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The Long Term Impact of $80,000 in Student Loans – And How You Can Avoid It

According to Forbes, there are more than 3.8 million student loan borrowers with $80,000 or more in student loan debt today.

And while those 3.8 million students likely found it very easy to sign up for that amount of debt, paying it off will not be so simple.

Don’t get me wrong - College can be a great investment. On average, those with college degrees earn more, are happier, and live longer.

The problem is that a lack of college planning leaves many with a debt burden that will take years, or even decades, to pay off.

This debt burden is already having a profound impact on the lifestyles of millennials, generation Z, and their parents. Home ownership rates are dropping, savings rates are dropping, average net worths are dropping, loan delinquencies are rising, and millions of Americans age 60 or older are now forced to help pay off their children’s student loans.

Let’s look at just how much damage $80,000 in student loan debt can do to your long term net worth:


The Long Term Impact of $80,000 in Student Loan Debt

Assuming a 6% interest rate, how much would you need to pay, and for how long would you need to pay, to get out of $80,000 in student loan debt?


To Pay Off the Debt in 10 Years…

If you want to pay off $80,000 in student loan debt in 10 years, you will need to pay $888 per month - For a total cost of $106,500.


What else could you do with $888 per month?

Buy a Home:

Rates of home ownership for millennials are significantly lower than when previous generations were their age.

Source:  CNBC

Source: CNBC

A huge reason for that decline is the added debt burden that many millennials are stuck with right out of college. But what if proper planning reduced or eliminated the need for student loans. How far would $888 per month go towards making the dream of home ownership a reality?

$888 per month would be the principal and interest payment on a $180,500 mortgage!


Instead of paying on student loans, you could be one-third of the way to owning a $180,000 piece of property!


What if you saved $888 per month for 10 years?

Maybe you don’t want to buy a house quite yet, and instead would prefer to put some money away into savings. How much could you accumulate saving $888 per month?

Assuming a 6% growth rate, $888 per month ($10,656 per year) for 10 years would grow to $145,454.

Then, if that $145,454 was left to grow for another 30 years with no other savings contributions, (at which point you would be in your early 60s and ready to retire) it would have grown to more than $800,000!

You can play with these numbers yourself with our compound interest rate calculator, available here: http://www.hyllandcapital.com/blog/compound-interest-rate-calculator

$800,000! Many couples retire on less than that. And if you could find a way, through proper planning and preparation, to keep that $888 per month for yourself - that $800,000 could be yours.


To Pay Off the Debt in 20 Years…

If you want to pay off $80,000 in student loan debt in 20 years, you will need to pay $573 per month, for a total cost of $137,760.


What else could you do with $573 per month for 20 years?


Buy 4 cars:

$573 is the monthly payment for a $31,000, 5 year car loan at today’s average new car loan interest rate of 4.15%. The payments on $80,000 in student loan debt is equal to a new car every 5 years for the next 20 years!


Want to motivate your child to do well in high school and get a scholarship to college? Offer the incentive of a new car for their children if they can get a scholarship to college - You’ll both come out ahead!



What if you saved $573 a month for 20 years?


If you saved $573 per month ($6,876 per year) for 20 years, and it grew at 6% annually, you would have almost $253,000.

Then, if you left that to grow another 20 years, without saving any additional money it would grow to $811,000!

Once again we see a perfect example of how debt gets in the way of financial independence. Those with $80,000 in student loan debt start more than three-quarters of a million dollars behind those who have no student loans and save instead.



To Pay Off the Debt in 30 Years…

If you want to pay off the debt in 30 years, you will need to pay $480 per month, for a total cost of $172,800.

A 30-year payment schedule will mean that you pay still paying off your student loans in your 50s – Quite possibly when your own children are in college!


What else can you do with $480 per month for 30 years?



In 2018, a higher percentage of Millennials took a vacation than any other generation (though generation Z is not far behind).

Many strive to travel while they are young, but student loan debt could seriously restrict how much you can spend seeing the world.

How far could $480 per month ($5760 per year) get you around the world? It turns out - The whole way!


The loan payments required to repay $80,000 in student loan debt over 30 years could pay for an around-the-world vacation every year for the next 3 decades!

Want to motivate your child to do well in school and get a scholarship? I’m sure they would love a vacation!

What if you saved $480 per month for 30 years?

If you saved $480 per month ($5,760 per year) for 30 years, and assuming a 6% growth rate, your savings would grow to $455,375. Let that money sit for another 10 years and it will grow to $815,000 even without any additional contributions!

Lessons Learned

If a house, new cars, Instagram-worthy vacations, and a 7-figure retirement account sound better than decades of student loan payments – You’re right!

Thankfully, with careful planning and a little hard work, you may be able to drastically reduce your dependence on student loans. Below, we look at a few options available for families to reduce their need for student loans.


How Can You Avoid Student Loan Debt?


College planning is generally broken into 2 categories. ‘Early stage’ and ‘late stage’ planning:

Early Stage College Planning

Early stage planning is generally considered the time between when a child is born and their sophomore year in high school.

The best benefit of beginning to plan for college in this period is time. Money that is saved years ahead of time has room to grow and compound. Tax efficient college savings accounts such as 529 accounts and coverdells may provide instant tax benefits, and long term tax free growth.

For that reason, much of early stage college planning focuses on finding the most optimal way to save for your future higher education expenses.


For explanation of this chart and more, see our blog post:  Early Stage College Planning

How can starting to save for college early benefit you?

Today, the national average for 4 years of in-state, public tuition, room and board, and all other costs is $22,000 per year, or about $88,000 in total. For simplicity, lets assume no future inflation, so that a child born today can expect to pay $88,000 for 4 years of college.

If you started saving today and could get 6% growth on your savings, how much money would you need to save per month in order to fully fund your new born child’s college education?

