Many graduating college students are facing a considerable student loan debt burden that has been estimated at more than $1 trillion nationally. It is the highest form of consumer debt. Even more troubling, approximately 25% of those loans are in default.¹
There’s some good news for families with students heading off to college — interest rates on all newly-issued federal loans have been reduced for the coming academic year — but those reductions are much more pronounced for student borrowers than for their parents.²
For instance, the interest rate on Stafford subsidized and unsubsidized loans for undergraduates will decline to 3.76% from 4.29% last year.² For graduate students, the Stafford loan rate will fall from 5.84% to 5.31% for the coming academic year.²
In contrast, the rate on Federal PLUS loans for parents is a full percentage point higher at 6.31%.² That rate is down from 6.84% for PLUS loans issued for the 2015-2016 academic year, but it still will nearly double the cumulative interest paid on a $50,000 loan over 20 years when compared with an undergraduate Stafford loan.¹ (Note that rates are set each year for new loans, but those rates remain fixed for the life of the loan.)
On the surface, one doesn’t need a college degree to see the benefit of having the student in your family take out education loans in his or her name. But looking past the numbers, there are other variables at play that must be taken into consideration. Per graduate, total student debt breaks down to an average of $29,000 in student loans.³
Lives Interrupted
This debt load has made it harder for young adults to get on with their post-college lives. For instance, one study found that 27% of those polled who had taken out student loans were finding it difficult to afford daily necessities; 63% said that debt had impacted their ability to make larger purchases, such as a car; three out of four said college debt had affected their decision or ability to buy a home; and 43% said it had caused them to delay starting a family.⁴
For their part, parents need to assess whether and to what degree they are willing and able to help share the responsibility for paying off their child’s college costs. Many are spread thin financially, as this may coincide with their goals to save aggressively for their own retirement. Additionally, many in the sandwich generation, are also providing some level of care and/or financial support to their aging parents.
Repayment Plan Choices
Fortunately, for those concerned about strategies for repaying federal student loans, there are many options — and an abundance of information about them. As a starting point, visit the Federal Student Aid website (https://studentaid.ed.gov/sa/repay-loans/understand/plans#direct-and-ffel) for a detailed summary of the many repayment resources available to you. For an at-a-glance summary of the interest rates, loan limits, and other terms for federal student loans issued from July 1, 2016 through June 30, 2017, go to http://ticas.org/sites/default/files/pub_files/loan_terms_2016-17.pdf
¹ Fortune, “Students Loans: These Schools are Driving Defaults,” 9/10/2015
² Squared Away Blog, “Parents, Start Student Loan Homework!” July 5, 2016.
³ The New York Times, “Rates on Student Loans Are Falling,”June 24, 2016.
⁴ American Student Assistance®, “Life Delayed: The Impact of Student Debt on the Daily Lives of Young Americans,” October 3, 2013.