For most Americans desiring a higher education, borrowing has become the primary way to pay for that college degree. Flip open any money magazine scroll through a personal finance blog written by the typical twentysomething and looming student loans are often the topic of the day.
Here are a couple of examples. Mrs. Micah at Finance and Life explains:
I’m a 22, recent college grad who just got married this summer. Along with getting a brilliant and loving husband, I acquired $100,000+ in student loan debt (which he acquired for the 10 years of school in getting a PhD.), $8,000 in car debt and $800 in credit card debt.
The bloggers at We’re in Debt are another young couple in a similar situation:
Going to school for more than four years has not been kind on our finances. With school comes the inability to work real full time jobs. As one of us went to graduate school, this led to a three year period in which one of worked and the other went to school. We have finally settled down into the real world of our career jobs with slightly over $150,000 in debt. While we have worked 40 and 50 hour weeks for the last four years, the debt still continued to grow unabated. We have pumped every dime that we could earn into paying our debt, but it’s still there and is hindering our futures.
Their student loan payoff ticker is currently totaling $139,615. Ouch! That’s a small amount compared to these young doctors with a $500,000 tab. Double ouch!!
Dayana Yochim from The Motley Fool weighed in on the topic recently:
Debt is one of the most complex four-letter words in finance. One person’s $10,000 IOU burden is another’s $10,000 borrowing deal. At The Motley Fool we differentiate between “good” debt and “bad” debt. “Good” debt tends to carry these common attribute: a low, fixed interest rate and the likelihood that the asset in which debt was used to secure will appreciate in value over time (e.g. a house). “Bad” debt is identifiable by high, non-fixed interest rates and being used to buy things that lose value over time (like cars and pretty much anything you put on a credit card).
While student loan debt is not a tangible asset you can sell off at a gain, it does tend to carry the attributes of “good” debt — something worth borrowing money to obtain. You get an education because it will improve your future job prospects, earning potential, and, heck, maybe even widen your dating pool.
But, unfortunately, many graduates feel burdened by this “good” debt. I asked Anya Kamenetz, the author of Generation Debt how twentysomethings became the most indebted generation in modern history and she answered:
Take your pick: a shift in federal policy from student grants to student loans, the liberalization of credit laws, increased consumerism, the failure of the health care system, a globalized job market with more short-term jobs and fewer benefits, fiscal irresponsibility on the federal level, and a failure to address a demographic shift that’s gonna leave America with the same ratio of elderly people that Florida has now.
There’s been an explosion in private student loans over the last decade. It’s a broken system when families and students need to resort to these options — some of these loans have interest rates as high as 19-20 percent.
Jeanine and I both have nieces getting ready to embark on their college experience. One comes from a set of parents that have been planning for this expense since her birth; the other has parents that intend to wing it. I fear what this means for her future.
Yesterday, Suzanne S. wrote a guest post over at Get Rich Slowly that is lovingly addressed to her goddaughter, a recent college graduate:
Debt is your enemy because it’s a trap. It’s hard to get out of it. If you can only afford to pay the minimum balance, debt can very easily spiral out of control. It can take away your freedom to make the best decisions for yourself.
If you are one of the 50,000 students who graduated with debt in the UK in 2007, do everything you can to get out of it fast. According to reports, students are facing an average “debt sentence” of 11 years, and 35% will postpone starting a family, marriage, or buying their own home by an average of six years.
So what’s the solution? The blogger at Punny Money offers up Ten Ways to Get A Debt-Free College Education and while I disagree with Number 5 (have your parents take out a home equity loan to pay for your education), the rest are really solid suggestions.
Are you in college or a recent grad — what’s your story? I’m always interested in having a conversation below.