## Question:

I want to know what percentage of the 1.75 trillion Student Loan market is actually principal versus interest. I am unable to find this but have heard from sources I trust that the principal is 30% of this.## Answer:

There are some very good resources on the web that answer many questions about student debt. The Education Initiative [https://educationdata.org/student-loan-debt-statistics] has a particularly nice compilation of information. Unfortunately, the question of how much of the current debt is principal and how much is interest is *not* one of them.

One complication is that current student debt holders are facing very different interest rates, depending on when they incurred their debt. That complicates the computation. Students also may have different debt repayment programs, some of which depend on a share of income and others that have fixed payments. Moreover, the length of payment varies as some try to repay the debt as quickly as possible and others let the payments drag on for many years.

To come up with an example of the principal versus interest, we have to pick a specific level of debt with a specified interest rate and repayment period. I used one of the available online debt calculators, the Federal Student Aid Loan Simulator [https://studentaid.gov/loan-simulator/] The figures below represent a typical loan arrangement for someone who started school in 2019-2020 and graduated in 2024

Suppose the student borrowed $30,500 to complete the undergraduate degree, a bit below the average amount of $32,362 borrowed by public university students in 2023. The interest rate is 4.5% and the standard fixed repayment plan covers 10 years. The graduate would pay $316 per month for a cumulative repayment of $37920 over 10 years. The $7,420 paid in interest represents 19.6% of the total repaid, so principal is 80.4% of the total.

Suppose instead that the student borrows $140,870 to go to law school. At the same 4.5% interest on a loan to be repaid over 10 years at $1,564 per month, the graduate would pay $187,680. Principal is 75% and interest is 25% of the total.

The current interest rate is 6.53%, and so students borrowing this year would expect to pay a larger share in interest. Using the same parameters with the higher interest rate, interest payments become 36% of the total.