In the past two years, student loans have skyrocketed.
As of the end of March, the average student loan balance had grown by $6,934 to $25,500.
The interest rate has been steadily climbing since late last year, when the Consumer Financial Protection Bureau reported that student loan balances had climbed from $25.6 billion in June 2013 to $38.4 billion by the end the year.
It’s an astronomical increase that can easily make even the wealthiest students ineligible for student loans.
And yet, even as the interest rate continues to climb, the amount of money the average borrower can borrow to pay for college is still incredibly limited.
A student with a $50,000 income, for example, is able to take out a $100,000 loan for tuition, but it will only pay back about $1,000 of that amount.
In fact, according to the Consumer Federation of America, just 2 percent of the student loan market is currently “underwriting” new borrowers.
This means that, in order to qualify for a loan, a student needs to be able to prove they’ve actually been paying off their student loan for the past five years, which means the average amount of debt a student can actually pay off with a monthly payment of less than $250 is actually $2,200.
And that’s just in the case of loans for undergraduates.
The median monthly payment for a private student loan is about $2.5, according the National Consumer Law Center.
Even the federal government has been forced to step in to help students pay off their loans, though the Obama administration has so far taken a very different approach than the current administration.
Last year, the Department of Education proposed new rules that would require banks to lower the interest rates on student loans to 4.8 percent by 2022.
Under these proposed rules, borrowers would be able apply for loans with a fixed monthly payment rate, but they’d have to be willing to pay more than that to get that payment rate back to 3.9 percent.
Under the current rules, banks could offer loans with lower rates, but the rates would remain the same.
The new rules would also create new financial aid incentives for students to pursue more affordable degrees.
According to the New York Times, the new rules are intended to incentivize borrowers to pursue higher education and to help them avoid the worst of the economic downturn by giving them more flexibility in how they’re able to pay off the debt.
But as the Federal Reserve continues to raise interest rates and banks continue to expand the number of low- and moderate-income borrowers they serve, there’s no telling if this new policy will really help students.
The average American student loan borrower owes $26,988, and it’s likely that this is only a small portion of the total student loan problem.
If student loans are going to grow, the only way to reduce the debt load of students is to pay down their loans.