Debt-burdened Graduates: A Wake-up Call by STEVEN J. LEE The student loan crisis in America has reached staggering proportions. According to the Federal Reserve Bank of New York, student loan debt is now nearly one trillion dollars—an amount that exceeds what the country owes in credit card debt or the total amount of all auto loans. Of the 37 million burdened by student loan debt, more than 4 million owe in excess of $50,000. The average borrower owes $25,000. The implications are social as well as economic. Nearly 44 percent of 2010 graduates reported they would delay buying a house because of the burden of student loans; 22 percent reported they would delay forming a family and having children. Meanwhile, a virtual Twilight Zone is developing for the roughly 36 million Americans who have attended college without earning a bachelor’s degree. Changing career plans, leaving university early or failing for any reason to graduate drops borrowers into the worst of all worlds—potentially limited career options combined with a mountain of debt. So it’s no surprise that many students are asking, “Is it still worth it to invest in a four-year college education?” Here are some facts:
Lifetime Earning Power -Bachelor’s degree: $2.8 million -Some college, without a degree: $1.5 million -High school diploma: $1.3 million Of course, college is more than just a way to prepare for the work world. It can be a time to slowly transition into the adult world, a place to discover interests, test skills, build contacts and sometimes find a life partner. All nice, but these experiences come at a definite price. The average four-year college graduate who borrows the full amount of tuition and fees will not earn enough until age 33 to compensate for being out of the workforce for those years. There is also no guarantee of employment after graduation. Today, one out of two college graduates is unemployed or underemployed, without benefits such as health insurance. At this moment, delinquencies on student loans top 21 percent of the loans currently outstanding. Student loans cannot be discharged in bankruptcy and deadbeat status can interfere with access to credit cards, a home mortgage and other perks of a middle class life. The government will use its overwhelming power to force debtors to meet their obligations, and private student loan companies have almost the same pressure points. The government collects 85 cents on the dollar from defaulters, as compared to a credit card collector who can expect to recoup about 10 cents on the dollar. The bottom line is eventually borrowers will have to pay the bill on the full student loan.
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What can parents and students do to minimize risks and maximize benefits from investment in a bachelor’s degree?
Tips for Parents Help your child select a college or university with a reputation in the academic fields s/he finds of interest. Avoid variable rate loans in which payment costs could rise rapidly. Pay as much of the costs as you can afford and don’t over-borrow because of easy student credit standards. Calculators found at themoneyplanbook.com/blog/governmenthelps-tally-college-cost will help you plan basic tuition, room and meal plan costs.
Tips for Students Think carefully about a future career and what you enjoy doing. Never borrow for a vacation or consumer products. Get a part time job for spending money. Be sure your college loan has a grace period after graduation before payments start so you can land on your feet. We are at the point of time in the U.S. where college may not be the correct choice for everyone. College graduates don’t want to be lugging around a huge debt load in a difficult job market. The race to a satisfying career may be won without a sheepskin on the wall. There are many important trade careers that can offer a rewarding alternative and provide a standard of living equal to or greater than college specialties. After all, the richest man in America doesn’t have a bachelor’s degree and I bet he doesn’t miss it.
Steven J. Lee is the author of The Money Plan: Creating Wealth Independence for a Secure Future. He is a former CEO and entrepreneur, and currently runs a $40 million private investment fund. Lee holds a bachelor’s degree from Lehigh University, a law degree from Fordham University and an MBA from the Wharton School at the University of Pennsylvania. He is married, has two adult children, and makes his home in Florida.