10 Reasons Why Student Loans Are So Hard To Pay Off

published on 02 February 2024

The time has come. You've graduated and are ready to enter the workforce, eager to start making some real money with your new job. It's an exciting time, but the reality is that the salary for your first job out of college is not always very high.

Certainly, there are outliers and better career paths than others, but most college graduates will be starting off with an entry-level salary and a large student loan balance.

So why is it so hard to pay off student loans? The truth is, it doesn't have to be. Let's dig in to the 10 reasons it's so hard to pay off student loans and how to use this information to your advantage.

1. High Loan Amounts

Many students find themselves burdened with substantial loan amounts, often reaching tens of thousands of dollars or more. This financial strain is only made worse by the rising costs of tuition, textbooks, and living expenses.

For example, a student attending a private university may accrue significantly more debt than someone attending a public institution. The weight of these high loan amounts creates a daunting challenge for graduates entering the workforce.

2. Interest Accrual

Student loans can come with the added challenge of interest accruing during the time the borrower is in school. This means that even before graduates start their careers, their loan balances could be growing.

For instance, if a student takes four years to complete their degree, and their loan was a Direct Unsubsidized loan, the borrower is responsible for paying the interest on the loan from the time the loan was disbursed, even while in school and during the grace period.

This interest adds a layer of complexity to repayment and can extend the time it takes to become debt-free. Be sure to do your research so you understand the difference between federal vs. private student loans and what your repayment journey will look like.

3. Limited Income After Graduation

Entering the job market with an entry-level salary is a common scenario for recent graduates. The challenge arises when trying to allocate a substantial portion of this income to loan repayment.

Consider negotiating your starting salary as you do not always have to accept the first offer. In fact, many recruiters and corporations budget for a negotiation and expect it. This could help you land a larger salary right off the bat which can help with repaying your student loan.

4. Other Financial Obligations

Beyond student loans, graduates have various financial responsibilities such as rent, utilities, and possibly car payments.

These competing obligations can make it difficult to stay on top of your student loan payments.

Consider a recent graduate who needs to cover living expenses in an expensive city. Prioritizing student loan payments might mean sacrifices in other essential areas, contributing to financial stress.

5. Unemployment or Underemployment

Economic uncertainties and challenges in securing a job within one's field can lead to periods of unemployment or underemployment. During these times, graduates may struggle to maintain consistent loan payments.

A recent example is the impact of the global pandemic, which caused widespread job losses and hiring freezes, affecting the financial stability of many recent graduates.

Even more recently, if you just scroll through LinkedIn you will notice post after post about recent layoffs. Remember to use your network and don't be afraid to reach out and ask for help. Perhaps a connection from college or a former colleague may be able to open a door to your next opportunity.

6. Extended Loan Terms

Opting for extended repayment plans might provide immediate relief by reducing monthly payment amounts. However, it often comes at the cost of paying more in interest over the life of the loan.

Consider a borrower who extends their repayment term from 10 to 25 years, resulting in lower monthly payments but significantly higher total interest paid.

Extending loan terms may be needed at times, but it's important to think about the impact this decision will have over the life of your student loan.

7. Lack Of Financial Literacy

Many borrowers face challenges due to a lack of understanding of their loan terms and available repayment options.

For instance, a borrower might not be aware of income-driven repayment plans or loan forgiveness programs. Enhancing financial literacy can empower graduates to make informed decisions about their loans, potentially saving money in the long run.

This is a major reason why Dwindle was created in the first place - to help those with understanding student loans and how to pay them off. You can find helpful articles on how to pay off student debt fast and you can take advantage of our free resources:

8. Life Changes

Life events can introduce unexpected financial strains, further complicating loan repayment. For instance, starting a family or dealing with medical expenses can divert funds away from student loans.

If you have student loan debt, navigating these changes can be challenging to maintain the same level of commitment to loan repayment.

9. Loan Forgiveness Complexity

While loan forgiveness programs exist, navigating their complexities can be overwhelming. Consider the Public Service Loan Forgiveness (PSLF) program, which requires specific conditions, such as working in qualifying public service jobs for ten years.

Understanding and meeting these conditions can be a significant challenge for borrowers, not to mention Biden's Student Loan Forgiveness Plan which was shut down by the Supreme Court, causing more frustration and confusion.

10. Psychological Impact

The psychological toll of carrying student loan debt should not be underestimated. Graduates often grapple with the stress of knowing that a significant portion of their income is set aside for loan repayment.

This burden can impact overall well-being, influencing decisions about major life choices, such as buying a home, starting a family or pursuing additional education.

How do most people pay off student loans?

Here are some common strategies that many people employ to tackle their student loan debt:

Create a Budget:

Establishing a budget is the first step for many borrowers. This involves outlining monthly income, tracking expenses, and identifying areas where savings can be maximized. If you need a good starting point, check out our free budget template.

A well-structured budget provides a clear overview of available funds for loan repayment. This involves outlining monthly income, tracking expenses, and identifying areas where savings can be maximized.

A well-structured budget provides a clear overview of available funds and how to put those funds to work on paying off your student debt.

Prioritize High-Interest Loans:

If you have multiple loans, focusing on those with the highest interest rates can save you big money in the long run. Allocating extra payments to high-interest loans helps reduce the overall interest accrued.

This is commonly referred to as the debt avalanche method. Once your high-interest loan is paid off, you then move on to the next one.

Make Extra Payments:

Making additional payments beyond the minimum requirement can significantly reduce the total interest paid over the life of the loan. Even small, regular extra payments can make a difference.

Don't believe me? Test out some scenarios in our free student loan repayment calculator

Employer Student Loan Repayment Assistance:

Some employers offer assistance programs to help employees pay off their student loans. This benefit can come in the form of monthly contributions, a lump-sum payment, or in the form of retirement contributions.

My current company has provided me over $10,000 to my student loan in the past 2 years and this has really helped me knock down my debt balance. In fact, it's taken about 2+ years off of my repayment timeline!

We've curated a large list of jobs that help you pay off your student debt so take a look and see what's out there.

Side Hustles and Additional Income:

Taking on a side hustle or freelance work can generate extra income that you can then put toward your student loan balance. Applying additional earnings exclusively to student loans can accelerate your payoff timeline.

Some top side hustles that are relatively easy to get started with:

  • Uber
  • Lyft
  • DoorDash
  • Amazon Flex
  • Instacart

Any additional income you make with your side hustle, you throw at your student loan debt. Each extra contribution you make gets you one step closer to becoming debt free.

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