Last Updated on May 24, 2022
Student loans are a fact of life for many people. They can be a major financial burden, but they also give you access to an education that can change your life. So how much do student loans actually cost? Here’s what you need to know.
How Much Do Student Loans Cost?
The short answer: It depends. The longer answer is that it depends on how much money you borrow, how long it takes you to pay off the loan, and whether or not you make any extra payments on top of what is required by the lender.
Let’s say that you take out $20,000 in student loans at 6% interest over 10 years. In this case, your total cost would be $21,200 ($20k + $2k). That’s because $2k represents the interest on your original loan amount and the remainder represents principal repayment (the amount left over after all interest has been paid).
How Much Do Student Loans Cover
Report Highlights. The average monthly student loan payment is an estimated $460 based on previously recorded average payments and median average salaries among college graduates.
- The average borrower takes 20 years to repay their student loan debt.
- The average student loan accrues $26,000 in interest alone over 20 years (at the rounded average interest rate of 6%).
- Up to 67.1% of the average borrower’s total cost of repayment is generated interest.
With 45 million people now carrying $1.7 trillion in student loans in the United States, student loan payments are a major monthly debt obligation for a growing percentage of the nation.
According to the Federal Reserve, the median payment for student loan borrowers is $222 per month. But this doesn’t offer a true reflection of what people are actually paying each month since 38% of respondents said that at least one of their loans were in deferment (meaning they weren’t currently making any payments at all).
Among borrowers that are actively paying down their student loans, the average student loan monthly payment is much higher. This article explores the average student loan monthly payment in the US and what you can do to manage your own student loan debt.
student loan calculator
Before using the student loan calculator above, come prepared with a few pieces of information about your loan.
Loan amounts vary depending on whether you’re exploring a federal or private student loan. The loan amount you’re offered might also be limited based on your enrollment level (e.g., undergraduate versus graduate or professional student) or degree program.
Federal student loan amounts
- Direct Subsidized Loans: Up to $5,500 annually.
- Direct Unsubsidized Loans: Up to $12,500 annually.
- Direct Unsubsidized Loans: Up to $20,500 annually.
- Direct PLUS Loans: Up to the school’s reported cost of attendance, minus other financial aid received.
Parents of dependent undergraduate students:
- Parent PLUS loans: Up to the school’s reported cost of attendance, minus other financial aid received.
Private student loan amounts
Loan amounts for private student loans can vary by lender. Each lender sets its own borrowing criteria, annual borrowing limits, interest rates and repayment terms. In general, private student loan lenders offer loan amounts that cover the gap between a school’s cost of attendance and any other financial aid a student receives. Some lenders also impose lifetime borrowing limits, which may be up to $150,000 or more for some degrees. Regardless of whether you borrow federal or private student loans, borrow only the amount you need per school year after exhausting all grant and scholarship options. If you must take out loans to finance educational gaps, consider maximizing federal student loan limits before turning to a private student loan, as federal student loans come with additional benefits like income-driven repayment plans and standardized hardship programs.
Your loan term is the amount of time you have to repay the loan in full. For federal student loans under a standard repayment plan, the default loan term is 10 years. However, student loans that are under an alternative payment plan offer terms from 10 to 25 years. Like private student loan amounts, private student loan repayment terms vary by lender. Terms for private student loans can be as short as five years and as long as 20 years. A shorter loan term can help you save more money on interest charges during your repayment period but result in a larger monthly payment. Some lenders offer lower interest rates as an incentive for a short term length. On the flip side, a longer term for your student loans will lower your monthly payment but will accumulate more interest charges over time. Before borrowing student loans, make sure you know all of the term options your lender offers so you can choose the right path for your financial needs.
The interest rate you’re offered depends on the type of lender you’re pursuing and your financial picture. Federal student loans offer the same interest rate to all borrowers, regardless of credit score or income. Private student loans, on the other hand, will often do a credit check and set interest rates according to your creditworthiness. The higher your credit score, the lower your interest rates. Keep in mind that the lowest interest rates advertised on lender websites may not be available to you. To find out what interest rates you’ll receive, take advantage of lenders’ prequalification features, if available. Prequalification allows you to input basic details about yourself and your desired loan in exchange for a snapshot of the rates and terms offered.
Additional factors to consider when calculating student loan interest
When calculating your student loan interest, keep in mind that there are a few other key factors at play:
- Fixed vs. variable rates. Unlike federal student loans, which offer only fixed interest rates, some private lenders offer fixed or variable student loan interest rates. A fixed rate won’t change during your loan term, but variable rates can decrease or increase based on market conditions.
- Term length. How short or long your student loan term is dramatically changes how much total interest you’ll pay. In addition to calculating your total interest paid, the student loan calculator above shows you how much of your monthly payment goes toward interest; to see this view, click on “show amortization schedule.”
- Credit score. Private student loans require a credit check. The stronger your credit, the more likely you’ll be offered competitive, low interest rates. Borrowers shopping for bad credit student loans might be approved at a higher interest rate, which means more money spent on interest charges overall.