What Is Student Debt?

Student debt is money owed on a loan that was 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 loan debt was 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.

Understanding 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.