This is the moment you’ve been working toward for the past four years. As you walk across the stage and see your favorite professor smiling at you, you feel a sense of pride and accomplishment. Then you’re shaking hands, posing for pictures, and turning your tassel.
Congratulations! You’ve just earned your bachelor’s degree. You’re a college graduate.
As you return to your seat to watch your fellow graduates cross that same stage, you can’t help but look forward to what the future might bring. After all, now that you have your degree, so many opportunities have been opened up to you.
Because you’ve invested your time at college wisely, you’ve developed the skills and connections needed to launch into your career. And with that career will come a home, a new lifestyle, maybe a family. The things you dream about are there, waiting for you to take them, and now that you’re done with school, you’re free to do so.
There’s just one small problem.
The only way you could pay for college was by taking out a loan. And like 68% of other college students nationwide, that means you just graduated from college with debt—around $30,000 of it. On top of that, your loan has the average interest rate paid by most students (5.8%), which means you’ll be paying at least an additional $9,600 just to cover interest over the next 10 years.
That doesn’t sound too bad though. You just need to get started in your career, and you’ll be able to pay that loan off in a few years. It certainly doesn’t worry you enough to ruin your day or completely overshadow the hope you have for the future. You’re a college graduate! You’re going to be fine. Life’s going to be good.
Like most students, you have a 10-year loan with “manageable” monthly payments. And you’re confident that you’ll pay it back on time. Maybe even sooner! Right?
Year One—Do You Really Have a Head Start?
Life has been something of a whirlwind since graduation day, and you’ve done well for yourself despite the chaos of starting out in life! You’ve landed an awesome job that will soon lead to your dream career. It doesn’t pay a ton of money, but you expected that as a recent college grad. You have to start somewhere, right?
With your entry-level salary, you’re able to afford a decent apartment and cover your bills. All in all, you’re managing. And even if you get a little anxious when checking your bank account, life’s still exciting.
What it’s like to be shackled to student loan debt just after graduation.
The gross average starting salary for recent college graduates is around $48,000. That sounds pretty good, doesn’t it? If you take care of your money, you could live well enough on that.
After taxes, your $48,000 per year becomes somewhere between $36,000 and $39,000 (or about $3,000 per month). The apartment you’re renting takes about 1/3 of that (assuming you don’t live near either coast). Other mandatory expenses like utilities, transportation, healthcare, and food take up another third. And the average monthly student loan payment is around $400.
If you’re lucky, by the end of the month you have about 10% of your net income left over to use however you like.
You’ve had to make sacrifices to make ends meet. You can’t go out to dinner or to a movie very often. Weekend trips to the mall are rare. Spending even $20 a week to do something fun might stretch your budget dangerously thin. Your life, for the time being, is your work. But that’s okay because it’ll only be for a year or so until you get a little more experience and maybe a raise or two.
Life’s hard. It’s hard for everyone though. And even though you’re barely keeping up for the time being, at least you have a head start.
Year Five—Imagine Being Buried Alive
You don’t know if life got easier or you just got better at managing it. Probably a little of both. Over the five years since graduation day, you’ve settled into your job and found your rhythm. You’re advancing in your career, making a name for yourself, and earning the recognition of your superiors. The pay raises and promotion were tremendous blessings, giving your budget room to breathe every month. And that’s not all! You’ve recently had a little time to focus on something other than work: you have a family to take care of now.
For the first time since graduation day, you’re beginning to feel like you’re really moving forward in life. However, the advances you’ve made come with more responsibility. And responsibility is expensive.
Sorry, you haven’t really made a dent in your debt yet.
Interest on student loans is a special kind of monster. Assuming you didn’t qualify for a subsidized loan, the interest on the initial balance of your loan started to accrue the day the loan was disbursed. So even though you don’t normally have to begin paying back a loan until after graduation, your student loan debt is still going to grow while you’re in school.
It’s also important to note that your student loan payments go toward the interest first. So if your interest owed is greater than your monthly payment, that money never touches the initial balance, and interest continues to compound. And here’s the kicker: interest on student loans isn’t compounded yearly or even monthly. It’s compounded and charged daily based on the outstanding balance of the loan (including interest), not the principal balance.
So when your interest rate of 5.8% was applied to the $30,000 you owed at graduation, your new balance the day after graduation became $30,004.80. The day after that, it was $30,009.60.
This process of charging interest on your new total balance has repeated every day (with the interest you owe growing bigger and bigger) since the day you took out the loan. This is how you were buried alive so quickly. Even though you’ve faithfully made minimum loan payments every month, the interest on your loan has been compounding since the start of college. At this point, you’ve barely started paying on the principal of the loan, if you’ve touched it at all.
All that to say, if you want to pay off your student loan, you need to be paying more than the minimum required amount. But therein lies the problem.
