The Ultimate Guide to Student Loans in 2022

title graphic of "The Ultimate Guide to Student Loans in 2022"

Student loans are something that a lot of college students and college graduates know all too well. The price of a college education isn’t cheap and as years pass students are borrowing more and more money to attend college. In this post we break down everything you need to know about federal and private student loans so you can be knowledgeable about all things student loans.

infographic showing student debt in the U.S.

10 Student Loan Facts and Statistics

  1. Average student loan debt in the U.S. is $37,693 per borrower.1
  2. The average federal student loan debt in the U.S. is $36,510.1
  3. The average private student loan debt in the U.S. is $54,921.1
  4. 2020 graduates who took out student loans borrowed an average of $29,927.2
  5. The average federal student loan interest rate for undergraduates is 4.66%.5
  6. The average federal student loan interest rate for graduate students is 6.22%.5
  7. The number of federal student loan borrowers with loans in forbearance is 23.2 million.11
  8. The number of federal student loan borrowers with loans in deferment is 3.3 million.11
  9. The percent of private student loan borrowers in forbearance is 3.12%.11
  10. The percent of private student loan borrowers in deferment is 19.48%.11

Average Student Loan Debt in America

According to EducationData.org, the average student loan debt in the U.S. is $37,693, as of July 10, 2021. This number changes when you break things down by federal and private loans. The average federal student loan debt is $36,510 per borrower and the average private student loan debt averages $54,921 per borrower.1

According to a survey done by the U.S. News and World Report, college graduates from the class of 2020 who took out student loans borrowed $29,927 on average. That is about $5,000 (20%) more than borrowers from the class of 2010.2

About 45 million borrowers have student loan debt and 95% of them have federal loan debt.1 So what exactly is the difference between federal student loans and private student loans?

Types of Student Loans

Federal

Federal student loans are loans that are funded by the federal government. The amount of money you get is determined by Cost of Attendance (COA) and financial need. The financial aid staff at your school determines your cost of attendance, then they consider your expected family contribution (EFC). They subtract your expected family contribution from your cost of attendance to determine your financial need and how much need-based aid you can get.

There are a few types of federal student loans.

  1. Direct Subsidized Loans
    Direct subsidized loans are available to undergraduate students with financial need. The student's school determines the amount of money the student can borrow and that amount cannot exceed the financial need.
     
  2. Direct Unsubsidized Loans*
    Direct unsubsidized loans are available to undergraduate and graduate students, and there is no requirement to demonstrate financial need. The student's school determines the amount the student can borrow based on the cost of attendance and other financial aid you receive.
     
  3. Direct PLUS Loans*
    Direct PLUS Loans, also known as Parent Plus Loans or Grad Plus Loans are federal loans that graduate or professional students and parents of dependent undergraduate students can use to help pay for college. PLUS loans are credit-based and can help pay for education expenses not covered by other financial aid.

Private

Private student loans are made by private organizations, such as banks and credit unions and have terms and conditions that are set by the lender. Private student loans can end up being more expensive than federal student loans.

How Is Cost of Attendance Calculated?

If you're attending school at least part-time, your cost of attendance is calculated by looking at the following items:3

  • Tuition and fees
  • The cost of room and board (or living expenses)
  • The cost of books, supplies, transportation, loan fees and miscellaneous expenses
  • An allowance for child care or other dependent care
  • Costs related to a disability
  • Reasonable costs for eligible study-abroad programs

How Is Expected Family Contribution (EFC) Calculated?

The expected family contribution (EFC) is calculated using a formula created by law. Your family's taxed and untaxed income, assets and benefits (such as unemployment or Social Security) all could be considered in the formula.4

infographic displaying student loan interest rates for federal loans

Average Student Loan Interest Rate

Knowing the interest rate before you commit to a student loan is very important, a high interest rate can result in you paying thousands of extra dollars on your loan in the end. It is important to know that the interest rates for federal student loans are reviewed and may change every July 1. A borrower’s interest rate will be determined and locked in by the first disbursement date.

According to credible.com, the average student loan interest rates for federal student loans from 2006 through 2021 were:5

  • 4.66% for undergraduates
  • 6.22% for graduate students
  • 7.27% for parents and graduate students taking out federal PLUS loans

This same source also lists the interest rate of private student loans for the 2018 year:

  • 6.17% for borrowers taking out five-year variable-rate loans with a co-signer and beginning repayment immediately.
  • 7.64% for borrowers taking out 10-year fixed-rate loans with a co-signer and beginning repayment immediately.

Student Loan Forgiveness

Student loan forgiveness, cancellation, or discharge of your loan means that you are no longer required to repay some or all of your loan.

An example of student loan forgiveness or cancellation is when you are no longer required to make payments on your loans based on your job type as stated in the Private Service Loan Forgiveness section below. If you’re no longer required to make payments on your loans due to other circumstances, such as a total and permanent disability, this is called discharge.

