Who’s Paying For Student Loans

Now that the college graduation parties are over, parents and students can sit down and have a serious talk about who’s going to pay for it.

College, that is, not the parties.

The cost of college and how families are paying for it, has dimmed the celebration that should accompany receiving a diploma. Some people even question whether sending a child to college is a good investment anymore.

The College Board published a chart showing that the cost for tuition, fees, room and board at a state university has climbed up to 13% over the last five years, and up to 40.2% over the last 10. Private schools are up 11% over the last five years and 38.1% over the last 10.

That might be OK if wages kept pace. They didn’t. Not even close. The Economic Policy Institute says that wages for the vast majority of Americans have declined ever since 1979, with the greatest losses in recent years coming among those with college or advanced degrees.

Fewer people are making more than $100,000 now than 10 years ago and more people are making under $35,000. The net result is that a bigger portion of household earnings is going toward paying that tuition.

That’s while Junior is in school. The numbers get worse when he or she graduates.

Nearly 72% of the 2.3 million students who just received a diploma, also took home an invoice for student loans. Mark Kantrowitz, who has been tracking student loan numbers for decades, said the average amount owed by 2016 graduates is a record-setting $37,173.

That is $2,122 more than the previous record held by the Class of 2015. The mean student loan debt (half owe more, half own less) is $26,578, another record.

“Unfortunately, there’s not much families can do that they aren’t already doing to keep student loan debt in check,’’ said Kantrowitz, publisher of Cappex.com, a web site that connects students with colleges and financial aid. “Wages have been flat since 2000 so they don’t have more resources to pay for school.”

So, who’s going to pay the student loan debt?

Let’s start with some good news: It might be the students.

The 2016 graduates are walking into the most receptive job market in eight years. The Economic Policy Institute says that unemployment for recent graduates in only 5.6, the lowest since 2008. A recent survey of employers says they will hire 11 percent more graduates than a year ago and the average starting salary ($48,707 for 2015 grads) is expected to rise gently.

That’s it for good news.

The bad news is that more than half of last year’s graduating class took jobs that didn’t require a college degree and that number likely will increase this year. Compensation for the jobs they’re taking – waitress, bartender and cashier are three of the most popular – has risen less than 1% since 2000. The starting salaries for those jobs range from $23,000 to about $31,000.

Now compare that to the cost to pay back the “average” student loan debt. Here is where the bad news gets troublesome for families.

If you have $37,173 in student loans and use the standard 10-year repayment plan, you will pay $428 a month. If you live on your own – meaning not in your parent’s home – and devote 10% of your income to repaying the student loan, you will need an annual salary of $51,334 over the next decade to eliminate your student loan debt.

If you devote 15% of your salary to payments, you’ll need only $34,223 in annual salary, but you put yourself in danger of incurring an economic hardship if anything in your life changes. By “anything” we mean getting married, having children, buying a home or even a car.

That may explain why more adult children are living with their parents than at any time since the Great Depression era of the 1930s. According to Pew Center Research, 32.1 percent of children ages 18-34 are living with Mom and Dad today. That’s the highest percentage since 35 percent lived at home in 1939.

So how do we keep the long-time marriage between college education and middle-class living together – not to mention get our sons and daughters out of the house after graduation?
There is no simple answer, though Kranowitz offers some common sense suggestions.

File the Free Application for Federal Student Aid (FAFSA) to qualify for federal and state grants.

Take advantage of free money. Search for scholarships on web sites like cappex.com/scholarships and apply for any for which you are eligible.

Tuition installment plans are a reasonable alternative to long-term education debt.
Live like a student while you are in school so you don’t have to live like a student after you graduate.

If you have to borrow, federal student loans are cheaper, more available and have better repayment terms than private student loans.

After graduation, look at debt consolidation, Income-Based Repayment, Pay As You Earn, Extended Repayment Plan and other programs that help you make student loan repayment an affordable part of your budget.

And don’t throw any graduation parties until the last payment is made on student loans.


Bill Fay
Staff Writer

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it seven years ago, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering college and professional sports, which are the fantasy worlds of finance. His work has been published by the Associated Press, New York Times, Washington Post, Chicago Tribune, Sports Illustrated and Sporting News, among others. His interest in sports has waned some, but his interest in never reaching for his wallet is as passionate as ever. Bill can be reached at bfay@debt.org.

In debt? We can help!

  • Amount
  • Type
  • Contact

How much do you owe?

What can we help you with today?

Related Articles

Caution on Student Loan Forgiveness Programs

Confusion Clouds Future of Student Loan Forgiveness Programs

Here’s a warning for anyone who must borrow money for college. There’s an assault under way on the most cost-effective and popular student-loan repayment programs. Lines are being drawn and people are choosing sides. The ability for borrowers to ...

Continue Reading
Teacher in Classroom with Students

The Future of the Public Service Loan Forgiveness Program

President Trump’s latest budget proposal to Congress calls, once again, for the elimination of the Public Service Loan Forgiveness (PSLF) program. This is the second time Trump has recommended eliminating the program that promised to forgive the balance ...

Continue Reading
FAFSA Benefits Students

Changes to FAFSA Benefits Students

You’re a college student, and life feels grand. You have your classes picked out for next semester, and you’ve signed a lease through next year. Everything is falling into place. The last thing on your mind is filling out the Free Application for Federal ...

Continue Reading
College Graduate Budget Computer

College Graduates Should Budget (And Save!) Right Away

When Ryan Dwyer received his undergraduate history degree from the University of South Florida in 2016, he felt a sense of accomplishment. His hard work had paid off with society’s definition of the ticket to a brighter future. But the degree has simply ...

Continue Reading
Millennial holding a sign that declares their love for loan repayment plan

Student Loan Repayment A Benefit Millennials Love

Companies have a new carrot to dangle in front of college graduates – help repaying student loans – and experts believe it quickly will become the gold standard benefit for the next crop of college graduates. “Getting help repaying student loan debt ...

Continue Reading
Graduation with many happy students

Attention 2015 college graduates: You just started a six-month grace period. Most of you, anyway.

There are approximately 2.8 million college graduates this year and 75 percent of them – 2.1 million people – borrowed an average of $35,000 to pay for that diploma. That is the highest debt load ever and takes some of shine off the celebration, which ...

Continue Reading
student loan application

FAFSA Deadlines Hamper Access To $150 Billion In Student Aid

If you have a college-age child in the house, this will be your reminder that now is not just “tax season”, it’s also “FAFSA season.” The two are very much related. Everyone knows what tax season is about – pay the IRS! – but the FAFSA ...

Continue Reading
college student with debit card

Worries About Student Debit Cards Similar To Credit Card Issues

The crisis over credit card use by college students appears to be under control, but another problem with plastic is causing concern. This time it’s debit and prepaid cards and once again, colleges and universities are being criticized for helping ...

Continue Reading
Get Help Now

Overwhelmed with debt? You have options for lower monthly payments!