As you advance in life, you generally earn a higher gross income. But with more mouths to feed, higher utilities, more insurance, and the other expenses that come with living a normal life, you don’t always see significant changes to your net earnings. You’re struggling to allocate as much money as you should to paying down your student loans.
You’re still happy. Life is good and every day has its blessings. But that doesn’t stop you from worrying what the future might hold if you don’t start getting a handle on your debt—and soon.
Year Ten—The Year You Were Supposed to Pay Off Your Student Loan Debt
You’ve come a long way since graduation day.
Your family has grown. So much so that you had to buy a bigger house, making your mortgage significantly more expensive. But perhaps for the first time in your life, you don’t feel like you’re playing catch-up with your finances. You’re thoroughly embedded in your career now. Despite your family and expenses growing, you’re finally earning enough to get ahead. So, after 10 years of making payments on your student loan, it’s finally time to start actually paying it off.
There’s a steeper cost to your student loans than simple debt.
Anxiety, like a ball of lead sitting in your stomach, has been growing inside you over the past ten years. The longer you go without making real progress paying off your college debt, the worse it gets. The constant stress has gotten so bad that you struggle to fall asleep at night—and when you do fall asleep, it’s restless. It’s normal for you to wake up multiple times a night. Losing sleep, though, is only the start of your troubles.
Your anxiety isn’t just in your head. It’s manifested some pretty severe physical symptoms as well. You’re always tired, but especially so at work and during stressful situations. As a result it’s harder for you to focus at work and your productivity is suffering. You get constant, inexplicable headaches throughout the day. Your joints begin to ache, and there’s a deep tiredness in your muscles because your body is always tensed up. You don’t have much of an appetite, which is okay because you usually have an upset stomach anyway. And to top it all off, in this constant state of anxiety—with an always elevated heart rate and a body that’s always in fight or flight mode—it’s nearly impossible for you to relax.
In short, you’re exhausted, drained, and terrified that you’ll be buried under debt for good.
If it’s any comfort, you’re not alone in this: 65% to 67% of individuals with student loan debt report having some or all of these symptoms. But now that you’re finally able to begin paying down your debt, you’ll just need to hang in there a little while longer. You can deal with the stress for a year or two more. That’s all it should take to get debt free, right?
21 Years After Graduation
The last 11 years went by in a blur. So much life happened in that time. You tried to experience as much of it as you could, but you had to miss quite a bit. You went through those years with your nose to the grindstone, working hard every month to pay a little bit extra toward your college debt. You’re exhausted. But you also have some of your old, hopeful energy back because this is the last year that you’ll ever have to make payments on your student loan.
That’s how long it actually takes to pay off student loans.
The average bachelor’s degree will put a student around $30,000 in debt. Most students believe they’ll be able to pay that off by the time they’re 33. In reality, though, they generally aren’t able to pay it back until they’re at least 41.
These students spend a majority of their early life in debt that is next to impossible to get discharged, making mandatory monthly payments regardless of their income (for the average college grad, this is true even if they’re on an income-based payment plan). And if they can’t make the minimum payments on their standard 10-year plan, their debt only grows.
After 21 years, the average loan for a bachelor’s degree costs somewhere between $39,000 and $42,000 depending on how soon the student can get control of their finances.
So, did going into debt for your degree really give you a head start in life? Was the education you got in college valuable enough to spend 21 years paying for it?
A Better Life
Not long after you finally paid off your student loan debt, it’s time to send your kid to college. You see a lot of yourself in them. They’re excited and hopeful for their future, and you want to give them the best chance they can possibly have at living an extraordinary life.
Given that, what advice would you give them about student loans? Do you think that going into debt for college will give them a better life? Or is there a better way to do college?
Yes, actually. There is a better way.
Instead of going into debt for college, why not make college more affordable? If you could find a way to either reduce the cost of—or completely eliminate—the most expensive parts of college, but still get the high-quality education you need, you’d never have to take out a loan in the first place.
Say hello to Unbound. Unbound is a flexible online college program which enables you to earn a debt-free degree from any school with the guidance of a professional academic coach and the support of a thriving student community.
In other words, we make the college experience so affordable that you can realistically pay for your degree out of pocket. Because Unbound isn’t your typical college program, our students have the freedom to pursue college, life, and a career (or whatever else they’re passionate about) at the same time. And since a year of Unbound only costs about $5,400, or about 20% of what you would pay at a traditional university, is it any wonder that 94% of Unbound students graduate debt free? Unbound enables you to earn college credit, have a real income, build a resumé, and avoid student loans entirely. That’s what gives Unbound students a chance at a real head start in life—a better life.
Wyatt is an Unbound graduate and a driven entrepreneur. He’s passionate about building businesses and gets annoyed when someone says the only way to be successful is to get a “real” job. When not working on a new business idea or general self-development, Wyatt spends his time pursuing the life moments that make him feel alive.Read more by Wyatt