With so many people eagerly awaiting the Supreme Court’s decision on Biden’s student debt forgiveness plan, it’s easy to forget about the other types of debt many people contend with. For example, credit card debt is a common problem for Americans even though the numbers do tend to ebb and flow over time. Experian reports that the average credit card balance for Americans increased to $5,910 in 2022 with millennials having average balances of $5,649 and Generation X borrowers owing $8,134.
Then there are car loans, which have significantly ballooned over the last few years. Per Experian’s State of the Automotive Finance Market report from Q4 of 2022, the average new car loan was for $41,445 in the final quarter of last year, which meant an average new car payment of $716 that lasted an average of 69.44 months. The numbers don’t get much better for used cars either with the average loan amount at $27,768 and the average monthly payment at $526 for 68.01 months.
Of course, people have other debts, too, including mortgage debt, personal loan debt and even money owed to family and friends. All of this makes you wonder where student loans fall into the mix, and whether you should treat student loan debt the same as other debts you owe.
For the most part, experts agree you’re probably better off treating student loan debt differently than other debts — whether Biden’s student loan forgiveness plan passes or is ultimately blocked by the Supreme Court. There are several reasons treating student loan debt with less urgency could leave you better off, which are detailed below.
Credit Card Debt Should Likely Be Your First Priority
Cimalie Zoy, who serves as Director of Financial Planning at Edelman Financial Engines, says that debt is either destructive or constructive, and that credit card debt often falls into the “destructive” category.
“Credit card debt is often our most expensive debt, and I recommend paying it off ASAP, especially before you look to pay off student loan debt,” says Zoy.
The data doesn’t lie. According to recent figures from the Board of Governors of the Federal Reserve System, the average interest rate charged on credit card accounts assessed interest came in at 20.92% as of February 2023. Meanwhile, the average rate on 24-month personal loans came in at 11.48%, and the average 60-month car loan rate came in at 7.48%.
While federal student loans come with fixed interest rates based on the year you took out the loan, they aren’t anywhere close to the average rates for credit cards right now, which are also variable. If you’re paying off debt (or trying to) on a card that is charging anywhere near the average rate, you should look into ways to pay off that debt more quickly, perhaps through debt consolidation or a balance transfer credit card.
Federal Student Loans Have Multiple Repayment Plan Options
While credit card debt should be treated with urgency, there’s an argument to be made for paying off federal student loans over a lengthy time period of up to 25 or even 30 years. Financial advisor Joseph Carpenito of Materetsky Financial Group points out that there are multiple income-driven repayment plans to choose from right now, all of which let borrowers make low monthly payments based on their income for 20 to 25 years.
Carpenito does point out that, while these programs may offer lower monthly payments or even $0 payments, they can also lead to higher overall interest paid over the life of the loan. However, today’s income-driven plans also forgive remaining loan amounts at the end of the plan term.
If you choose this option, however, you’ll want to watch out for the student loan debt tax bomb that may head your way (which is currently paused, but may resume again in 2026).
And, even if you don’t want to do income-driven repayment, you can pay off federal Consolidation Loans for up to 30 years, or opt for an extended repayment plan for federal student loans that lasts up to 25 years.
Deferment And Forbearance
Where credit card debt, auto loans and other debts you have may not be very forgiving if you are struggling to keep up with payments due to financial hardship, federal student loans come with deferment and forbearance options that can buy you some time.
Both options for federal student loans let you pause your monthly payments for a limited time while you get back on your feet. The U.S. Department of Education points out that, with a loan forbearance specifically, you can pause monthly payments or reduce your monthly payments for up to 12 months.
Other Debt Forgiveness Plans
You have almost certainly heard about Public Service Loan Forgiveness (PSLF), which lets borrowers who work in eligible public service positions have their remaining debts forgiven after making payments on an income-driven repayment plan for 10 years (120 months). However, there are a range of other student loan debt forgiveness plans you can access based on military service, your specific profession, or the industry you work in.
There are more state-based student loan forgiveness plans than many people realize as well, and some of them don’t have a specific work requirement to qualify. Either way, you’ll notice that getting credit card debt or auto loan debt forgiven isn’t as common unless you plan to file bankruptcy.
Federal Student Loan Interest Can Be Tax-Deductible
While other debts you owe won’t help you out any when it comes to your tax bill, the same can’t be said about federal student loans. Financial advisor Danny Cieniewicz of Hyperion Financial says that interest charges on Direct Loans can be deductible, although income caps apply.
Specifically, borrowers who file single making below $75k (phases out completely at $90k), as well as those married filing jointly who earn below $150k (phases out completely at $180k) can qualify to deduct up to $2,500 in student loan interest in 2023.
“Outside of mortgage interest and business loan interest, no other interest is deductible on taxes,” said Cieniewicz.
Anything Could Happen with Federal Student Loan Debt
While we don’t yet know what will come of Biden’s student loan forgiveness plan after the Supreme Court issues their final ruling, the administration likely has some backup plans in the works. For example, it’s possible President Biden will try to erase some federal student loan debt for eligible borrowers through executive action.
We also know the Biden administration is trying to amend REPAYE so it leaves more borrowers with a $0 monthly payment while cutting monthly payments in half for everyone else. Of course, the next few years could also bring a range of new solutions to our student loan debt crisis we don’t even know about.
Ultimately, the uncertainty is yet another reason to make payments on student loans without prioritizing them. Your other debts should be paid off with urgency, or at least as you can afford them. Pay at least the minimum payments on your student loans, but the rest can wait.
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