It turns out - About $171 per month for the next 18 years.

That is still a lot of money - in fact it totals about $37,000 over the course of 18 years.

But, that’s a heck of a lot better than spending $88,000.

And this lesson holds true whether you are looking to fully fund your child’s college education, or just contribute a little. Any money put aside early on has the opportunity to grow and become a more significant sum later.

Want to learn more? We have a video tutorial on how to create a college savings plan in 5 minutes with our free financial planning software here.

Late Stage College Planning

Late stage college planning is generally considered the period between a child’s sophomore year in high school and into their college years.

Although by this time the window to put money into savings is nearly gone, that does not mean parents and students are out of options. In fact, this is where many more options become available.


FAFSA is the application for federal student aid. Yes, this is an application for loans, but federal student loans are generally the best available as they have very generous income based repayment options available, and depending on your profession, may even be completely forgiven!

So, it goes without saying that qualifying for this type of aid is far superior than going out and shopping for private student loans.

But FAFSA, and the process the government uses to determine aid is complicated. Your eligibility is dependent on many factors such as income, and the balance in certain types of savings accounts. The formula used to determine aid weights assets that are in an IRA different than assets in a checking account, and even different depending on whether the parents or if the student own that asset!

This is just one page in the 10 page  FAFSA application

This is just one page in the 10 page FAFSA application

Because FAFSA looks at your “prior-prior year’s” earnings, in order to optimize your family’s finances for FAFSA, you need to start planning when your child is a freshman in high school! Needless to say, optimizing your family’s finances for FAFSA could be an entire article. And what do you know?! we have done that here: Guide to College Funding – Part 2 – Late Stage and Last Minute College Planning

Academics Play a Big Role Too!

We focus a lot on the financial aspects of preparing for college, but academics can play a very large role in cost savings as well.

Good grades and a high ACT or SAT score can result in tens of thousands of dollars in tuition savings.


This graphic comes from Kelly Finn at FinnPrep, who prepares high school students to take the ACT. The projected savings assume a high school GPA of 3.0.

Through intensive class sessions, Kelly has found that, on average, students can raise their ACT score by 4 points by going through her program.

How much could 4 extra points on the ACT save you? The exact amount will depend on where the 4 point score increase occurs, but in general, the higher the initial score the higher the savings. An increase in ACT score to the low 30s can result in $20,000 to $34,000 in total tuition savings!

For a family with a student unlikely to ace the ACT (that’s just about everyone), spending time doing everything you can to help your child get a higher ACT score can have tremendous long term benefits.

There is more to do besides just trying for a high ACT score. A strong high school GPA and challenging course curriculum can also save you from taking out student loans.

Not only will a high GPA qualify you for more scholarship and merit aid opportunities, it will also help your application rise to the top among other applicants. If a scholarship has a minimum GPA of 3.5, do you think you will be more likely to win that scholarship with a 3.5 GPA or a 3.8?

Taking AP level classes in high school also offer a great way for students to get free college credits. Scoring high an AP tests can earn you college credits that you would otherwise need to pay for. A high scoring student could receive enough credits to count towards a semester or even a full year in college! For an in-state student considering a public Iowa university, that’s $3,000 to $8,000 in savings!

However, its important to note - Not all colleges accept AP credits. Check with your prospective schools’ webpages to ensure you can earn credits, or try a search tool like the one on the College Board website.

Evaluate College Financial Aid Award Letters

As you or your child begins to hear back from different schools, you will have to evaluate different financial aid award letters. For example, a prospective student applying to several colleges in Iowa may be offered several different award packages from Iowa’s universities:


Many families automatically gravitate to the school that offers the lowest “family share of costs”. But, depending on the type of aid offered by each school, that may not paint the whole picture.

Notice in the example above, Iowa State appears to have the cheapest ‘Family Share of Costs’, but also notice that 70% of the aid offered is loans!

For this family, accepting admission into Iowa, UNI, or Cornell may ultimately prove to be cheaper, since a much higher percentage of aid is gift aid (scholarships and grants) or work-study programs - Aid that never has to be paid back.

Even if you are years away from applying to schools, you can begin getting an idea of what schools will cost by using a net price calculator, which is available on every schools admissions website.

ISE net cost calc.png

These calculators will provide you with estimates on aid that would be available to you.


Complete the calculator for schools of interest, and you may find that certain schools offer much more aid to prospective students.

You can also try searching for schools that offer a higher amount of merit aid to students. CNN Money, US News and World Report, and PricetonReview all have annual articles detailing the universities that offer the most merit aid to students.

Notable Iowa schools that make the list: Iowa State, Drake, Loras, and Grinnell.

Tax Breaks

Lastly, its important to not forget some valuable tax breaks that you are elligible for when paying college tuition. Those paying for college (either for themselves or for a child or dependent), are given several options for tax credits and deductions for paying college tuition. Tax credits such as the American Opportunity Credit can give you a reduction on your tax bill dollar for dollar on the first $2,000 in tuition that you pay. That means, even if you qualify for loans, pinching pennies and paying some of the college tuition bill out of pocket can save you significantly over the long run when compared to the long term cost of student loans.

In Summary

Today, recent graduates are living with the consequences of taking out tremendous amounts of debt to pay for their college educations. The loan payments on their student loans leave no room for many other expenses.

Thankfully, there is a lot that parents and students can do to help reduce their need for loans.

Have a child struggling to see the importance of doing well in school, on the ACT, or on standardized tests? Show them these numbers, and ask them whether they would rather have 4 new cars, three-quarters of a million dollar savings, or a student loan payment! I bet I know the answer…

Like many things in life, a little planning goes a long way. If you need help getting a plan in order, let us know today!


College SavingsMatt Hylland