Student Debt

DEFINITION of 'Student Debt'

Money owed on a loan taken out to pay for educational expenses. Rapidly rising college tuition costs have made student debt the only option to pay for college for many students. In the United States, most federal student debt is serviced by Sallie Mae, a publicly traded company.

BREAKING DOWN 'Student Debt'

The upside of student debt is that by borrowing money to obtain a degree, it may be possible to earn significantly more or to pursue a more personally fulfilling career, making the debt financially or emotionally worthwhile. The downside of student debt is that some students incur debt but don’t actually graduate, and some students take on more debt than they can comfortably pay back given their career choice. Another downside of student debt is that most people incur it at a young age, before they may fully understand the implications of their decision. In addition, student debt differs from other types of debt in that it typically cannot be discharged in bankruptcy except in cases of undue hardship.

Working while in school, obtaining scholarships and going to a public, in-state university can minimize the need for students to take on debt to finance their education. Graduates who work in public service professions for a specified number of years and who make a minimum number of debt payments may be eligible to have some or all of their student debt forgiven if the debt is in the form of a direct student loan from the federal government. Graduates with federal student loan debt who qualify for special repayment plans, such as income-based repayment, may also have the balance of their student debt forgiven after making payments for 20 to 25 years, depending on the program.

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RELATED FAQS
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    Take a risk investing student loans and encounter a legal and moral gray area as well as possible financial challenges along ... Read Answer >>
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  3. What special powers does the government have to collect student loans?

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