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Student debt is money that students or parents borrow from banks or the federal government to pay for higher education. They use this amount to pay tuition fees, boarding, room rent, books, and other living expenses. So student debt is a total amount that is outstanding on students, dropouts, and graduates from their loans.

The federal government has the largest share of the student debt market. Before 2010, the government used to lend money to graduates by subsidizing loans from different banks. However, in 2010, the Education Department became the sole student lender by removing all middlemen.

In this detailed guide, we will talk about types of student loans and what happens if students are unable to pay the loan back. Further, you will learn how to reduce student loans debt and much more. Let’s begin…

Student Loan Debt Statistics 2021

Almost one-third of students in the USA borrow loans to continue their higher studies. The average amount of student loan debt is around $38,792 in 2021. According to the Federal Reserve Bank of New York, all students owe almost $1.6 trillion.

The debt amount has been dramatically increased for the last few years. For instance, the total amount of student loans debt was $1.06 trillion in 2014. However, it has been reached $1.6 trillion just within 5 to six years. That’s why obtaining a degree requires a much bigger financial sacrifice now as compared to the previous years.

According to the College Board, the average cost of obtaining a four-year degree in a public institution has been tripled over the past three decades. It is not sustainable for many students to pay bills through savings and investments. That’s why many students rely on loans to continue their education in America. As a result, the average student loan debt is growing dramatically.

Why Is Student Debt Increasing So Much?

As we have already mentioned that the total amount of debt has more than tripled in the past few years. There are plenty of reasons behind this increment as follows:

  • More students are enrolling themselves for higher studies than they used to. That’s why more students take more loans, resulting in higher debt.

  • Tuition prices are going up faster than inflation in public universities. Because many states are subsidizing public institutions less so students have to pay more.

In 2004, almost 23 million students were taking loans and their average balance was around $15,651. However, by 2021, more than 75% of students have been increased and their average balance has reached $38,792.

According to the Saving for College, the overall student loans debt could reach $2 trillion by 2024. And, the debt would be around $3 trillion by 2038.

Different Types of Student Debts

We can categorize students' debts into two types: federal and private loans. The Education Department of the USA issues federal loans. The Education Department lend the students directly, so federal loans are also referred to as direct loan. Contrary to this, students take private loans from banks.

The vast majority of students go with federal government loans. Because it offers a bit more protection than private loans. Further, federal loans have more flexible repayment options as well as the possibility of student debt forgiveness. Below is another way to categorize student debts:

  • Direct Subsidized Debt for Undergraduates: Students can get these loans based on their financial needs. If the borrower is enrolled in college, these loans don’t accumulate interest.

  • Direct Unsubsidized Debt for Undergraduates: Regardless of financial needs, students can avail of this loan. However, the interest would accumulate if borrowers are enrolled in the college. This loan can be more expensive in the long run.

  • Direct Unsubsidized Loans for Graduate Students: This deal is almost similar to undergraduates, but graduates have to pay higher interest rates as compared to undergraduates.

  • Direct PLUS Loans: Parents of undergraduate students and graduate students can borrow this loan up to the cost of attendance and living expenses. Its interest rate is higher than the previous types of loans

  • Perkins Loans: These loans are available for undergraduates and they can get them based on their financial needs. These loans are administered by colleges. However, interest rates won’t accumulate when borrowers are enrolled in school.

Student Loan Forgiveness Programs

Student Debt Forgiveness or cancellation of debt is nearly the same thing. Cancellation or forgiveness of loans means that students are no more required to repay some or all of their debt.

The US government will cancel or forgive some or the entire debt of a student under several particular circumstances. For instance, teachers that are teaching full-time in low-income schools for five consecutive years may be eligible for forgiveness.

Similarly, the US Department of Education may forgive or cancel student loan debt who have a total and permanent disability. The Federal Student Aid Office states that students who think they may qualify for loan cancellation or forgiveness should contact the servicer for their loan.

Remember there are different Debt Relief companies in the USA that are helping students with student debt forgiveness. Such companies have rich experience in canceling student loan debt. You should contact them if you are unable to pay your debt.

How to Cancel Student Loan Debt?

If students get a federal Perkins loan, they can cancel it 100% by working in a public service job for five years. The debt discharges gradually each year when the borrower will be doing a public service job. For instance, if Perkin loans borrowers teach different qualifying subjects like science, math, and foreign language in a school for five years, their entire debt will be canceled.

How to Pay Off Credit Card Debt Faster?

Getting out of debt for students can be very challenging due to their lots of expenses but little income. However, different ways help them to bring their debt down quickly. For instance, paying the largest amount in a single go can reduce debt significantly.

Similarly, negotiating with a credit card insurer to lower the interest rate is another possible option to trim your debt. Below are some steps that help you to pay off credit card debt faster:

1. Reduce Your Spending

The first and foremost step is to curb your spending that you spend for nothing. You may have noticed that you spend amount here and there on useless things. If you save this amount, you can end up with huge savings. Therefore, trim your amount from your daily spending and apply that to your monthly credit card payments.

2. Do a Part-Time Job

Reducing your expenses and increasing your income is the best way to pay off credit card debt. Therefore, you should try to find a part-time job to produce additional income. This job must help pay off debts.

3. Always Pay More than the Minimum

Paying the minimum amount is helpful for a good relationship between you and the credit card providers. However, it won’t help you to reduce your debt. To reduce your credit card debt, you must pay at least a bit extra amount monthly. Paying a huge amount more than the minimum amount will help you to pay off debt swiftly.

4. Target Smaller Balance First

The Snowball method can be very helpful for getting out of debt. According to this method, you should pay off the card with the smallest balance first if you have more than one credit card. Once paying the first card debt, you should move to the next card with the lowest balance. Clear your debt card by following the same sequence. This method will also keep you motivated.

5. Target the Highest Interest Rate Credit Card

Debt Avalanche is an alternative method to the snowball method. In this method, you start paying off the card with the highest interest rate. In this way, the interest rate will go down gradually. As a result, you will be able to pay off your credit card swiftly. After paying the one card, move to the next with the highest interest rate, and so on.

6. Never Pay Late

Paying your amount late can wreak havoc with your credit card score. How your score is calculated heavily depends on on-time or late payment. If you pay late, it will badly impact your credit score. As a result, you won’t be able to pay off your debt easily.

7. Be Patient

Everything takes time so be patient if you are making fast enough progress. If you have made your mind about paying off your debt, you will be succeeded in that. Remember slow and steady always win the race.

Wrapping Up

Most students hope to earn a degree using the debt they got from the government or banks. They think that degree will increase their earning power and then they will be able to pay off the debt. Still, paying such a huge amount can be very difficult for them. Therefore, students should apply for a student debt forgiveness or cancellation program.

Plus, they should try to pay off their debt by reducing their expenses and increasing their income. They should start a part-time job to raise their income. It will for sure help them to pay off their debt.