'It's All a Scam': American Student Took Out $49,548 in Loans, Paid $25K — Balance Rose to $50,121

US student loans are a major pain point for Americans even decades after graduation. In Q1, US student loan balances stood at $1.66 trillion. However, the Federal Reserve of New York estimated that student loan delinquency rates rose to 10.3% of balances 90+ days delinquent, up from the 9.65% in Q4 2025.

Rising costs of living, elevated inflation, and uncertainty in the job market due to AI are making it difficult for both working and retired Americans to keep their household finances from falling apart.

Recently on X, a user shared how she was shocked to find that after making 120 payments worth a total of $25,558 towards her student loan with a principal balance of $49,548, her current outstanding still stood at $50,121. After paying thousands of dollars in repayments, she now owes more than originally borrowed.

'It's all such a scam,' the woman remarked after finding out her efforts rarely made a dent into the loan principal amount.

However, many X users had diverging views to share. One of them highlighted that paying a monthly minimum of $254 for 120 months on a $50,000 student debt at a 5% interest rate won't even cover the interest on the loan. If she had made monthly payments of $530.33 per month, the loan would have been paid off in just a decade.

Struggling Despite Being Under the PSLF Scheme

In the short clip on the social media platform X, the woman shared a crucial detail. She said her student debt is under the Public Service Loan Forgiveness (PSLF) scheme.

This scheme forgives the outstanding balance on your direct loans after making 120 qualifying monthly payments over 10 years under a qualifying repayment plan while working full-time for an eligible employer.

After you make your 120th qualifying monthly payment for PSLF, you have to submit the PSLF form to receive loan forgiveness. When submitting the final PSLF form certifying your employment, make sure that the employment period is checked as 'still employed' or certified by your employer in the same month as your employment end date.

The PSLF Buyback scheme allows borrowers who were in forbearance, which usually does not count toward the 10-year requirement, to pay an amount equal to what they would have paid if their payments hadn't been paused. Once paid, their remaining debt is forgiven.

While it is naturally daunting to find years of repayments not reducing your debt as expected, financial illiteracy also plays a role. For instance, it is unclear if the woman on X knows about the workings of the PSLF scheme or if she understands it is crucial to make higher payments than the monthly minimums to reduce the principal debt after tackling the interest payments.

The National Financial Educators' 2025 survey revealed that financial illiteracy cost Americans around $1,000 a year. Around one-third of the survey respondents lost more than $1,000 in 2025 due to lack of financial knowledge.

In all, the US Education Department has lowered its backlog of loan forgiveness applications for public service workers. The latest report from April shows that the backlog of PSLF applications fell by about 1,720 to 88,000. In that month, 6,870 applications were approved or denied.

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