TikToker cha_cha_p from Florida has paid $7,450 on a student loan with an original balance of $8,645. But, with an 8% interest rate, he now owes $8,750.
So, even though he’s been paying his student loan off for years, he still owes $100 more than his original balance. “That’s why people hate student loans,” he said on TikTok [1].
While $100 is not a huge sum, consider the calculation for the average American student loan borrower, who has more than four times the balance owing.
But, it’s not just the interest rate that’s to blame.
About 92% of all student loan debt is federal, issued by the U.S. Department of Education [2], while the remaining 8% is issued by private lenders such as banks.
And close to two-thirds (63.2%) of federal student loan borrowers had growing or stagnant balances, according to the latest Federal Reserve data.
At the end of Q3 2025, 42.3 million Americans had federal student loan debt with an average balance of about $39,376 per borrower, according to data from the National Student Loan Data System. On a national level, that’s about $1.67 trillion.
In 2024, 20% of federal student loan borrowers were behind on their payments and 10.2% of the outstanding balances were 90 or more days delinquent, according to Federal Reserve data.
Read more: Rich, young Americans are ditching stocks — here are the alternative assets they’re banking on instead
Student loans, like other loans, must be paid back with interest — they’re not grants or scholarships. The interest on government student loans is fixed and the interest rates for loans disbursed before July 1, 2026, per Federal Student Aid, range from 6.39% to 8.94% depending on the type of loan.
Private student loan rates are often even higher and can be fixed or variable. When you apply for a private loan, you usually have to agree to a credit check. And, since many new students don’t have a credit history, they’ll often need a cosigner such as their parents.
The loan will need to be repaid over a preset term, such as five or 10 years, but you might have options to defer payments, make partial payments or pay interest only while you’re in school. Private lenders can loan an amount up to 100% of the cost of attendance.
On the other hand, federal student loans don’t require a credit check or a cosigner, unless you take out a parent loan for undergraduate students (PLUS) loan. But they have annual and lifetime limits and, like most private lenders, they charge an origination fee.
You can defer payments on a student loan until you graduate or drop below half-time attendance. At that point, you can choose from one of seven repayment programs, including four that are linked to your income.
The standard repayment plan is a 10-year term with a fixed amount; there’s a graduated and extended version of this plan.
The four income-driven repayment (IDR) plans are based on how much money you make, as well as the size of your family. They require that you pay between 10% to 20% of your income, depending on the plan.
Once you’ve paid a certain number of months on an IDR plan or work in certain public service jobs, your remaining loan balance may be forgiven.
Under changes introduced by the Trump administration, however, these IDR plans will be phased out by 2028 and replaced with a new program that some critics say will be much less friendly to borrowers and potentially result in increased defaults [3].
One reason people don’t make progress on paying down their student loan — despite diligently making a payment every month — is that payments under an IDR aren’t always large enough to pay down all the interest owing. So you don’t even touch the principal.
To make matters worse, there are instances where the accumulated unpaid interest on the loan capitalizes. This means that any interest owing is added to the principal of the loan and then interest is charged on that new amount going forward. This can result in a new principal amount that is larger than the original amount.
Capitalization of student loan interest is triggered by different events depending on the type of loan that you hold. For example, interest capitalizes if you’re on an IDR plan and no longer qualify for the IDR plan, or on direct unsubsidized loans after a deferment.
To avoid this situation, it’s best to pay enough to cover all of the interest due and preferably some of the principal each month. This may require some lifestyle adjustments, but it’s probably worth it in the long run.
If you’re a student, try to borrow as little as possible. Take the time to apply for scholarships and grants, choose a school you can afford and try to live at home if you can.
You could also work during high school and university to cover some of your expenses, though you’ll need to find a schedule that allows you to keep your grades up.
While it might mean short-term pain, it could lead to long-term gain — so you can potentially avoid becoming crushed later in life by student debt.
Stay in the know. Join 200,000+ readers and get the best of Moneywise sent straight to your inbox every week for free. Subscribe now.
At Moneywise, we consider it our responsibility to produce accurate and trustworthy content people can rely on to inform their financial decisions. We rely on vetted sources such as government data, financial records and expert interviews and highlight credible third-party reporting when appropriate.
We are committed to transparency and accountability, correcting errors openly and adhering to the best practices of the journalism industry. For more details, see our editorial ethics and guidelines.
[1]. TikTok.
[2]. Education Data Institute. “Student loan debt statistics”
[3]. Newsweek. “Student loan update: Warning issued over Trump’s new plan”
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
