# Trends in Student Loans

The soaring cost of college is slowing slightly in 2017, but the amount of student loans needed to cover it, is not. The price of tuition at four-year, in-state universities went up 2.4 percent, the smallest gain since 1975. Borrowing from federal loan sources for the first quarter of 2017 was $136.3 billion, about 3% less than students from the 2016 year borrowed. Per student borrowing was at $5,460 in 2016. The National Center for Education Statistics says that 59.1% of undergraduate students received Scholarships and grants (free money!) to attend college.

That is a positive trend. Sadly, it is dwarfed by negative trends over the last 10 years.

Student loan debt has soared from $260 billion in 2004 to $1.4 trillion in 2017; average debt jumped from $18,650 to $38,000 over that same period; and the number of people over 60 with student loan debt has quadrupled in the last decade from 700,000 to 2.8 million. That group’s share of the debt has skyrocketed from $8 billion to $67 billion and many are having loan payments deducted from their Social Security checks.

**Average Monthly Payment for Student Loans**

The average student loan debt for 2016 college graduates who borrowed to get through school was $37,172.

If a 2016 graduate took the standard repayment plan for the $37,172 borrowed – 10 years, at 4.29% interest rate – they would be paying $382 a month for the next decade. Experts estimate that you will need a starting salary of $47,000 to afford to pay off the loan if you remain single. If you marry, that number goes up to $52,000.

In all, you will pay $8,607 in interest and a total of $45,779 for the privilege of earning a college degree.

If $382 a month is too much and you decide to use one of the alternative repayment programs like Income-Based Repayment or Pay As You Earn to stretch payments out over 20 years, the monthly payment drops to $231. Unfortunately, that means that the interest you pay jumps from 122% to $18,262 and your total payback leaps to $55,434.

Those numbers go up or down based on how much you actually have to borrow to get through college, but with more than 30% of graduates leaving school with more than $30,000 in debt, it’s worth figuring out whether borrowing is the right direction to pay for college.

If $382 a month for 10 years just to get a college degree sends shivers down your spine, it might be time to reconsider how you want to pay for that diploma. If you’re a doctor, dentist or lawyer, your student loan payments may be significantly higher. However, you have the most to gain by refinancing your dental school debt, medical school loans or law school student debt.

**Student Loan Interest Rates**

Interest rates are best defined as the cost of borrowing money and should be regarded as a significant factor in whether someone can afford to take out a student loan to attend college.

Interest rates are calculated as a percentage of the unpaid principal on a loan. The total cost varies, depending on the interest rate charged and type of loan.

All federal loans made after June 30, 2006 carry a fixed interest rate. The rates are set by Congress and during the 2017-2018 academic year, range from 3.76 for undergraduates to 6.31 for graduate students and parents using Direct Plus loans.

It is important to understand when the interest rate is applied to your federal student loan. Students with subsidized loans do not have to pay interest until six months after graduation. They also don’t pay interest during deferment periods. Students with unsubsidized loans start paying interest as soon as the money is dispensed to them.

There are loan fees associated with student loans. For 2017, the fees are 1.068% for undergraduate and graduate loans; and 4.272% for Direct PLUS loans.

Direct Loans are “simple daily interest” loans. This means that interest accrues daily. The amount of interest that accrues per day is calculated by dividing the interest rate on your loan (as a decimal) by the number of days in a year, and then multiplying that by the outstanding principal balance.

For example, on a $10,000 Direct Unsubsidized Loan with a 3.76% interest rate, the amount of interest that accrues per day is $1.03:

(0.0376 / 365) * $10,000 = $1.03

If you are in a deferment or forbearance for 6 months, the loan will accrue interest totaling $186.

If you don’t pay the interest, it is capitalized (added to the outstanding principal balance). You will be charged interest on the increased outstanding principal balance of $10,186. The amount of interest that accrues per day will increase to $1.04:

(0.0376 / 365) * $10,103 = $1.93

Under most repayment plans, this capitalized interest will increase your monthly payment and the total amount you pay over the life of the loan.