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Student Loans

An education loan is a form of financial aid that must be repaid, with interest. (Scholarships, on the other hand, do not have to be repaid.)

Education loans come in three major categories: student loans (e.g., Stafford and Perkins loans), parent loans (e.g., PLUS loans) and private student loans (also called alternative student loans). A fourth type of education loan, the consolidation loan, allows the borrower to lump all of their loans into one loan for simplified payment. A recent innovation is peer-to-peer education loans. Federal education loans are available in either the Direct Loan or federally-guaranteed student loan programs. More than $100 billion in federal education loans and $10 billion in private student loans are originated each year.

Federal law sets the maximum interest rates and fees that lenders may charge for federally-guaranteed loans. Nothing prevents a lender from charging lower fees. Many lenders offer a variety of student loan discounts to attract borrowers.

Few students can afford to pay for college without some form of education financing. Two-thirds (65.6%) of 4-year undergraduate students graduated with a Bachelor's degree and some debt in 2007-08, and the average student loan debt among graduating seniors was $23,186 (excluding PLUS Loans but including Stafford, Perkins, state, college and private loans). Among graduating 4-year undergraduate students who applied for federal student aid, 86.3% borrowed to pay for their education and the average cumulative debt was $24,651. (For just federal student loan debt, excluding PLUS Loans, the figures are 61.6% and $17,878.) Average cumulative debt increased by 5.6% or $1,139 a year since 2003-04. When one includes PLUS loans in the total, 66.0% of 4-year undergraduate students graduated with some debt in 2007-08, and the average cumulative debt incurred was $27,803. (About two in fifteen (13.5%) of parents borrow PLUS loans for their children's college education, with a cumulative PLUS loan debt of $23,298.)

These figures were calculated using the data analysis system for the 2007-2008 National Postsecondary Student Aid Study (NPSAS) conducted by the National Center for Education Statistics at the US Department of Education. (For comparison, cumulative education debt statistics from the 2003-2004 NPSAS are also available.) The 2007-2008 NPSAS surveyed 114,000 undergraduate students and 14,000 graduate and professional students. These statistics are not necessarily available from published NPSAS reports.

The median cumulative debt among graduating Bachelor's degree recipients at 4-year undergraduate schools was $19,999 in 2007-08. One quarter borrowed $30,526 or more, and one tenth borrowed $44,668 or more. 9.5% of undergraduate students and 14.6% of undergraduate student borrowers graduating with a Bachelor's degree graduated with $40,000 or more in cumulative debt in 2007-08. This compares with 6.4% and 10.0%, respectively, for Bachelor's degree recipients graduating with $40,000 or more (2008 dollars) in cumulative debt in 2003-04.

The following table shows the percentage of students borrowing and average cumulative debt per borrower (excluding Parent PLUS Loans) at graduation according to type of educational institution but not restricted by degree program.

Undergraduate Education Debt
(Excluding Parent PLUS Loans)

Institution Level & Control Percent Borrowing Cumulative Debt

Overall Total (4, 2 and < 2 year) 58.8% $18,625

   Public 49.4% $16,369

   Private Non-Profit 69.7% $26,683

   Private For-Profit 93.1% $17,162

4-year Total 66.5% $22,656

   4-year Public 61.1% $19,839

   4-year Private Non-Profit 70.6% $27,349

   4-year Private For-Profit 97.0% $24,635

2-year Total 44.8% $12,307

   2-year Public 37.2% $10,444

   2-year Private Non-Profit 64.0% $14,790

   2-year Private For-Profit 97.6% $17,310

< 2-year Total 74.7% $10,172

   < 2-year Public 36.1% $10,321

   < 2-year Private Non-Profit 45.0% $10,990

   < 2-year Private For-Profit 86.0% $10,123

As noted in Default Rates by Institution Level vs. Degree Program, however, institution level (4-year, 2-year and less-than-2-year) does not correlate well with degree program, especially at for-profit colleges. The following table shows cumulative debt at graduation by institution control and undergraduate degree program. Notice how the average debt for Bachelor's degree recipients is much higher at for-profit colleges than the average debt at graduation at 4-year for-profit colleges. More than two-fifths of degrees at 4-year for-profit colleges are Associate's degrees, compared with less than 5% at non-profit and public 4-year colleges, yielding a lower average debt at graduation when measured by institution level as opposed to degree program.

