Will You Be Able to Repay Your Student Loans?

Today, more students than ever before are graduating with student loans. Colleges have become significantly more expensive than they were in the past and a college education has become more necessary than in years prior, meaning more people are going to school and more people are borrowing a lot of money to pay for it. Unfortunately, this has led some to believe that a student loan crisis is looming on the horizon as young people are starting their lives burdened with thousands — or even hundreds of thousands — of dollars in debt. According to the Federal Reserve Bank of New York’s Household Debt and Credit Report, total student loan debt in the United States surpassed $1.77 trillion as of early 2026, making it the second-largest category of consumer debt after mortgages.

Will You Be Able to Repay Your Student Loans?

If you are thinking about taking on student loans to go to school, it is essential that you stop for a minute and think about whether you’ll actually be able to repay those loans. Student loans are not dischargeable in bankruptcy, which means if you take on loans that you cannot pay, you can be burdened with these loans for the rest of your working life. The Consumer Financial Protection Bureau (CFPB) has consistently highlighted that borrowers who take on debt disproportionate to their expected earnings face the highest rates of delinquency and default. It is, therefore, necessary to do your research and to make sure you have a chance of paying your loans back.

To determine if you can repay your student loans or not, ask yourself these questions:

• What is the average salary available in the profession you hope to get into after college? If your degree prepares you for a profession where there is a reasonable average salary, then you likely will be able to repay your loans. If you major in something that has few or no practical uses, on the other hand, then you may not be able to get a job that pays you anywhere close to the amount of money you need to make your loan payments. Compare the average salary to the amount of money you are borrowing and to the monthly payments on loans of that amount. The Bureau of Labor Statistics Occupational Outlook Handbook provides detailed median salary data for hundreds of professions and is one of the most reliable free tools available for this research. This should give you a great barometer of whether you can pay your loans back after college or not.
• How is the demand for new professionals in your field? Some fields are simply becoming saturated with new employees and there are no jobs available. There are, for example, far more people scheduled to graduate from law schools in upcoming years than there are jobs for new associates. This means that there is going to be an over-supply of new young lawyers in the field and there won’t be jobs for everyone. The Bureau of Labor Statistics projects that legal sector job growth will remain below 5% through 2033, even as law school enrollment continues at current levels.
• How is the job placement rate for your school? Those who graduate from the Ivy Leagues or from schools with great reputations are more likely to be able to find jobs in their field (and to find jobs at all). If your school is not ranked on the U.S. News and World Report college rankings or is not considered to be a “good” school, they may have a low rate of graduates actually getting jobs that require a college degree. You don’t want to pay money for a degree and find that your degree is virtually useless in increasing your employability since this will guarantee that you can’t repay your loans.
• How expensive is your education going to be? The more expensive the school, the more you will need to make in order to repay your loans. Consider starting at a community college and transferring to finish or try to take more credits so you can graduate sooner. According to the National Center for Education Statistics (NCES), the average annual cost of a four-year public university for in-state students is approximately $27,640 including room and board, compared to over $57,570 per year at private nonprofit institutions.
• What is the interest rate on your loans? Low interest government student loans are significantly easier to pay off than higher interest private loans. Government loans also offer you options that private loans don’t, such as loan forgiveness if you perform certain types of work such as teaching or practicing medicine or law in a disadvantaged area. For the 2025–2026 academic year, federal undergraduate loan interest rates are set at 6.53% APR for Direct Subsidized and Unsubsidized Loans, according to Federal Student Aid. Private lenders such as SoFi, Sallie Mae, and College Ave offer rates that can range from roughly 4% to 16% APR depending on your credit score and debt-to-income ratio (DTI).

These are just a few of the many considerations in determining whether you can repay your student loans or not. Of course, your lifestyle after graduation is also going to play a role in whether you are actually able to repay your loans or not. If you live frugally and dedicate yourself to paying off your loans as quickly as possible, you’ll have a much better chance of getting them paid off fast.

