The future of student loan repayments remains a largely question mark for borrowers under the Trump administration. With the Department of Education demolition and federal employee allocation being halved, uncertainty looms over the future of the debt relief program.
The average college cost has risen to the unprecedented $63,000 for private, four-year universities, with many people feeling the heavy weight of student debt as they have earned degrees essential to many jobs. As for the basic legal liability for that debt, the answer is considerably reduced and dry. However, the situation becomes more complicated as payment plans have been changed, suspended and blocked.
Who is responsible for paying off student debt?
Technically speaking, borrowers and Cosigners are legally liable for paying off their debts in their own name.
When you take away a mortgage, car loan, or personal loan, you (the borrower) will be legally liable to pay off the debt. If you have a Cosigner, the person is equally responsible for paying back your loan. The same principle applies to student loans.
In the case of student loans, students are responsible for paying off their debts, whether they graduate or not. The only exception to this rule is parents and loans, with parents, not students, being liable for their debts.
The question of the person responsible for repayment of student loans may seem redundant, but for many Americans, the answer is not black and white. That’s because unlike other types of debt, student loans are a necessary tool for millions to address the ever-growing costs of higher education. Unfortunately, this tool has long-term consequences that borrowers generally don’t notice when they sign at the dotted line first.
Nearly one in four students in charge of debt say they don’t think they’ll be able to fully repay the loan.
Whether or not a graduate is legally bound by debt, this does not change the fact that the amount may be too much to pay back in life. Bankrate’s Student Loan Presidential Election Survey shows that 24% of adults in charge of student debt (either themselves or others) do not expect to be able to fully repay these student loans.
This is a reality for millions of Americans who carry student debt to retirement age. That’s all 3.5 million federal student loan borrowers I’m over 60 years old. That said, young graduates experience a much heavier financial burden when it comes to earning their degrees than their previous generations.
More than 3 in 5 student loan borrowers struggle to pay student loans
According to a survey conducted by the Consumer Financial Protection Bureau from 2023 to 2024, 63% of student loan borrowers He reported that it was difficult to make student loan payments at any time. Of those surveyed, 37% missed at least one payment.
When schools send financial aid award letters to students, they tend to focus on federal student loans as part of their financial aid package. For many students and their families (especially first-generation students), these loans may seem like another part of the puzzle to help them bridge the financial gap.
Additionally, a financial aid award letter will usually indicate the maximum amount of loan you are eligible to receive. It’s not the amount you need. This can lead to overload in some cases.
Of those with federal student loan debt, 42% report only that they are listed in standard repayment plans
Approximately 42% of federal student loan borrowers report that they are listed only in the standard repayment program for federal loans. Of these, almost a third (31%) said they were unaware that they had an alternative payment plan, such as a more affordable, income-driven repayment plan.
Bachelor’s degree holders ranged from a median of $20,000 to $24,999 in 2023. For graduate degree holders, the range was even higher at $40,000 and $49,999. Confusion over student loan repayment alternatives, and surge in loan amounts, makes it difficult for students to pay the cost of their degree.
Additionally, students will usually find out the exact amount they pay each month after graduation. This can be an unpleasant surprise. And if they can’t secure a good paying job from the start, this can hinder their ability to build future wealth. In fact, according to Bankrate’s 2023 Financial Milestone Survey, many borrowers, especially millennials (ages 29-44) and ZERS (ages 18-28), have delayed milestones building important wealth, including saving for retirement, buying a home, and starting a family for student debt.
Who owns student loan debt?
Student loans are divided into two main categories: federal and private. Federal loans are owned by the government, but personal loans, as the name suggests, are owned by private companies.
Government owned loans
Federal student loans, including direct subsidized loans, direct unsubsidized loans, direct integrated loans, parent plus loans, alumni plus loans, Perkins loans, and several federal family education loans, are owned by the U.S. Department of Education. That said, these loans are managed by a variety of companies known as “loan servicers” and take care of everything related to federal claims and account management.
Currently, there are seven federal student loan servicers.
- edfinancial
- the latter
- Please help me more
- Nellnet
- ecsi
- Default resolution group
- CRI
Unlike privately owned loans, borrowers cannot choose a student loan servicer. It may be assigned to them by the Ministry of Education and borrowers may have one or more student loan servicers. Additionally, loans can be transferred from one servicer to the next, depending on the contract established by the government.
Privately owned loans
Private loans are issued by banks, credit unions and online lenders. Unlike student loan servicers, private companies own these loans and can also sell to other companies at any time.
Some of the most popular private renders include:
- Sophie
- Sally May
- College Avenue
- serious
These loans can have a fixed fee or variable interest rate, so if the loan is transferred to another lender and there are various rates, the fees can rise or fall. Unlike federal student loans assigned to randomly selected servicers, you use a private loan to select the company you want to apply for. This gives you more control over the terms and interest rates you have on your loan.
How student loans work
Student loans are a type of installment loan. This means that it will be repaid over a set period. These loans can be used to pay for tuition and required fees, as well as other university-related expenses such as rooms and boards, books and other course materials.
Federal Student Loans
Federal student loans are issued by the Department of Education and have a fixed interest rate. To apply for a student loan for federal students, simply fill out the FAFSA. At least any academic status and enrollee registered at halftime is eligible. However, the amounts you get will vary based on the dependency status and the number of credits completed.
Private student loans
Private student loans, meanwhile, are issued on a credit basis. This means that to qualify for these, or to be a cosiner who meets these requirements, you need good credit and a stable income stream. Private student loans are available from banks, credit unions and online lenders.
Private student loans allow borrowers to borrow all costs of attendance, as they are usually certified by the school. These loans have either fixed or variable interest rates. The best student loan fees go to people with excellent credit.
How to choose two
Typically, both federal and private loans do not require payments up to six months after graduation. However, most people use a combination of both to make school payments, but if possible, it’s best to stick to only federal loans. This is because federal lending offers a set of protections, including administrative contributions, forgiveness plans, and income-driven repayment plans that are not available through private lenders.
That said, the student loan rate for a good credit private can be significantly lower than federal student loans. You (or your cosiner) will likely need a high income and a solid credit score to be approved at a low fee.
