … a real millstone around your neck for a real, real long time. You have to look at in terms of return on investment; ‘Is this something, if I get this degree, will I be able to pay this off?’”
And isn’t that just a terrifying question?
So, let’s ask it:
Is big, expensive college worth it?
Yes: “Even at a very high cost, college is still worth it,” says Dr. Beth Akers, an economist and a senior fellow at the American Enterprise Institute. “If you compare the price tag that people are paying to the long run value of a degree, we see that in a way for most students, it's actually quite a bargain.”
“The Georgetown Center on [Education and] Workforce estimates that a college degree on average is worth about a million dollars over the course of a worker's lifetime,” Akers says. “I don't know a lot of people who are spending a million dollars to pay for their degree, but anything less than a million means that in some sense, you're getting a pretty good deal.”
No: “[I’m] indifferent on that,” says Pam McKnight, a project coordinator at Axis-1 Center of Barnwell County. McKnight holds a master’s degree in education, which she needed for her work at Axis-1, the county’s substance abuse treatment center. She wanted something more, but says her pursuit of a PhD is on (maybe permanent) hiatus.
“For a long time, I dreamt to go after my doctorate,” she says. “But now I feel it's not worth it, cost-wise, unless I just put some money aside or if there are some loans or grants out there.”
Worth it, schmorth it … How can I pay this thing off?
If putting your life on hold for a decade and a half to get through college on a part-time schedule you can pay with your measly salary is either unappealing or impractical for you, there are ways to help manage your student loan debt. But they’ll all take time too.
This handy guide from BankRate offers a few tips on how to get your balance down sooner and for less money. The highlights include:
- Paying more than the minimum amount due every month – which you likely can do automatically, so your payment always is more than the minimum.
- Why wait? Nothing is stopping you from making more than one payment in a month, if you have the money to do so.
- Refinance your loan and get a shorter term. This will increase your monthly minimums, but a five- or 10-year plan at least gives you an earlier and more finite out.
You can also work for a nonprofit or government agency. If you have a full-time job in what is considered a public service organization, you can apply for the federal Public Service Loan Forgiveness plan. You still have to pay your loan for 120 consecutive months (seriously, you can’t miss even one bill), but in 10 years, your loan will be forgiven if you meet the program’s requirements.
This article is part of the series InDebted, South Carolina Public Radio’s eight-part examination of the debt ecosystem in the Palmetto State.