DEFINITION of 'Student Debt'

Student debt is 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 were serviced by Sallie Mae, a publicly traded company, until its loan portfolio and loan services were spun off in 2014 to a new entity, Navient.

BREAKING DOWN 'Student Debt'

Student debt is typically incurred when a student uses loans to cover the portion of tuition that has not otherwise been paid for through their own assets, grants, loans taken out by parents or guardians, or by scholarships. While it is possible for students to save money to put towards the cost of higher education, the escalating price of that education at many institutions increasingly narrows the plausibility of covering such costs without some form of financial assistance. Especially for advanced degrees, student debt can escalate rapidly with the compounded price of curriculum, textbooks, and other associated costs ever on the rise. While there is an expectation that students will pursue careers and jobs that will offer them the means to repay student over time, there are no guarantees they will immediately find such employment after graduation.

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.

How Student Debt is Paid Off

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.

  1. Student Loan Forgiveness

    Under certain circumstances, federally backed student loans — ...
  2. Student Visa

    A special endorsement that is added to a passport that governments ...
  3. Education Loan

    An education loan is money borrowed to finance education or school ...
  4. Stafford Loan

    A Stafford loan is a type of federal, fixed-rate student loan ...
  5. Award Letter

    Documentation sent from a college or university to the student ...
  6. CSS/Financial Aid PROFILE®

    Besides the FAFSA, you may need this online form to apply for ...
Related Articles
  1. Managing Wealth

    Student Loan Debt: Which States & Schools Cost Most/Least

    Student loan debt affects 43 million Americans. A new report from LendEDU breaks down the most significant borrower trends by state and school.
  2. Personal Finance

    Is Student Loan Debt The Next Financial Crisis?

    The student loan system is in desperate need of reform, as more and more graduates struggle to find work and pay off their student loans.
  3. Personal Finance

    10 Ways Student Debt Can Destroy Your Life

    If you're getting a student loan, think critically about how you will manage your loan. Student debt could have a profound negative impact on your life.
  4. Personal Finance

    Student Loan Debt: The Baby Elephant in the Room

    Rising student debt, default rates and an increasing demand for college grads add to economic woes.
  5. Managing Wealth

    College Students are Failing Financial Literacy

    Financial trends among college students are a cause for concern, prompting a renewed emphasis on financial literacy.
  6. Personal Finance

    Managing Student Loans: 3 Things to Consider

    You can better manage the burden of student loan debt by following these three steps.
  7. Managing Wealth

    How Paying for Higher Education Has Become Riskier

    Think student loan balances are a big issue? Here are several more things that are conspiring to make paying for a higher education harder and riskier.
  8. Personal Finance

    Facts You Didn't Know About Private Student Loans

    Take a close look at the characteristics of private student loans before deciding it's the best path to take.
  9. Personal Finance

    Don’t Fail Student Loan Debt 101

    Don't be a statistic! According to a recent study, six in 10 Millennials don’t know what they owe or what to do with student loans after they graduate.
  10. Personal Finance

    5 Worst Money Mistakes You Can Make In College

    Watch out for these costly mistakes while in school.
  1. Can student loans be used to pay rent?

    In most cases, loans can be used for housing costs, but students should still plan to have some cash on hand. Read Answer >>
Trading Center