Americans owe $1.3 trillion in outstanding student loans. That's the second largest consumer debt, surpassed only by mortgages. A college education can cost as much as or more than a mortgage. But the stakes are higher if you run into trouble paying your student loans. Here's why student debt is harder to manage than a mortgage.

How Is Interest Set?

Mortgages
Private lenders continuously set and reset rates based on movements in the secondary markets, where bundles of loans are bought and sold. Rates for a conventional 30-year fixed-rate mortgage fluctuate along with the 10-year Treasury yield.

Student Loans
Congress sets federal loan rates each spring off the 10-year Treasury note. Private lenders have their own formulas. Student loan interest rates are typically higher than those of 30-year fixed-rate mortgages.

Can You Refinance to Take Advantage of Lower Rates?

Mortgages
Yes, through many banks and credit unions.

Student Loans
Yes, but be warned: Few private providers offer these services, and when you refinance federal loans, you forfeit key consumer protections.

Can You Discharge Your Loan in Bankruptcy?

Mortgages
Yes.

Student Loans
Not without proving “undue hardship” to a bankruptcy judge with challenges from the lender, a high bar.

Is There Recourse Against Bad Loan Servicing?

Mortgages
Yes. If the mortgage servicer applies payment improperly—thus breaking the law—you can sue.

Student Loans
Not much, because there are no consistent industry standards for student loan servicers.

Can the Loan Grow Bigger Over Time?

Mortgages
Not really, due to rules forbidding servicers from setting too-low payments, causing interest to add up.

Student Loans
Yes. That can happen with income-based repayment plans and in other circumstances. When unpaid interest is added to principal, debtors pay interest on interest.


Editor's Note: This article also appeared in the August 2016 issue of Consumer Reports magazine.