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How Paying Off Student Loans Works


College graduation is a special milestone, but it can also leave you wondering how you're going to pay off thousands of dollars in student loans.
College graduation is a special milestone, but it can also leave you wondering how you're going to pay off thousands of dollars in student loans.
© iStockphoto.com/Ericsphotography

More of us are going to college than ever. In 2007, 18.2 million people in the United States were enrolled in a postsecondary degree program, a 30 percent increase from just 20 years before [source: National Center for Education Statistics]. Millions more are getting postsecondary vocational training. Besides traditional straight-from-high-school students, adults are going back to school to enhance or change their careers. One reason for the increasing popularity in postsecondary education may be the escalating number of jobs requiring a college degree, projected to grow by significantly between 2008 and 2018 [source: Bureau of Labor Statistics].

Meanwhile, education isn't getting any cheaper. In fact, the National Center for Education Statistics (NCES) reports that the cost has increased steadily over the last three decades. In the 1980-81 academic year, full-time college undergraduates paid an average of about $3,100 for tuition, fees, room and board, and meals. In 2007-08, that average was about five times as much, more than $16,200. According to the Consumer Price Index Inflation Calculator, that $3,100 from 1980 had the same buying power as about $8,000 in 2008, or half the cost of that undergraduate degree [source: Bureau of Labor Statistics].

So how are we paying for it? Academic and needs-based scholarships are available, as are federal, local and institutional grants. However, these "free money" options are limited in size and quantity, leaving most of us to cover part or all of our college expenses.

College savings programs can help us prepare in advance, and work-study programs can let us earn while we learn. For many of us, though, student loans make up the difference. In fact, two-thirds of the collegiate class of 2008 each owed an average of $23,200 in student loans upon graduation [source: The Project on Student Debt].