FARGO — Thanks to rising tuition costs and decreased government funding, students are paying more than ever for a college degree.

Student loan debt for U.S. borrowers reached an astounding $1.6 trillion during the first quarter of 2019, according to data recently released by the Board of Governors of the Federal Reserve System. That's nearly double the $707 billion that borrowers carried in the first quarter of 2009.

Sixty-nine percent of college students in the class of 2018 took out student loans, and they graduated with an average debt of $29,800, according to studentloanhero.com.

Student loan balances surpassed U.S. credit card debt in 2010. If they continue to climb at the current rate, they are expected to overtake mortgage balances as well in just 25 years.

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Why does this matter? Economists have been studying the effects of rising student loan debt on the overall economy for years. Several were detailed in a story published last month by the Washington Post:

  • Student loan debt is causing a delay in marriage and family formation. A 2014 study found a link between a woman's student loan repayment schedule and marital timing. A $1,000 increase in student loan debt, researchers found, lowers the odds of marriage by 2% a month among female bachelor's degree recipients in the first four years after graduation. Research has shown that marriage confers myriad of economic benefits: For starters, married people, particularly men, earn more money. And children who grow up in two-parent households tend to be better off as adults.
  • It's hampering the growth of small businesses. A 2015 study by economists at the Federal Reserve Bank of Philadelphia found "a significant and economically meaningful negative correlation" between rising student loan debt and falling small-business formation. The mechanism isn't hard to grasp: If you're paying off a student loan, you're less able to pull together the cash to start a small business.
  • It's preventing young people from saving for retirement. A 2018 study by the Center for Retirement Research at Boston College found that while student debt didn't affect 401(k) participation rates, it did affect how much young workers were able to sock away. "Those with debt have only about half as much in assets by age 30 as those without debt," the report found.
  • Student loan debt is taking a bite out of the housing market. This year, the Federal Reserve issued a report showing that student loan debt prevented about 400,000 young families from purchasing homes, accounting for about a quarter of the drop in homeownership rates in this demographic from 2005 to 2014. In addition to the obvious connection between debt payments and the ability to save for a down payment, the researchers found that the rise in student debt increased borrowers' odds of default, which has a major adverse effect on their credit scores and, therefore, their ability to qualify for a mortgage.


Refinancing options

In 2015, Gate City Bank debuted its BetterLife Student Loan Program to help customers laden with student loan debt purchase or refinance a home. The program was the brainchild of Steve Swiontek, executive chair of Gate City Bank, but he attributes its success to the team that developed the concept.

Steve Swiontek
Steve Swiontek

"Hey, we need to do something about student loans nationwide," Swiontek told his staff. "It's really impacted students upon graduation. Let's come up with a plan that will really benefit them and allow them the opportunity to consider purchasing a home, whether it's a new home or refinanced one."

Since its launch, Gate City Bank reports it has helped over 1,700 customers refinance their student loans, saving each an average of $5,800 in student loan interest.

Eligibility requirements include:

  • Gate City Bank home loan on a primary residential home in North Dakota or west central Minnesota.
  • 12 months of repayment history on existing student loans.
  • A copy of a college degree, advanced degree or trade certificate is required.

Those who qualify can currently refinance student loans at a fixed 2% interest rate, compared to the 2019-20 federal student loan interest rate of 4.53% for undergraduate loans.

The BetterLife program helped Amanda Sayre and her husband, Benjamin Kieffer, purchase their dream home in West Fargo.

Sayre, a graduate of Minnesota State University Moorhead, said she recognized the savings from refinancing her student loan right away.

"The nice thing was that the home we purchased was the home we wanted, but it needed improvements. It (refinancing) helped with the mortgage payments and it was good to have that extra cushion," she said. "With our family being so young and having little kids, this program is keeping us on track for the life we want. The extra money helps us make home improvements and invest in our family more."

According to Gate City, the average student loan amount is $26,950 with a term of 125 months. At a payment of $237.34 month, the program has resulted in a monthly payment of $46 per month less than the national average student loan payment.

Tom Ternes, market manager for the Bank of North Dakota
Tom Ternes, market manager for the Bank of North Dakota

The Bank of North Dakota also offers a student loan refinancing program called DEAL One, which allows qualified North Dakota residents to refinance all their student loans, including federal loans, into one loan with one monthly payment. According to Market Manager Tom Ternes, BND has helped nearly 12,000 North Dakota residents save money through refinancing.

Borrowers, who are not charged any fees to refinance, can choose a variable rate of 3.92% or a fixed interest rate of 4.73%.

To qualify, they must:

  • Meet specific credit criteria.
  • Be a U.S. citizen.
  • Have loans in grace or repayment status.

Tips for minimizing college debt

The most obvious way to manage student loan debt is to borrow only what is necessary. Ternes offered the following tips for minimizing student loan debt:

  • We recommend that students not take out more than they need in student loans. A student should not spend more than 8-12% of their expected take-home income on student loans. They should research what their beginning salary in their field of choice will likely be and calculate the total amount in student loans from there. The BND website has a calculator at bnd.nd.gov/salary-to-debt to help students figure out how much they can afford to borrow.
  • During high school, students should take advantage of dual credit and advanced placement credits.
  • Pay off student loan interest during college.
  • Take the time to fill out scholarship applications.
  • BND also administers College SAVE, North Dakota’s 529 plan. This encourages people to start saving early. Two matching programs can provide qualified people with an extra $500 to help save for college: New Baby Match and the BND Match.
  • Students should do what they can to graduate in the expected amount of time, whether it is one, two or four years.

Student loan forgiveness

In 2007, a federal program known as Public Service Loan Forgiveness was implemented to encourage students to enter lower-paying careers that serve the public, such as teaching and nursing. In order to qualify, borrowers must have made 10 years' worth of payments while working for the government or a nonprofit. The first group of borrowers was eligible for debt relief in 2017, but few have been deemed eligible for debt forgiveness.

As of March 31, 86,006 borrowers had applied to the program, but just 864 had been approved. Over 56,000 were denied for not meeting program requirements, and 18,785 were denied for missing information.

To qualify, borrowers must work full time for a qualifying government organization or nonprofit. Borrowers must also hold specific federal Direct Loan Program loans. Private student loans are not eligible.

On Thursday, July 11, the Washington Post reported the American Federation of Teachers Union sued Education Secretary Betsy Devos, alleging the department of mismanaging the program.

As reported by the Washington Post, "The Public Service Loan Forgiveness program has become a lightning rod for controversy. It encourages federal student loan borrowers to work in the public sector with the promise of canceling the balance of their debt after 10 years of on-time payments. But participants say the companies the Education Department uses to service loans have led borrowers to believe they were making qualifying payments when they were not, processed payments incorrectly or botched paperwork."

Rising student loan debt is also being discussed by Democratic presidential hopefuls on the campaign trail.

Sen. Bernie Sanders, D-Vt., has proposed canceling the nation's student loan debt and offsetting it with a tax on Wall Street transactions.

Sen. Elizabeth Warren, D-Mass., has also released plans for eliminating student loan debt for a majority of borrowers. Her plan includes cancelling $50,000 in student loan debt for every person with household income under $100,000. It would also provide substantial debt cancellation for every person with household income between $100,000 and $250,000.

Closer to home, Sen. Amy Klobuchar, D-Minn., has said she supports free community college and a maximum Pell Grant of $12,000 a year. She also reportedly backs an option for borrowers to refinance their student loans. According to a Washington Post story, Klobuchar has thus far rejected calls for free, four-year, public college.

The Washington Post contributed to this report.