Understanding Federal vs. Private Student Loans

The single most important financial decision you can make before borrowing for college is choosing between federal and private student loans. Federal loans should almost always be exhausted first before turning to private lenders.

Federal student loans, administered through the U.S. Department of Education and managed day-to-day by servicers such as MOHELA and Aidvantage, offer a range of protections that private lenders simply do not match. These include income-driven repayment (IDR) plans, Public Service Loan Forgiveness (PSLF), deferment and forbearance options, and fixed interest rates that do not fluctuate with the market. The CFPB’s comparison of federal and private student loans is an excellent starting point for understanding these differences in detail.

Private student loans, offered by banks, credit unions, and specialty lenders like SoFi, Earnest, and College Ave, are underwritten largely based on your FICO Score and your debt-to-income ratio (DTI). Borrowers with strong credit profiles — typically a FICO Score above 720 — may qualify for competitive rates, but those with limited credit history (as is common among young students) will often face rates at the higher end of the range. Because private loans lack the consumer protections of federal loans, the Consumer Financial Protection Bureau (CFPB) recommends treating private loans as a last resort.

How Your Debt-to-Income Ratio Affects Loan Repayability

Your debt-to-income ratio (DTI) is one of the most direct measures of whether your student loan payments are manageable. DTI is calculated by dividing your total monthly debt payments by your gross monthly income. Most financial advisors and institutions, including the Federal Reserve, recommend keeping your total DTI below 36%, with no more than 10–15% of gross income dedicated to student loan payments alone.

For example, if you graduate with $40,000 in student loan debt and secure a job earning $50,000 per year (approximately $4,167 per month gross), your standard 10-year monthly payment would be roughly $440 per month — about 10.6% of gross monthly income. That is manageable, though tight. If that same borrower had taken on $80,000 in debt, the monthly payment would jump to approximately $880 per month, or over 21% of gross income — a threshold that most financial planners consider unsustainable.

Lenders like Chase, SoFi, and Earnest use DTI heavily when evaluating refinancing applications. A borrower looking to refinance student loans will typically need a DTI below 50% to qualify, with the most competitive rates reserved for those below 35%. The Experian guide to debt-to-income ratios provides a clear breakdown of how DTI is calculated and what ranges lenders consider acceptable.

Salary by Major: Will Your Degree Pay Off?

Not all college degrees translate into equivalent earning power, and understanding the salary landscape of your chosen field before borrowing is one of the most practical steps you can take. The table below compares median starting salaries across common degree categories alongside the average debt load and a rough repayability assessment.

*Law salary medians vary widely. The top quartile of law graduates earns $190,000+, while the bottom quartile earns under $55,000. Sources: NACE 2025 Salary Survey, NCES, Bureau of Labor Statistics.

Federal Loan Forgiveness Programs: A Real Path to Relief

For borrowers who go into public service, education, healthcare, or certain nonprofit roles, federal loan forgiveness programs can dramatically change the repayability equation. These programs are real, though they require careful planning and consistent adherence to program rules.

Public Service Loan Forgiveness (PSLF) cancels the remaining balance on Direct Loans after a borrower makes 120 qualifying monthly payments (10 years) while working full-time for a qualifying government or nonprofit employer. As of 2025, over 700,000 borrowers have received forgiveness through PSLF, according to Federal Student Aid’s PSLF tracker. This is a particularly important option for teachers, social workers, government employees, and those working in public health.

Teacher Loan Forgiveness provides up to $17,500 in forgiveness for teachers who work five consecutive years in low-income schools, per Federal Student Aid.

Income-Driven Repayment (IDR) Forgiveness cancels any remaining balance after 20 to 25 years of payments on an IDR plan. The SAVE plan (Saving on a Valuable Education), introduced by the Department of Education, caps payments at 5% of discretionary income for undergraduate borrowers — the lowest cap of any federal repayment plan in history. Note that forgiven amounts under IDR plans (outside of PSLF) may be treated as taxable income in the year of forgiveness, so consult a tax professional before relying on this path.

