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The Not So Scary Truth About Student Loans…

Today’s guest article comes from Craig P. Anderson.

It is hard to avoid negative stories today about student loans. Interest rates doubling! One trillion dollars worth of debt! Students with six figure loan debts can’t make payments! While these all make great headlines, the larger truth is that, used wisely, student loans can be a valuable part of your plan for paying for college.

In this post I’d like to look deeper into three “fear factor” statistics that are the focus of many media articles: Average Student Loan Debt, Total Student Loan Debt and Delinquent Student Loan Payments.

Average Student Loan Debt

Average student loan debt is around $26,000 for students graduating with a Bachelors degree. While averages are often helpful in gaining perspective, for student loans it distorts your perspective. In this case, the average is skewed higher by the small number of students with significant levels of debt. In this case, using the median student loan debt is far more instructive.  What that shows you is that most students at traditional schools have a manageable debt load of $7,960 for 4 year public schools and $17,040 at 4 year private institutions. Those are far less scary and far more manageable numbers.  This equates to a $92 monthly payment for the 4 year public graduate and a $197 monthly payment for the 4 year private graduate. Those numbers are far less intimidating than the $300 monthly payment the average would lead you to believe.

To make this point even more clear look at the chart below from a recent New York Fed Treasury Report. This shows that almost 70% of borrowers owe less than the national average of $26,000 and most of those students owe less than $10,000. Only 12.7% of borrowers fall into the horror story category we hear so much about, representing debt levels of $50,000 or more.  So yes, there are students who have borrowed far too many student loans, but most students are making wise decisions.

Student Loan Balance Distribution Q4 2012

Total Student Loan Debt

Ever since the Consumer Financial Protection Bureau confirmed that total student loan debt exceeded $1 trillion dollars we have heard more about a student loan “bubble”. But let’s dig deeper into that number. The chart below from the College Board’s “Trends in Student Aid Report” shows a 95% increase in the number of borrowers from 5.4 million in 2001-02 to 10.4 million in 2011-2012. But during that same timeframe, the average amount borrowed has only increased 8% from $7,627 to $8,230. So students are not necessarily borrowing more, there are simply far more students borrowing for college. So while $1 trillion dollars is certainly a large number, it is the logical outcome of growing college enrollment financed by a loan with a minimum 10 year repayment period.

Average amount borrowed and total borrowers

Delinquent Student Loan Payments

Of the three items discussed, this is the one that should concern you the most. What the chart shows is that more students than ever are delinquent on their student loan payments. For borrowers in repayment, 31.1% were delinquent in 2012, up from 24.5% in 2008 and 20.1% in 2004.

Student Loan Borrowers 90 Days Delinquent


This problem is reflective of our current economic environment. Recent college graduates have experienced high rates of unemployment as a result of the recession. But, there is good news; those rates have begun to fall. According to the  National Association of Colleges and Employers: “ In September 2012, the unemployment rate for new college graduates—defined as college graduates ages 20 to 24—fell to 6.3 percent from 8.3 percent in September 2011 and 9.4 percent in September 2010.” As employment rates rise, college graduates will be in a better position to make their student loan payments. Additionally, for graduates who have problems making student loan payments, there are a variety of repayment programs that help reduce the size of a student’s federal loan payments. While the Department of Education does not provide usage statistics, it is generally assumed these programs are underutilized. You can find more information here.

Students should not be afraid to go to college simply because of a fear of student loan debt. As I have shown, most students are not overburdened by debt and the increase in total debt has been driven by more students going to college as much as anything else. The most legitimate fear is having an inability to make student loan payments. Students can manage this by being conservative in their borrowing and leveraging repayment options offered by the Department of Education. A reasonable amount of student loan debt can be part of any college financing strategy.

About the Author:

Today’s guest article comes from Craig P Anderson, who has been working in the Higher Education Finance Industry for over 20 years. He is a Student Loan Expert and has worked for a variety of student loan providers including Chase and Sallie Mae. He also worked in the Financial Aid Offices of the University of Florida and St. Petersburg College and has served on several industry boards. You can read more from him at or follow him on Twitter @CraigPAnderson .

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5 Responses to “The Not So Scary Truth About Student Loans…”

  1. This is totally true. So many people are afraid of student loans, but if you are prepared it is not as daunting as you think. Thanks for sharing!

  2. Patrick says:

    Thanks Craig. Well done. The politicians need to stop the fear mongering and the media should educate themselves on the issue. But then, I would be happy if they would simply figure out that Stafford Loans have been eliminated in favor of the Federal Direct Student Loan program…

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