Along with fireworks, the flag, and a deep appreciation of cars, the college debt crisis is unfortunately about as American as apple pie. The average student borrower has about $34,000 in loans to pay off today. The student debt crisis isn’t going anywhere either.
As of March 2018, there were 44.5 million borrowers in the United States who owe over $1.3 trillion, according to the Federal Reserve . And that’s not even the scariest part. The US student loan debt is growing bigger every day as Americans are paying more on average than they did a decade ago for school.
In 2016, an average college student with a bachelor’s degree graduated with $28,446 in debt . Students entering college now could end up paying even more by the time they graduate.
Will the Growth of Student Loan Debt Slow Down?
Answer: probably not. In the past 10 years, US student loan debt grew to be worth more than car loans or credit card debt. It is the second-largest source of household debt and the only kind of personal debt that grew in the wake of the Great Recession.
As US student loan debt continues to grow, experts are saying this could be a student debt bubble, as the growth of debt looks eerily similar to the housing bubble of 2008 .
Similarly to how the housing market collapsed in 2008, many worry that as student debt increases and grows larger than what a borrower could reasonably repay, there will be an increase in defaults.
A new study found that using default rates from 1996, nearly 40% of 2004 borrowers may
default on their loans by 2023 . What does that mean for 2014 borrowers, who have taken out even bigger loans than there 2004 cohorts?
How U.S. Student Loan Debt Grew So Big
Although many in the media like to bemoan the increase of people attending colleges who are not qualified, the student debt bubble has little to do with more students enrolling in university. Only one-quarter of the aggregate increase in student loans since 1989 is attributed to students attending in college.
There are a few surprising factors that are causing the unruly rise of the college debt crisis. For one, education costs are continuing to rise – and not in line with the rest of the market. The headline consumer price index between 2016 and 2017 was 2.7%, while tuitions rose by 9% at state universities and 13% at private colleges . If the cost of higher ed continues to rise more than the cost of living, borrowers will continue to feel the pain.
In addition to rising college costs, experts say the monumental amount of debt is linked very directly to the collapse of the housing market. When the housing market crashed in 2008, parents who could borrow against the value of their homes were no longer able to do so, forcing more students to take out debt in their own names.
One economist estimated that a $1 drop in home equity loans due to a plummeting house prices leads to 40 to 60 more cents in student loans.
While it helps to know you are in good company, news of the student debt bubble might have you kvetching. The only thing worse than owing thousands of dollars of money to Uncle Sam is hearing that the millions of others in the same boat might end up tanking the US economy.
Can Refinancing Help with Student Debt?
But don’t run for the hills just yet. If you’re worried about the student debt crisis, you might want to consider refinancing. By refinancing student loans, you can consolidate existing private and federal loans into one new student loan with a lower interest rate. Not only does this mean you’ll only have one payment to worry about, it means you could pay less overall.
According to the Department of Education , interest rates on student loans can range from 3.5% to 8.5%, with most in the 5% to 7% range. Not only is that extremely high – consider the typical auto loan or mortgage rate – but if your interest rates are punishing, it only means you’ll remain in debt longer.
With borrowers paying off around four student loans on average, refinancing would also mean less paperwork each month. Between 2011 and 2016, online lenders have refinanced around $6 billion in student loans . Consolidating loans is a great way to make payments more manageable depending on what kinds of debt you have.
Researching Refinancing Options
There are a wide range of student loan refinancing options available. But it’s important to do your homework as the student debt crisis grows larger, because there are many predatory companies that might take advantage of your financial situation.
A study found that when plagued by anxiety over debt, borrowers were more likely to fall for a scam. With the US student loan debt exponentially rising, this has led to an increase in bad actors. Some estimate that there are over 130 companies that run student loan scams, which could result in even more debt in your lifetime.
But that doesn’t mean refinancing isn’t right for you. Not only could it mean consolidating all your payments into one monthly bill, but you could qualify for a lower interest rate which over your lifetime could spell big savings. It also means you’ll become debt-free sooner. Can you say score?
Although there are ways to consolidate federal loans with the government, refinancing involves a private lender. All of your student loans – both federal and private – are consolidated through refinancing. A private lender typically offers a lower interest rate, depending on a number of factors like your credit score, your payment history, and how much you still owe. This lets you pay your loans off at a more competitive rate, which can translate into thousands of dollars in savings.
When refinancing, it’s also possible to change the term length of your loan. If you’re feeling tight on cash with big monthly payouts, consider a longer term. If you’d rather get rid of your student debt as soon as possible, opt for a shorter term with larger payments.
Use a student loan calculator to see how much you can gain from refinancing. All you need to know is how much you owe and what your interest rates are across both federal and private loans. At SoFi, you can request a quote without actually committing to refinancing, which makes it easier to decide on next steps.
Refinancing with SoFi can help ensure your loans are consolidated and managed properly. Similarly to how using a Certified Public Account to file taxes can save you bundles of moolah, using a reputable lender can help you save money on your student debt. SoFi can help evaluate repayment strategies and potential forgiveness options while staying on top of pesky paperwork.
Scared of the looming student debt bubble? Consider refinancing your student debt with SoFi for one easy monthly payment and potentially thousands in savings.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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