How long does it take to pay off your student debt?

The repayment plan for US federal student loans makes its calculations based on the expectation that people will pay off the debt within a decade of graduation. Thanks to the higher earning potential of a college degree from a good school, many graduates are debt-free within ten years. However, there are programs in place for those who need longer to pay. The income-driven repayment plan allows borrowers to pay over 20 years instead. Payments are based on your income and expenditure costs, such as looking after a young family. The payments range from between 10%-20% of your monthly discretionary income. In some cases, they can be reduced to zero until your earnings increase. 

Is student debt a bad thing?

“The debt-free mentality is largely the product of emotion,” writes US wealth planner Phil Cook. "Good debt gives you some leverage that helps you increase your net worth long-term." In other words, debt isn't necessarily a bad thing. Responsible credit systems are big drivers of economic growth and opportunity, especially for young people from less economically-privileged backgrounds. If it wasn't for student loan financing, only a select few could afford a university education. That's why many young people see student debt as an investment in themselves that will pay off in the future. 

They're not wrong. According to the latest data, graduates earn around $32,000 more per year than those with only a high-school diploma. A study by the Georgetown University Center on Education and the Workforce calculated the potential returns on investing in a student loan.  Over the course of professional life, you could earn $2 million more than the amount of debt taken out to finance your education. The figure is even higher for people with postgraduate degrees, such as PhDs, and MBAs. 

Those with a college degree are also more insulated from the shocks of an economic crisis. After the 2008 credit crunch, the unemployment rate for young workers in the US peaked at 15.8%. That figure was only 6.9% among recent college graduates. We'll likely see something similar as we emerge from the current downturn caused by COVID-19. Lockdowns have created an increased demand for digital services that highly-skilled college-educated employees, particularly coders, engineers, and software developers, are typically well trained for.

Being in debt during a global pandemic

COVID-19 hit the global economy hard -- and caused an increase in student debt. None of this makes for good reading, but help is already here. Many private lenders offered a three-month payment forbearance, with some going further by deferring interest. Moreover, the latest COVID-19 economic relief package stated the Internal Revenue Service (IRS) would not collect income tax on student loan forgiven balances canceled between 2021 and 2026. Student loan forgiveness is available for graduates who become totally or permanently disabled or work full-time for qualifying public or nonprofit employers. According to a rough estimate by higher education expert Mark Kantrowitz, this could save some graduates up to $10,000.

Asking for help

If you do fall behind on your payments, ask for help as soon as possible. Burying your head in the sand is the worst possible approach to dealing with any outstanding debt. Scott Buchanan, executive director of the Student Loan Servicing Alliance, says, "Call your loan servicer to explore your options. Be prepared to discuss your financial situation. Tell then what's changed about your situation, what's short term, and what may be long term." If you need short-term assistance,  the loan provider may suspend or reduce your payment for an agreed-upon period. This can be between three months and an entire year. Remember interest on your loan will continue to accrue during any payment breaks. 

You can find more information on managing payment arrears at sites such as StudentLoanSherpa.com. It's a free, online resource with a helpful FAQ section and detailed guides on student forgiveness programs, refinancing, debt consolidation, and saving plans that help prepare for the future while paying off existing debt. There's also a regularly updated blog by student loan expert and licensed attorney Michael Lux, whose writings on student debt management have appeared in US News & World Report, Forbes, and The Wall Street Journal. The Student Loan Sherpa includes information on contacting the Consumer Final Protection Bureau and the Department of Education. These organizations offer support to people who feel they've been unfairly treated by their loan providers.

Going debt free

Melanie Lockert paid off her $100,000 student debt in just nine years. She shared the experience in her 2016 book Dear Debt: A Story About Breaking Up With Debt. The first thing she did was write a "debt-freedom dream list," which included taking a dream vacation and buying a house in Los Angeles to be closer to her family. "I realized I had to stay focused so that I could have a better future," says Lockert. "Writing out your dream brings them into the world more. It makes them feel achievable.” Repayment begins when your student loan grace period ends, which is typically six months after your graduation date. That means you'll have plenty of time to set your own goals. 

Once her goals were set, it was time for Melanie to start paying down some debt. Although she was careful with money, Lockert didn't focus on cutting back her living costs. Instead, she looked at ways to boost her income. She took on odd jobs and side hustles, using freelance sites like TaskRabbit to find gigs. She sold water at raves, organized birthday parties, and did more than her fair share of pet-sitting. She also set-up a dedicated student debt saving account with her bank. She put small amounts away each week. Sometimes it was as little as $20. It doesn't sound like much, but by the end of the year, she had another $1,000 to contribute toward her repayment plan. 

Most importantly, Lockert rewarded herself whenever she passed a big milestone, like paying off another $5,000. The rewards were usually modest, such as a meal out with friends or a new pair of shoes, but they helped Melanie stay motivated. Plus, Melanie was never too hard on herself when things didn't go to plan, and realized appreciating the small things in life can make a massive difference to our personal well-being. "It's not worth burning yourself out over trying to get out of debt. We have to try to enjoy the journey. So take care of your mental health because nothing else in your life will work if it's not intact," writes Lockert. "If you start feeling anxious or stressed about debt, just pause, and say, 'I'm healthy, I'm safe, I have a roof over my head.' In today's world, that's rich."

Taking on any type of debt is a serious decision. However, as long as you choose the right course and have a clear career path after graduation, student financing is one of those "good debts" that can help build a better future.