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Addressing the Student Loan Crisis

Addressing the Student Loan Crisis

| July 05, 2024

Outstanding student loan debt is currently at $1.6 trillion in 20241


Understanding the Burden of Student Loans

The average student loan debt in the United States is $39,981 and interest ranges from 4.1% up to 15.70%, making it the second highest consumer debt category after mortgages 2,3. Student loans place a significant financial burden on graduates, often delaying major life goals such as purchasing a home or accumulating savings. Studies show that student loan debt also contributes to mental health problems, including increased levels of stress and anxiety 1,3,4.

Consider this: if you take out a loan of $40,000 at 7% interest (the national federal loan average5), you will end up paying around $16,000 in interest with $465 monthly payments. If you saved the same monthly payment as your 10-year student loan into a high-yield savings account, you would save over $71,000—enough for a downpayment on a $350,000 house. Ask yourself, would you rather spend the first 10 years out of college paying off that debt, or preparing to move into your first home? 

Our solutions apply to anyone regardless of financial background. The goal is to reduce the burden as much as possible. While student loans are often unavoidable, determination and adherence to the strategies below can help you alleviate this debt as quickly as possible.


  1. Take advantage of Federal Student Loans

Federal student loans under FAFSA provide enticing benefits compared to private loans such as9:

  • No payments until graduation
  • Stable interest rates.
  • The government pays the interest on your loan while you’re in college, so your loan amount won’t growth due to unpaid interests.
  • You might be able to deduct the interest you pay when filing a tax return.
  • You can pay off your loan early or in large amounts without any extra fees.

Even though subsidized federal loans are limited to about $5,500 per year, capping at $22,000 total—this should be your first and only choice, if possible.

  1. Choose Schools with a Budget in Mind

On average, public universities cost $31,482 less per year than private ones, reducing your bill by $125,928 over a 4-year term7. Many public universities offer affordable in-state tuition with comparable prestige to private universities. Consider your financial situation wisely and factor in the long-term costs along with job potential when making your college decision.

  1. Scholarships and Grants

Scholarships and grants covered 29% of college costs in 2023, making it the second-largest source of financial aid8. Contrary to popular belief, scholarships are not solely merit-based; most consider talents, community service, financial need, and many other factors.

Websites like Fastweb and the Federal Student Aid site can help you find scholarships that you may qualify for9. It is free to apply, so take advantage by applying for as many scholarships as possible.

  1. Take Advantage of RA Benefits

The easiest way to reduce college costs is to become a Resident Assistant (RA). While these positions are unpaid, the university usually covers your board and meal plan. Being an RA can reduce your monthly living cost and your annual bill by over $17,000 based on the public university average 7.

  1. Work-Study Programs and Part-Time Jobs

Participating in work-study programs or on-campus jobs not only provides income for daily expenses and savings, but also builds a work ethic, enhances your resume, and develops essential skills for post-graduation. Not all of us are born with a silver spoon, working is a great way to help with the financials, set a strong foundation, develop your character, and increase the work ethic you carry throughout your career. In most cases, this is more valuable than the school you attend and your background.

A great example is NVIDIA CEO Jensen Huang. During high school, Huang worked at Denny’s which allowed him to gain early work experience and financial independence. For college, he chose Oregon State University, a state school where he was able to receive in-state tuition.

Conclusion

There is no shortcut to effectively managing loans. In short, "borrow less, repay early", increasing cash flow, and proper budgeting is fundamental for wealth management not only as a student but throughout adulthood. Do not overlook these minor changes now, they can mean all the differences in the future.

Elon Musk once said, "When something is important enough, you do it even if the odds are not in your favor”10, highlighting the importance of perseverance to achieve extraordinary outcomes. Not all of us were born with a silver spoon, but that alone does not limit our ability to reach these financial goals.

Think of this question again, would you rather spend the first 10 years out of college paying off that college degree, or preparing to move into your first home? The choice is yours.


Securities offered through Registered Representatives of Cambridge Investment Research Inc., a broker-dealer, member FINRA/SIPC. Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Cambridge and American Financial Alliance, Inc. are not affiliated.

Reference:

  1. American Psychological Association (2022),
  2. Education Data Initiative. “Student Loan Debt Statistics” (2024)
  3. “Student Loan Interest Rates in June 2024”
  4. Federal Reserve Bank of New York (2023),
  5. Education Data Initiative. Average Student Loan Interest Rate” (2024)
  6. “Best Personal Loan Rates for June 2024”
  7. Education Data Initiative. “Average Cost of College & Tuition”
  8. Bankrate, “Scholarships and grants for college: Facts and statistics”
  9. Federal Student Aid (2021),
  10. com, “Inspirational Quotes by Elon Musk