Undergraduate Education Debt

Institution Control and
Degree Program Percent
Borrowing Average
Cumulative
Debt Median
Cumulative
Debt
(Just Borrowers) Median
Cumulative
Debt
(All Students)

Bachelor's Degree 65.2% $23,118 $19,999 $10,500

   Public 61.2% $20,040 $17,500 $6,998

   Private Non-Profit 70.5% $27,535 $22,374 $16,115

   Private For-Profit 96.0% $32,909 $32,625 $31,186

Associate's Degree 47.1% $13,289 $10,000 $0

   Public 38.9% $10,574 $7,668 $0

   Private Non-Profit 71.1% $19,294 $16,130 $10,000

   Private For-Profit 97.8% $19,681 $18,783 $18,415

Certificate 63.2% $11,302 $9,000 $4,804

   Public 32.0% $9,754 $6,625 $0

   Private Non-Profit 49.5% $15,071 $10,000 $0

   Private For-Profit 89.9% $11,573 $9,858 $8,797

The following table shows the percentage of students borrowing and average cumulative debt per borrower (including Parent PLUS Loans) at graduation according to type of educational institution but not restricted by degree program. (The NPSAS includes separate variables for cumulative student education debt and cumulative parent education debt, but not a combined overall education debt variable. Calculating a combined value requires disaggregating the student and parent education debt data by the cross product of students graduating with and without student and parent education debt, then recombining the results. This process adds a slight amount of error to the figures.)

Undergraduate Education Debt
(Including Parent PLUS Loans)

Institution Level & Control Percent Borrowing Cumulative Debt

Overall Total (4, 2 and < 2 year) 59.0% $21,894

   Public 49.6% $18,927

   Private Non-Profit 70.0% $33,330

   Private For-Profit 93.2% $19,157

4-year Total 66.8% $27,041

   4-year Public 61.5% $23,227

   4-year Private Non-Profit 70.9% $34,212

   4-year Private For-Profit 97.0% $27,510

2-year Total 44.8% $13,703

   2-year Public 37.3% $11,560

   2-year Private Non-Profit 64.1% $17,157

   2-year Private For-Profit 97.6% $19,402

< 2-year Total 74.8% $11,161

   < 2-year Public 36.1% $10,877

   < 2-year Private Non-Profit 45.0% $10,990

   < 2-year Private For-Profit 86.2% $11,203

Bachelor's Degree 65.6% $27,708

   Public 61.6% $23,494

   Private Non-Profit 70.8% $34,572

   Private For-Profit 96.0% $35,753

Associate's Degree 47.1% $14,907

   Public 38.9% $11,640

   Private Non-Profit 71.2% $21,406

   Private For-Profit 97.8% $22,738

Certificate 63.2% $12,524

   Public 32.0% $10,833

   Private Non-Profit 44.0% $11,772

   Private For-Profit 90.0% $12,712

Graduate and professional students borrow even more, with the additional cumulative debt for a graduate degree typically ranging from $30,000 to $120,000. The median additional debt is $25,000 for a Master's degree, $52,000 for a doctoral degree and $79,836 for a professional degree. A quarter of graduate and professional students borrow more than $42,898 for a Master's degree, more than $75,712 for a doctoral degree and more than $118,500 for a professional degree. At the 90th percentile cumulative debt for graduate and professional degrees exceeds $59,869 for a Master's degree, $123,650 for a doctoral degree and $159,750 for a professional degree.

The following table shows the percentage borrowing and average amount of cumulative debt per borrower among graduating students according to degree program. It provides the amounts borrowed for just the graduate education and also the combined totals for undergraduate and graduate education. Undergraduate students who graduate with a Bachelor's degree and no debt are 1.7 times more likely to enroll in graduate and professional school than Bachelor's degree recipients who graduate with some debt.

All Students Graduate Education Debt All Education Debt
(Grad & Undergrad)

Graduate & Professional Degree Programs Percent Borrowing Cumulative Debt Percent Borrowing Cumulative Debt

Total 56.4% $40,297 69.6% $47,503

Master's Degree 55.2% $31,031 69.4% $40,208

Doctoral Degree 45.8% $57,860 56.3% $58,967

Professional Degree 86.2% $87,308 87.9% $98,711

Master of Business Administration (MBA) 55.5% $31,927 68.9% $41,676

Master of Social Work (MSW) 72.3% $35,516 77.7% $49,017

Master of Science (MS) 49.8% $30,684 63.5% $40,362

Master of Arts (MA) 60.8% $29,975 73.7% $40,500

Master of Education or Teaching 55.9% $26,487 74.5% $35,946

PhD 35.4% $44,995 48.0% $45,455

EdD 65.1% $43,812 73.3% $44,880

Law (LLB or JD) 88.6% $80,081 88.6% $92,937

Medicine or Osteopathic Medicine 81.9% $119,424 83.2% $127,272

Pharmacy (PharmD) 82.2% $63,412 85.0% $81,838

The following table shows the percentage of graduating students at graduate and professional institutions who applied for federal student aid and graduated with debt and the average cumulative debt at graduation according to degree program. This demonstrates that graduating with debt is unavoidable for students pursuing degrees in law, medicine or business who need to apply for federal student aid.

