According to the National Center for Education Statistics, 66 percent of undergraduate students received financial aid of some form in the 2007 to 2008 school year. While those figures included grant money that students don't have to pay back, a full 52.9 percent of full-time undergraduate students took out some type of student loan that must be paid back during the same time period. These students will likely all have outstanding student loans, sometimes for years to come.
Outstanding student loans refers to loans that have a remaining balance. In other words, if you still owe any money to any student loan lender, then you have outstanding student loans. Once you have paid of all of your outstanding student loans, then your student loans are said to be paid in full.
Student loans are broadly categorized into two main types: federal loans and private loans. Federal loans are those loans issued or backed by the government. They include Plus Loans, Stafford Loans and Teach Grants, among others. Federal student loans may be issued by the Department of Education, Sallie Mae or various other approved lenders. Federal loans are either subsidized--which means the government pays the interest while you are in school--or unsubsidized, which means the loans accrue interest. In addition to federal loans, some students take out private loans. These are loans issued by lenders and not backed by the government. They tend to have higher interest rates and less flexible payment terms.
Student loans are often considered to be good debt because they are for your education. They also usually have low interest rates, especially government loans. This means that people are often encouraged to refrain from paying off their outstanding student loans to use the money elsewhere, where it may be able to earn a higher return. Student loans normally have long repayment periods-- sometimes as long as 25 years with the Department of Education, depending on how much you borrowed. As a result, you may keep your outstanding student loans for years.
There are several other considerations you need to take into account when deciding whether to pay off your outstanding student loans early or just make the minimum payment. For example, student loans generally have flexible payment options. You may be able to tailor your monthly payment to your income, on an income contingent repayment plan. You may be able to opt for your payments to rise gradually as your income goes up, if you opt for a graduated repayment plan. You can also just elect the standard, fixed-rate payment plan. Finally, if you fall into financial hard times, you may be able to put your student loans into deferment or forbearance, which means you will not have to pay on your outstanding student loans for a given period of time.
Although having outstanding student loans can seem like a good idea, there are some warnings. First, private loans tend to not have the same favorable assets as government loans, so keeping outstanding private loans is usually not as good of an idea. Second, even with government private loans, if you aren't paying them because your account is in forbearance, or if your minimum payments on the income contingent plan aren't enough to cover your interest, your student loans are still accruing interest throughout this period of non-payment. This means you could end up owing a lot more than what you originally borrowed. Finally, student loans usually can't be shed in bankruptcy, of if you have outstanding student loans, there is almost no way to get out of paying them, no matter how poor your financial situation.