Keeping Student Loan Debt Manageable

By Richard Cox
Richard Cox
Richard Cox
July 18, 2014 Updated: April 23, 2016

In the last few years, we have seen a dramatic increase in the average loan debt that is faced by college students upon graduation. According to, the average student debt burden for US citizens is approaching $30,000. These estimates are based on information collected in 2012, but what might be most shocking about these numbers is the fact that this is an increase of nearly 10% from government data compiled in 2011. Many economist see a slowing jobs market as the most significant contributor to these rising trends. Rather than settling on a job that might include disappointing prospects for the future, many students have opted to simply stay in college longer, investing in advanced degrees that might produce better opportunities in the years ahead. A variety of student surveys now show that a strong majority believes it is better to stay in school and wait until the jobs market improves before settling on a new career.

But the reasons for increased student burdens to not stop there. Another important factor to consider is the trend in rising tuition costs. In the last five years, we have seen steep increases in the average yearly tuition bills paid at both public and private universities. These increases have come as average family incomes have declined, so it is hardly surprising to see the total debt burdens rise for student borrowers across the country. During the 2013-2014 school year, the average tuition increased by less than 3%, which is the smallest increase since 1975. But don’t let this seemingly small increase fool you. Between 2009 and 2012, average tuition costs rose by an average of 7.9%, so the 2013-2014 increase is coming at already elevated levels.

Roughly 70% of college seniors graduated with at least some student loan debt, and 20% of that debt was taken from private lenders. Private lenders tend to charge higher interest rates when compared to government-based alternatives like Sallie Mae. So it can be said that the total debt level is rising right along with the cost of funding that debt. These trends tend to most heavily impact students from lower-income families, as these households are not in a position to pay for the rising costs of higher education.

Troubles in the US Jobs Market

If we look at the headlines in most financial news outlets, most of the stories tend to display a positive picture for the US economy. Major stock market benchmarks like the S&P 500 and Dow Jones Industrials have posted gains into record territory. The jobs market has shown relatively consistent improvement, posting results far better than the initial estimates from analysts. This continued last month, as the government’s Non Farm Payrolls report showed a monthly increase of 203,000 jobs for the month of November. For the last three months, this means an average increase of more than 190,000 jobs, which is better than long term historical averages. Additionally, the unemployment rate has fallen to 7.0%, which is still better than analyst estimates and relatively close to the Federal Reserve’s target rate of 6.5%.

But whether or not these encouraging trends have helped recent college graduates in another story. The employment prospects for young workers that fall into this category are much more bleak. To be sure, the employment prospects for those with a college degree are still much better than they are for workers without college experience. In 2012, high school graduates (with no college experience) had an average unemployment rate of nearly 18%. For those with a college degree, the outlook was better at 7.7%. But no matter how we interpret these statistics, it is much more difficult for recent college grads to find work, when we compare this demographic to the larger workforce population. This is true, even though salaries are typically lower for this group.

For those that are not able to quickly find gainful employment, it is much more difficult to start repaying student loans. This forces younger borrowers to enter into deferment periods, where interest charges continue to accumulate, and there is little or no ability to begin repaying the principal balance. This creates a snowballing effect in debt levels for younger workers, making it more difficult to apply for lines of credit or make substantial purchases (in things like cars, homes, or large household items). This also means that the US economy is missing key contributions from a critical consumer sector, weighing on growth prospects for the country as a whole.

Of course, there are strategies for managing potential debt scenarios before they emerge. Not all colleges require the same tuition costs, so it is important to select a school that offers reasonable rates of tuition that are more in line with your ability to structure loans and repayment options. It is also true that not all colleges will offer the same packages for scholarships and grants. For this reason, it is critical for new college students to shop around (and apply to multiple schools) so that you can get a better idea of how much money you will need to invest in your college education.

Options for Student Loan Repayment

Once you have graduated, it is important to go through all of your options for repayment. Do not simply take your student loan bills at face value because there is a wide variety of repayment plans that should be used to cater your individual financial situation. According to, there are significant advantages to pre-paying your student loans and in setting up direct deposit payments for those loans. Most loans require penalties when a borrower decides to repay their loans in advance — but this is not true for student loan debts. Repaying your student loans ahead of schedule will allow you to avoid substantial interest rate charges down the line, significantly decreasing your overall repayment obligations.

In addition to this, many lenders offer a 0.25% discount for borrowers that pay their monthly loan bills through debt consolidation. This might seem like a relatively small discount, but it is important to remember that these are long-term debt obligations and that even a 0.25% discount can amount to hundreds or even thousands of dollars over the lifetime of your loan. The greatest benefits can be seen when borrowers use this savings to repay their loans ahead of schedule.

Since student loan debt cannot be discharged through bankruptcy, it is important to use all available options to reduce your debt burdens over the lifetime of your loan. Preemptive measures can be taken when you are selecting the school itself, but these strategies must continue well after you have graduated as well. When you opt to consolidate your debts, repay your loans ahead of schedule and use direct deposit to lower your interest rate, you are able to take better control of your long-term finances and avoid many of the problems that graduated typically face once they enter the jobs market. To be sure, the economic environment still holds many challenges for new graduates. For these reasons, it is important to explore all available options and select the programs that best suit your needs.

Richard Cox
Richard Cox