TAKING ON STUDENT LOAN DEBT

Student loan debt

Student loans have become more and more of a problem over the years. Students are becoming dependent on larger loan amounts to cover their tuition with ever rising costs to attend college. 70% of graduates are now leaving school with debt, owing an average of almost $38,000, a difference of almost $30,000 when comparing it to the average debt that baby boomers had coming out of school. Not to mention those who decide to continue their education looking at even more substantial amounts of debt coming out of graduate school.

Realizing the magnitude of taking on student loan debt:

1. In total student loan debt in the United States exceeds $1.4 Trillion a number that is close to the GDP of Belize which has a population of close to 400,000 people. By just that one number alone you can tell that becoming part of that ever-growing debt system you can potentially keep paying on student loans for a major portion of your life. You need to analyze the potential impact it can have on you starting a fruitful career. A lot of what your post graduate years will depend on is where you live or where you plan on living, because the living costs will be much different in Los Angeles, California than they would be in Des Moines, Iowa. There is always going to be a risk in taking a student loan, but if necessary then you need to make sure to go over the small things that could derail your long-term plan (such as living expenses, transportation, years spent in college, gpa, scholarship opportunities) all of which take on a bigger role when combined.
2. This is not just a millennial problem. Increasing student loan debt has effected parents and grandparents as well. Over 33% of student loan debt is held by people 40 years and older. More than 80% of seniors who are in default incurred their debt for their own educations. One thing that is apparent when it comes to student loans is that the families that are taking them out are doing enough to receive the aid, but usually do not do enough to discuss the responsibilities and setting up a proper plan to pay back the student loans.
3. “The national student loan default rate, 11.8 percent a year ago, stands at 11.3 percent. It is one of the most closely watched metrics in higher education because schools with default rates of 30 percent or more run the risk of losing access to federal student aid.” The fact is that colleges run like a business and they are willing to taking on defaulting student loan debt, but if a 30% rate was reached especially by a larger school the financial impact could reach much greater than to the school just losing federal support, they will affect careers, jobs, students’ futures and the surrounding economy those people would ultimately feed into and contribute to, which could create ruins to areas of our nation. We see many schools that struggle to get federal support and the impact that it has on the surrounding community, which is devastating.
4. We can appreciate the scope of the problem by considering a hypothetical recent college graduate who earns $50,000 per year but, for the first five years of her career, foregoes contributions to her 401(k) plan at a rate of, say, 4 percent of salary. During this period she also misses out on a dollar-for-dollar employer match on those contributions. If we assume she would have earned an average annual return of 6 percent on her investment, she will have lost $245,000 of potential retirement wealth by the time she reaches the normal Social Security retirement age of 67.

For many people college is a big step and can cause a great financial burden, but know with the proper planning and understanding of the undertaking you can keep on track to being financial secure and having a college degree.

Sources:

https://www.debt.org/students/
http://statisticstimes.com/economy/countries-by-gdp.php
https://www.washingtonpost.com/news/grade-point/wp/2016/09/28/student-loan-default-rate-dips-but-considerable-work-remains-education-secretary-says/?utm_term=.ab3bb26eda5a
http://www.studentaidpolicy.com/excessive-debt/Excessive-Debt-at-Graduation.pdf
http://research.prudential.com/documents/rp/paying_for_college_a_practical_guide_for_families.pdf
http://libertystreeteconomics.newyorkfed.org/2012/03/grading-student-loans.html#.VT5GS8tOXcs