Strategies to Improve Your Chances of Repaying Student Loans

Beyond choosing the right school, major, and loan type, there are concrete financial strategies that can meaningfully improve your ability to repay student loans after graduation.

Refinancing to a Lower Interest Rate

Once you have stable employment and a solid credit history, refinancing your student loans through a private lender like SoFi, Earnest, or Laurel Road may lower your interest rate and reduce your total repayment cost. Borrowers with a FICO Score above 700 and a DTI below 40% often qualify for rates significantly below the federal rate. However, refinancing federal loans into private loans permanently eliminates access to federal protections including IDR plans, PSLF, and federal deferment options. The CFPB’s refinancing guidance recommends weighing these trade-offs carefully before proceeding.

Making Extra Payments on Principal

Because student loan interest accrues daily on the outstanding principal balance, making even small extra payments directed toward principal can significantly reduce total interest paid over the life of the loan. On a $37,000 loan at 6.53% APR, paying an extra $100 per month reduces the repayment period by approximately 2.5 years and saves roughly $2,800 in interest. When making extra payments, always specify in writing (or through your servicer’s online portal) that the additional amount should be applied to principal, not to future payments — a distinction that servicers have historically handled inconsistently, as documented by the CFPB in its student loan servicer research.

Building an Emergency Fund Before Aggressively Paying Down Loans

One of the most common financial mistakes new graduates make is putting every available dollar toward loan repayment before establishing an emergency fund. Financial planners generally recommend maintaining three to six months of essential expenses in a liquid savings account. Without this cushion, an unexpected expense — a car repair, a medical bill, a period of unemployment — can push a borrower into delinquency. Loan delinquency is reported to credit bureaus including Experian, Equifax, and TransUnion after 90 days, and federal loan default occurs after 270 days of missed payments, triggering severe consequences including wage garnishment and loss of future federal aid eligibility.

Taking Advantage of Employer Student Loan Benefits

As of 2026, Section 127 of the U.S. tax code allows employers to contribute up to $5,250 per year tax-free toward an employee’s student loan principal and interest, a benefit that has been extended permanently as part of recent federal legislation. A growing number of major employers — including Fidelity Investments, Aetna, and several large hospital systems — now offer this benefit as part of their compensation packages. When evaluating job offers, it is worth asking specifically whether a student loan repayment assistance benefit is available, as it can effectively accelerate your repayment timeline by years.

Warning Signs That You May Be Borrowing Too Much

Recognizing overleveraging before you graduate — rather than after — gives you the most options for corrective action. Here are the clearest warning signs that your student loan burden may be unmanageable:

• Your projected total debt at graduation exceeds your expected first-year annual salary.
• You are relying on Parent PLUS Loans, which carry higher interest rates (currently 9.08% APR for 2025–2026) and fewer repayment protections than Direct Loans.
• You are attending a for-profit institution — the CFPB and the Department of Education have documented significantly higher default rates at for-profit schools compared to public and nonprofit institutions.
• Your school has a graduate employment rate below 60% in roles requiring a degree, which can be verified through the Department of Education’s College Scorecard.
• You are taking on private loans with variable interest rates, which can increase significantly if the Federal Reserve raises benchmark rates.
• You have not completed a Free Application for Federal Student Aid (FAFSA) to exhaust all grant and scholarship options before borrowing.

Frequently Asked Questions

How much student loan debt is too much?

As a general rule, your total student loan debt at graduation should not exceed your expected first-year salary. For example, if you expect to earn $50,000 per year, borrowing more than $50,000 is likely to create repayment difficulty. This benchmark, endorsed by Federal Student Aid and many financial planners, is sometimes called the “one-year salary rule.” Borrowers who exceed it face disproportionately high default rates.

What happens if you can’t repay your student loans?

If you miss federal loan payments for 270 days or more, your loans enter default. Default consequences include wage garnishment of up to 15% of disposable income, seizure of federal and state tax refunds, damage to your credit score (reported to Experian, Equifax, and TransUnion), and ineligibility for future federal student aid. Private loan default timelines vary by lender but typically trigger the same credit consequences. The Federal Student Aid default page outlines all consequences and recovery options in detail.