Submitted FAFSA Graduate Education Debt All Education Debt
(Grad & Undergrad)

Graduate & Professional Degree Programs Percent Borrowing Cumulative Debt Percent Borrowing Cumulative Debt

Total 94.3% $46,865 96.9% $62,285

Master's Degree 94.5% $34,741 97.7% $51,223

Doctoral Degree 82.8% $73,885 85.0% $85,366

Professional Degree 99.4% $92,575 99.9% $105,705

Master of Business Administration (MBA) 98.2% $34,691 98.9% $53,779

Master of Social Work (MSW) 91.9% $36,924 91.9% $54,020

Master of Science (MS) 95.2% $34,824 98.3% $52,102

Master of Arts (MA) 94.0% $34,357 97.4% $50,102

Master of Education or Teaching 92.6% $31,540 96.8% $49,286

PhD 67.5% $58,353 72.0% $69,754

EdD 94.5% $51,695 94.5% $61,121

Law (LLB or JD) 99.9% $82,601 99.9% $95,914

Medicine or Osteopathic Medicine 100.0% $126,152 100.0% $136,474

Pharmacy (PharmD) 100.0% $66,319 100.0% $88,648

Grants, scholarships, work-study and other forms of gift aid just do not cover the full cost of a college education. Many students find that they must supplement their savings with government and private loans. The Federal education loan programs offer lower interest rates and more flexible repayment plans than most consumer loans, making them an attractive way to finance your education. You can also deduct up to $2,500 in student loan interest even if you don't itemize deductions on your income tax return.

The interest rate on the Stafford Loan for new loans first disbursed on or after July 1, 2006 is a fixed rate of 6.8%. The same rate applies to the in-school, grace and repayment periods. (A lower interest rate is available on subsidized Stafford loans for undergraduate students for loans first disbursed on or after July 1, 2008 through June 30, 2012. The rate in 2008-09 is 6.0%, then 5.6% in 2009-10, then 4.5% in 2010-11 and 3.4% in 2011-12 and returning to 6.8% for new loans in 2012-13 onward.) The interest rate on new PLUS Loans first disbursed after July 1, 2006 is a fixed rate of 8.5% in the FFEL program and 7.9% in the Direct Loan program.
The interest rates on existing variable rate Stafford and PLUS loans will continue to change annually on July 1, based on the last 91-day T-bill auction in May. Borrowers can lock in the current rate on their variable rate loans by consolidating them. Borrowers can compare the current and new rates between the end of May and the end of June to decide whether it is worthwhile to consolidate before or after the rate change.

Borrowers may be concerned by the possible impact of the subprime credit crisis on the cost and availability of federal and private student loans. Federal loans will remain available, although loan discounts will likely be reduced significantly. A higher minimum balance may be required to consolidate. Private student loans will likely have stricter eligibility restrictions, requiring a higher credit score or a cosigner. There may be increases in the interest rates and fees on private student loans. Lenders will encourage borrowers to make payments of interest while they are in school.

Many student loan providers offer low cost government and private loans with consistently high quality servicing and flexible repayment terms. FinAid maintains a list of education lenders, guarantee agencies, servicers and secondary markets who offer federal and private student loans, as well as advice on preferred lender lists and choosing a lender and tips on identifying the lenders that currently hold or service your loans.

Borrowers of federal student loans will be required to undergo entrance and exit counseling before receiving a loan and before graduation. This loan counseling is often provided through interactive web sites.

Loan forgiveness programs (in which the borrower's loans are paid off in exchange for volunteer work, public service or military service) offer an option for easy repayment. Loan Cancellation and Discharge Forms can be found on the US Department of Education web site.

Also, FinAid provides numerous calculators that can help you better understand your borrowing options. The loan calculators offer estimates of monthly loan payments, estimates of the amount of debt you can afford to repay, an analysis of the cost of capitalizing the interest and tools for comparing loan costs.

Use FinAid's Student Loan Checklist to keep track of your student loans.

Some students, because they do not have prior experience with debt and loan amortization, do not appreciate how much their loans will cost them. FinAid provides some tips concerning calculating the cost of interest.