There are a few types of forgiveness, cancellation and discharge plans.** A few plans are listed below, but please reach out to your loan servicer to see if you qualify for other available plans.

Public Service Loan Forgiveness

If you are employed by a government or not-for-profit organization, you may be able to receive loan forgiveness under the Public Service Loan Forgiveness (PSLF) Program. PSLF forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.6

Teacher Loan Forgiveness

If you teach full-time for five complete and consecutive academic years in a low-income elementary school, secondary school or educational service agency, you may be eligible for forgiveness of up to $17,500 on your Direct Subsidized and Unsubsidized Loans and your Subsidized and Unsubsidized Federal Stafford Loans.7

Total and Permanent Disability Discharge

If you’re totally and permanently disabled, you may qualify for a discharge of your federal student loans and/or Teacher Education Assistance for College and Higher Education (TEACH) Grant service obligation.8

Repayment Options

According to Studentaid.gov, these are the options for repaying your student loans.9

  1. Standard Repayment Plan
    Payments are a fixed amount that ensures your loans are paid off within 10 years (within 10 to 30 years for Consolidation Loans).
     
  2. Graduated Repayment Plan
    Payments are lower at first and then increase, usually every two years, and are for an amount that will ensure your loans are paid off within 10 years (within 10 to 30 years for Consolidation Loans).
     
  3. Extended Repayment Plan
    To qualify for this repayment plan you must be a Direct Loan borrower and you must have more than $30,000 in outstanding Direct Loans. Payments may be fixed or graduated and will ensure that your loans are paid off within 25 years.
     
  4. Revised Pay As You Earn Repayment Plan (REPAYE Plan)
    Your monthly student loan payment will be calculated off your income. It will be 10% of your discretionary income. The payments are recalculated every year. Any outstanding balance on your loan will be forgiven if you haven't repaid your loan in full after 20 years (if all loans were taken out for undergraduate study) or 25 years (if any loans were taken out for graduate or professional study).
     
  5. Pay As You Earn Repayment Plan (PAYE Plan)
    You must be a new borrower on or after Oct. 1, 2007 and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011. Your monthly payments will be 10% of discretionary income, but never more than you would have paid under the 10-year Standard Repayment Plan. Payments are recalculated each year and are based on your updated income and family size. Any outstanding balance on your loan will be forgiven if you haven't repaid your loan in full after 20 years.
     
  6. Income-Based Repayment Plan (IBR Plan)
    You must have a high debt relative to your income. Your monthly payments will be either 10 or 15% of discretionary income (depending on when you received your first loans), but never more than you would have paid under the 10-year Standard Repayment Plan. Any outstanding balance on your loan will be forgiven if you haven't repaid your loan in full after 20 years or 25 years, depending on when you received your first loans.
     
  7. Income-Contingent Repayment Plan (ICR Plan)
    Your monthly payment will be the lesser of 20% of discretionary income, or the amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income. Any outstanding balance will be forgiven if you haven't repaid your loan in full after 25 years.

graphic displaying pros and cons of refinancing loans

Refinancing Private Student Loans

If you have private student loans that you are struggling to repay, refinancing might be a worthwhile consideration. According to Sallie Mae, refinancing occurs when a company buys all your current private student loans and issues you a new loan to pay them all off. You’ll get a new rate and have the option to choose the length of a plan that works for you, but you may lose payment flexibility and special benefits that were available through the individual lenders or the government.10

If you think refinancing is a good option for you, look at multiple lenders and compare loan terms and interest rates before committing.

Pros of Refinancing:

  • Allows you to alter your repayment plan
  • Instead of paying payments on multiple loans, you pay one payment
  • You can add a co-signer for a possible lower interest rate
  • Sometimes it can result in lower payments

Cons of Refinancing:

  • If you consolidate federal and private loans you lose any government benefits that might have been available to your federal loans
  • Refinancing can lengthen your loan term
  • Not everyone qualifies for refinancing
  • Deferments on private student loans are not as generous as they are with federal loans

Consolidating Federal Student Loans

There is a similar option for borrowers with federal student loans, called consolidation. When you consolidate federal loans, otherwise called a Direct Consolidation Loan, the U.S. Department of Education combines all your existing federal student loans into a single loan at no cost to the lender.

The benefit of this is the borrower now has one loan servicer to repay, rather than many, and a new fixed interest rate. Your new rate will be based on the average of the interest rates of the loans being consolidated.

For students who are still attending school, you are advised to work with your loan servicer prior to consolidating your loans, as interest will continue to accrue.

If you think a Direct Consolidation Loan is the best path forward, it’s free, easy to apply and takes about 30 minutes.

