Americans are drowning in student loan debt. How does the rest of the world compare? – Reckon

Student loan debt in the United States is among the largest types of debt in the country. Some have called it the next great economic bubble, like the subprime mortgage crisis of 2008.

In all, Americans owe $1.78 trillion. A little over 7% of that comes from private loans, while the rest comprises a variety of federally funded lending. And it’s a bubble that’s getting bigger.

It has trebled in 15 years, growing from $545 billion in 2007 to today’s gargantuan figure.

The Biden Administration attempted to lighten the load by forgiving $10,000 of federal student loan for each borrower, only for the Supreme Court to strike down the $400 billion plan at the end of June. But all is not lost. A new plan released by the White House seeks to cut loan repayments in half for some and to zero for borrowers in poverty while also forgiving some balances after 10 years instead of 20 years. It also will ensure that some borrowers who make regular monthly payments do not see their balance pushed up by high interest.

For individuals, the debts amount to $38,000 for federal and $55,000 for private on average, which usually comes with a high level of interest and terms that force the borrower to start paying it back between six and nine months of graduating for federal and sometimes immediately in the case of private loans.

Despite not being the wealthiest country in the world, only one other nation saddles its students and future workers with that level of debt. English people in the United Kingdom have higher debt than Americans leaving college, racking up $58,000 on average. However, those loans are made exclusively through the government, have far lower interest rates, and are paid off through the borrowers’ salary at 9% per month after the individual passes an earnings threshold.

For example, the average salary in the UK, which is where England is, is about $42,500. Depending on the borrowers’ repayment plan, all of which are similar, a recent graduate would pay back $105 a month, based on that salary, according to the UK Government’s own calculations.

Students from other parts of the UK have far lower levels of debt because tuition is cheaper or completely free, like in Scotland. Most only have cost-of-living loans, and those are typically given to younger students as a bursary, like in Scotland. If only we were all Scottish.

However, some people never pay off their debt in the United States and end up with far more than they started with. You’ve no doubt read the horror stories.

In some communities, particularly those of color, student debt is higher and is typically paid back at a far slower rate – which allows interest to build and can seriously hobble a person’s future. They are less likely to buy a home, contribute to retirement, have savings, or spend money in small businesses within their communities. Some people might even avoid having children because of student debt.

And, of course, it can be detrimental to a person’s mental health.

While English students carry more debt, no other country in the world has created such an economically detrimental system as the U.S.

The cost of college tuition in the U.S. varies per state and whether the student is attending in-state or out-of-state, private or public. But in general, the average cost of tuition and expenses is about $36,500 per year. Their debt is just under $30,000 on average, while monthly repayments come in at about $500. And as you know, loan forgiveness is not easy to get.

Here’s a snapshot of how five other countries deal with student loans and repayment:

Scotland

In Scotland, tuition is free, and most students of a certain age and economic circumstances will receive a bursary for living costs. Those who don’t qualify for the bursary will pay back any money borrowed once they enter the workforce and earn a certain amount. The interest rate is currently 5.25%, but it has been as low as 1% in past years. When the student does start repaying, 9% is taken from the person’s salary after they pass an earning threshold.

Tuition: $0

Average student debt: $20,000 (living costs)

Average Monthly repayment: $55

Debt cleared after 30 years.

Sweden

Of course, the famous liberals of Sweden don’t charge its citizens tuition. It doesn’t charge other European Union, Nordic, or Swiss citizens either.

Any debt accrued is normally the result of living expenses. The manageable and automatic payments increase by 2% annually over 25 years. That means you pay less when you earn less, and you pay a little more as you progress with your career and your salary increases. Seems sensible.

The loan is usually paid off within 25 years. However, anyone struggling with financial hardship can reduce their payments to 5% of their income. And get this. Interest rates are currently 0.59%. In the U.S., federal loan interest rates can vary between 5% and 7.54%, while private loans can be as much as 14%.

Tuition: $0

Average student debt: $15,000

Average monthly payment: $124 a month for new graduates on average

Debt cleared: After turning 68.

Australia

Don’t feel too bad, Americans. Australia hasn’t got it all that good, either.

Australian borrowers can take out loans for tuition but not living expenses. Once they graduate, repayments start when their salary exceeds $32,285. Entry Level salaries in Australia start at about $36,700, so most start repaying when they get a job. The repayment plan is good and begins with 1% of the salary over a certain threshold and then rises with the salary, topping out at about 10%.

However, because student debt in Australia is linked to rising national interest rates, borrowers have seen significant increases in monthly payments, with many concerned they may never pay off their debt.

There is no forgiveness.

Tuition: $10,429 to $22,937 per year

Average student debt: $16,189

Average monthly payment: $26 on the lowest income level but usually much higher.

Debt cleared: Never.

France

French students enjoy a state-funded higher education system like much of the European Union. Most students pay a small amount per year, but despite the low tuition cost, there is lots of help for students who still don’t have the money for college.

Merit-based grants offer $220 per month for the best students, while other larger grants help students from troubled families, those wishing to study abroad, and anybody requiring emergency assistance. While loans are available, only a minimal number of students need to take them out, meaning student debt is negligible. For example, only 2% of students in 2014 took out any loan to study in France.

Tuition: $396 to $3,932 per year

Average student debt: N/A

Average monthly payment: N/A

Debt cleared: N/A

New Zealand

New Zealanders also have a system similar to the United States. About 70% borrow money to attend college and pay 12% of every dollar earned once their income hits just over $14,000. There is no interest rate on the loan if you stay in the country.

However, New Zealand has a problem that you may not be aware of. Not content with living all the way down in the South Pacific, many New Zealanders leave and never return. Those people face an interest rate of about 2.9% if they are gone for longer than 6 months. However, only about 58% of overseas New Zealanders signed up to pay student debt as of June 2022, and those living abroad are responsible for 92% of overdue debt, amounting to about $1.23 billion.

Tuition: $4949

Average student debt: $14,791

Average monthly payment: $168 for the lowest income level.

Debt cleared: If you die!