If you are about to start repaying your student loans, or are already in repayment, the quick reference guide on repaying student loans provides four pages of information and advice about managing education debt. (A PowerPoint Presentation and handouts on repaying student loans are also available.)

Distribution of Debt at Graduation by College Type

This bar chart is based on an analysis of the distribution of undergraduate student loan borrowers by the amount of debt at graduation and college type. It eloquently shows the movement in the borrower distribution as the amount of debt at graduation changes. The chart is based on data from the 2007-08 National Postsecondary Student Aid Study. Click on the chart for a larger version. Related charts can be found in the student aid policy analysis paper Distribution of Debt at Graduation by Amount of Debt, College Type and Degree Program.

Note that the light blue color shows for-profit 4-year colleges, not non-profit 2-year colleges which uses a somewhat darker shade of blue. Non-profit 2-year and < 2-year and public < 2-year colleges are not very visible in the chart since the other types of colleges are more dominant.

Loan Volume Outstanding

Based on an analysis of the Presidents FY2011 budget, in FY2009 there were a total of $605.6 billion in federal education loans outstanding, comprised of $149.4 billion in the Direct Loan program and $456.2 billion in the FFEL program. The projected totals for FY2010 are $672.0 billion and for FY2011 are $745.5 billion.

A total of more than $1.17 trillion in federal education loans (including consolidation loans) have been made since the beginning of the loan programs. This includes more than $878 billion in FFEL program loans from 1965 to 2009 and more than $292 billion in Direct Loan program loans from 1994 to 2009. Thus more than half of all federal education loans ever made in the FFEL and Direct Loan programs are still outstanding.

The total defaulted loans outstanding are around $40 billion to $45 billion, when accrued but unpaid interest and late fees are included in addition to loan principal. Cumulative defaulted loans outstanding in the FFEL program as reported in the budget are $22.4 billion. It is not possible to calculate cumulative defaulted loans outstanding in the Direct Loan program, but the US Department of Education's FY2009 Annual Report indicates that of the $156.8 billion outstanding in the Direct Loan program as of September 30, 2009, $11.5 billion of loan principal was in default. These figures, however, are not entirely consistent with the monthly statistics and collections reports, which show $23.6 billion in defaulted loans in the FFEL program and $23.8 billion in defaulted loans in the Direct loan program, for an overall total of $47.4 billion. (The Direct Loan program has a higher default volume because more than a fifth of FFEL program collection activity is through consolidation of defaulted loans into the Direct Loan program.) The total defaulted loan inventory represents about 8.2% of federal loans outstanding and 4.2% of all federal loans ever made.

The estimated total private student loans outstanding as of June 30, 2009 are approximately $157.8 billion, based on an analytical model developed by Mark Kantrowitz.

Thus the overall total education loans outstanding, federal and private, was about $763.4 billion in 2009. The similar figure for June 2010 was about $833 billion. See the Student Loan Debt Clock for a continually-updating estimate of the total student loan debt outstanding.

Help with Loan Problems

If you are having difficulty repaying your education loans, see Solutions for Borrowers Who are Having Trouble Repaying Student Loans and Defaulting on Student Loans before you decide to skip a payment. These articles offer you several alternatives for repayment relief. (See also loan repayment protection for repayment assistance you can arrange for in advance when your loan is disbursed.)

If you are having a problem with your federal student loan, contact the FSA Ombudsman at the US Department of Education. The FSA Ombudsman is dedicated to helping students resolve disputes and other problems with federal student loans. The FSA Ombudsman will research your problem in an impartial and objective manner and will try to develop a fair solution. The FSA Ombudsman does not have the authority to impose a solution. Nevertheless, many students have found the FSA Ombudsman to be helpful in resolving disputes with lenders. You can contact the FSA Ombudsman by phone at 1-877-557-2575, by fax at 1-202-275-0549, by mail at U.S. Department of Education, FSA Ombudsman, 830 First Street, NE, Fourth Floor, Washington, DC 20202-5144, by visiting fsahelp.ed.gov or by email at fsaombudsmanoffice@ed.gov.

Another source of assistance is the Student Loan Borrower Assistance Project run by the National Consumer Law Center. Their web site includes a detailed loan FAQ, a step-by-step guide to resolving loan problems and a list of lender and guarantor ombudsmen. The National Consumer Law Center does not, however, provide legal advice about individual cases. The web site also includes a section devoted to policy and legal issues and analysis concerning education debt. They also publish Student Loan Law, a detailed legal guide to remedies for borrowers who are having trouble repaying their student loans.

The American Bar Association has launched SafeBorrowing.com to help the public understand the risks associated with student loans and other forms of consumer debt.