Trouble Making Student Loan Payments

According to NerdWallet, in Q2 of 2021 there were 23.2 million federal loan borrowers with loans in forbearance and 3.3 million with loans in deferment.11

For private student loans, Nerdwallet says there are 3.12% of borrowers in forbearance and 19.48% in deferment.

So, what are deferments and forbearance? A forbearance is a temporary postponement of your loan payments and can be used up to 12 months at a time, for a total of 36 months. You can apply for a forbearance verbally by calling your loan servicer, or you can complete a paper forbearance form and submit it to your servicer for processing. Approval for a forbearance is reliant upon servicer discretion. It is also important to know that interest does accrue while on a forbearance.

There is another postponement type, called a deferment, in which you must meet certain qualifications. Unlike a forbearance, interest does not accrue while on a deferment. There are various types of loan deferment plans, including in-school deferment. You are eligible for in-school deferment if you’re enrolled at least half-time at an eligible school. Please contact your loan servicer directly to determine specific regulations, and to see if you qualify.

Q&A Section

What is a student loan?

A student loan is borrowed money you get from the federal government or a private lender to help pay for college costs.

How do you get a student loan?

According to studentaid.gov, to apply for a federal student loan, you must first complete and submit a Free Application for Federal Student Aid (FAFSA®) form. Based on the results of your FAFSA form, your college or career school will send you a financial aid offer, which may include federal student loans. For a private student loan, you can apply through a bank, credit union or online lender. Most private lenders will require borrowers to have good credit and an income to support loan payments. If you don’t meet those qualifications, you’ll need a co-signer who does.

Will I personally get money from a student loan?

Federal student loan money is sent to the financial aid office at your college or university and private student loan money is sent to either the borrower or the financial aid office. If you have money left over after tuition has been paid, that money will be refunded to the student to pay for any other college-related expenses.

What is the difference between a student loan and a scholarship?

Student loans are borrowed money and must be paid back, while scholarships and grants do not need to be repaid.

Can I get a student loan without my parents?

According to Saving for College, there are several ways college students can get student loans without a parent borrower or co-signer.12 These include:

  • Federal student loans
  • Increasing federal student loan limits by qualifying as an independent student
  • Getting a private student loan with someone other than the parent as a co-signer

I can’t afford my student loan payment, what do I do?

You can contact your loan servicer and ask about one of the Income Driven Repayment Plans. The servicer will ask questions concerning your annual income, household size and other information to find a repayment plan that best fits your needs. If you are not able to make any payments due to hardship, you may also ask your servicer about deferment or forbearance options as well as other options to temporarily postpone payments until you are able to make payments again. To find out what company services your federal student loans, log into studentaid.gov.

Student loans provide one avenue for funding your education. Another way is through scholarships and grants.13 At Grand Canyon University (GCU), we offer generous scholarship opportunities to help make funding a private education affordable. Learn about the various ways to pay for college and discover which resource is best for you.

*According to studentaid.gov, non-need-based aid is financial aid that is not based on your expected family contribution. What matters is your cost of attendance and how much other assistance you’ve been awarded so far. For instance, if your cost of attendance is $16,000 and you’ve been awarded a total of $4,000 in need-based aid and private scholarships, you can get up to $12,000 in non-need-based aid.3 There are, however, borrowing limits for federal student loans, so not all your unmet financial need may be covered.

**Student loan forgiveness plans are subject to change based on Department of Education regulations.

 

Retrieved from:

1 EducationData.org, Average Student Loan Debt in July 2021

2 U.S. News & World Report, See 10 Years of Average Total Student Loan Debt in Sept. 2021

3 Federal Student Aid, Wondering How the Amount of Your Federal Student Aid Is Determined? in Sept. 2021

4The EFC Formula 2021-2022 in Sept. 2021

5 Credible.com, Average Student Loan Interest Rates in 2021 in Oct. 2021

6 Federal Student Aid, Public Service Loan Forgiveness (PSLF) in Sept. 2021

7 Federal Student Aid, Wondering Whether You Can Get your Federal Student Loans Forgiven for Your Service as a Teacher? in Sept. 2021

8 Federal Student Aid, Total and Permanent Disability Discharge in Sept. 2021

9 Federal Student Aid, Choose the Federal Student Loan Repayment Plan That’s Best for You in Sept. 2021 

10 Sallie Mae, Consolidating or Refinancing Your Student Loans in Sept. 2021

11 NerdWallet, Student Loan Debt Statistics: 2021 in Sept. 2021

12 Saving for College, How to Get a Student Loan Without Parental Help in Sept. 2021 

13 Federal Student Aid, What Kinds of Scholarships Are Available? in Sept. 2021

The views and opinions expressed in this article are those of the author’s and do not necessarily reflect the official policy or position of Grand Canyon University. Any sources cited were accurate as of the publish date.

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