Are student loans dischargeable in bankruptcy?

Student loans are generally not dischargeable in bankruptcy under standard proceedings. To discharge student loans through bankruptcy, a borrower must separately file an “adversary proceeding” and prove “undue hardship” — a legal standard that courts have historically applied very narrowly. The Department of Justice and Department of Education updated their joint guidance in 2022 to make this process somewhat more accessible, but discharge remains rare. This is why it is so critical to borrow conservatively in the first place.

What is the difference between federal and private student loans?

Federal student loans are issued by the U.S. Department of Education, carry fixed interest rates set annually by Congress, and offer income-driven repayment plans, loan forgiveness programs, and flexible deferment options. Private student loans are issued by banks, credit unions, and specialty lenders like SoFi and Sallie Mae, carry variable or fixed rates based on your FICO Score and DTI, and offer very limited consumer protections by comparison. The CFPB recommends exhausting federal loan eligibility before turning to private lenders.

What are income-driven repayment plans?

Income-driven repayment (IDR) plans are federal repayment options that set your monthly payment as a percentage of your discretionary income rather than your loan balance. The four main IDR plans are SAVE, PAYE, IBR, and ICR. The SAVE plan, the newest and most generous, caps payments at 5% of discretionary income for undergraduate borrowers and forgives remaining balances after 20–25 years. IDR plans are available only on federal loans and require annual income recertification through Federal Student Aid.

Can you negotiate the interest rate on student loans?

Federal student loan interest rates are set by Congress and cannot be individually negotiated. However, you can potentially lower your effective rate by refinancing into a private loan through lenders like SoFi, Earnest, or Laurel Road if you qualify based on your FICO Score, employment history, and DTI. Be aware that refinancing federal loans into private loans permanently eliminates access to all federal protections. Refinancing is generally advisable only if you have stable income, a strong credit profile, and do not expect to need federal IDR plans or forgiveness programs.

What is Public Service Loan Forgiveness and who qualifies?

Public Service Loan Forgiveness (PSLF) cancels the remaining balance on Direct Loans after 120 qualifying monthly payments (10 years) made while working full-time for a qualifying government or 501(c)(3) nonprofit employer. Qualifying employers include federal, state, and local government agencies, public schools, public hospitals, and most nonprofit organizations. Payments must be made on a qualifying repayment plan (typically an IDR plan). As of 2025, over 700,000 borrowers have received forgiveness through PSLF, per Federal Student Aid.

How does your college major affect your ability to repay student loans?

Your major is one of the most direct predictors of loan repayability because it largely determines your starting salary and job placement rate. According to NACE’s 2025 Salary Survey, STEM graduates earn median starting salaries of $72,000–$85,000, while humanities and fine arts graduates earn $38,000–$46,000. Since loan payments are fixed regardless of income, a lower starting salary leaves less room in a monthly budget for debt service. Choosing a high-demand field with strong salary growth — or limiting borrowing relative to expected income — is the most reliable path to manageable repayment.

Is it better to pay off student loans early or invest?

This depends on your interest rate. If your student loan interest rate exceeds approximately 6–7%, paying down debt typically provides a better guaranteed return than most conservative investments. If your rate is below that threshold — particularly for federal loans near 5–6% APR — it may make mathematical sense to invest in a diversified portfolio (such as through a 401(k) or IRA) while making standard loan payments, especially if your employer offers a 401(k) match. A fee-only Certified Financial Planner (CFP) can help model this decision based on your specific situation.

What is the College Scorecard and how can it help you choose a school?

The College Scorecard, maintained by the U.S. Department of Education at collegescorecard.ed.gov, provides transparent data on graduation rates, post-graduation earnings, median debt loads, and repayment rates for thousands of U.S. colleges and universities. It is one of the most powerful free tools available for evaluating whether a specific school’s degree is likely to justify the borrowing required. Comparing two or three schools on the Scorecard before committing can reveal significant differences in graduate outcomes that rankings alone do not capture.