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Student Debt

What Is 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 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.

Key Takeaways

  • The price of higher education has skyrocketed in recent years, and it has become increasingly difficult to pay for without incurring debt.
  • Many students incur debt before they truly understand the ramifications of paying it back.
  • Debt can cover more than just tuition. It often pays for textbooks, miscellaneous fees, and room and board.
  • Debt can be worth taking on if it means a higher earning potential or satisfaction in your career. 

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.

Federal Loan Forgiveness

Student loan forgiveness programs only apply to certain types of debt, mainly federally held loans. Loans made by private lenders are not eligible for government-sponsored forgiveness.

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.

According to The 2022 Investopedia Financial Literacy Survey, 74% of millennials are seriously stressed about their financial circumstances. Borrowing and managing debt was the second-largest concern of surveyed millennials. Understandably, millennials are also especially eager to learn about how to reduce debt.

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 that have direct federal loans, work in public service professions for a specified number of years, and make a minimum number of debt payments may be eligible to have some or all of their student debt forgiven. 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. A collection agency may contact a student's employers about student loans.

Is All Student Debt Eligible for Forgiveness?

No. Only debt borrowed directly from the federal government is eligible for forgiveness. The Public Service Loan Forgiveness (PSLF) program offers forgiveness for those that work for federal, state, local, or tribal governments or not-for-profit organizations. After making 120 qualifying payments in an income-driven repayment program while working full-time in a qualifying position, the remainder of the debt will be forgiven. As part of the COVID-19 forbearance, payments that were made outside the established PSLF programs may count toward the 120 payments, including payments made before a loan was consolidated, payments on Direct, FFEL, or Perkins loans, or late payments, among other addendums. Explore the full extent of the waiver at

Can Student Debt Be Dissolved Through Bankruptcy?

In all but the rarest situations, no. Student debt stays with the student until the loans are repaid or forgiven, even in the case of bankruptcy.

Must Student Debt Be Repaid if the Student Doesn’t Graduate?

Yes, all student loans must be repaid, regardless of graduation status. For most federal student loans, repayment starts six months after the student leaves college or drops below half-time enrollment.

The Bottom Line

Student debt is often inevitable in today’s era of high-priced higher education. There are many funding sources for student debt, including state loans, private loans, and federal loans, but only federal loans qualify for income-based repayment plans or forgiveness. Incoming students will be at a greater advantage by lowering their debt through workstudy, working outside of school, or choosing a more affordable school, as paying down debt can take decades, derailing other financial goals.

Article Sources
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  1. "When Do I Have to Start Repaying My Federal Student Loans?"

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