Student Loan Debt is Crushing Dreams

For our parents and grandparents, going to college wasn’t necessarily a step in gaining a good job and earning a decent living. Fast forward a few decades and everyone assumes that after high school our formal education continues at least four more years.

It’s understood among Gen Y and the Millennials that anyone who wants a well-paying job needs at least an undergraduate degree. But this isn’t an invitation to spend gobs of money to attend any school that accepts you. Likewise, the party scene and the caliber of the football team should have no bearing on your decision.

Instead, take a good look at tuition, fees, room and board, and what level of scholarships and grants are available.  In fact, total cost should be a primary consideration for students in their college selection process.

chart of the day, tuition, home prices, cpi, 1978-2010

This graph shows college tuition compared with home prices and the overall CPI from 1978 to 2010. (The CPI, or Consumer Price Index, is an overall measure of the cost of a set of goods and services paid by consumers over time.) Since 1978, college tuition has increased by a factor of more than 10x from its base of 100, compared with housing at 4x and the overall CPI at about 3.5x. It’s clear as day that college tuition is quickly becoming our next bubble.

This is the reason grads are in a heap of trouble today. Students simply enrolled in colleges regardless of the cost. They filled out some forms, took a quiz and the money just showed up. Now that they’re graduating and faced with dim job prospects, they’re wondering whether that private school tuition was such a good investment.

What many prospective college students fail to do today is think about the total, long-term cost of going to college. When taking out a car loan or mortgage, there are certain terms laid out by the lender that force us to look at the long-term costs, how long we’ll be in debt, and whether we can afford to make the payments each month going forward. Student loans are much more open-ended because of the various repayment and deferment options, which makes it much harder to assess the total costs beforehand. Plus, high school seniors often have no idea what their salaries will be after graduation, so repayment is far from their minds.

My youngest sister is going to college in the fall, which got me thinking about all of this. She’s going into psychology, but isn’t sure what she wants to do with it. Over the past year we’ve talked about student loans occasionally. I remind her of the financial newspapers and blogs, which go to great lengths to document the effects of crushing debt levels on the lives of grads and their young families.

Some couples are putting off marriage, buying a home or having a baby because of their student loan debt. As an example, my wife and I are putting off saving for a house down payment until we pay off more of our debt.

If you have a child or other family member in high school, talk to them about these issues. Help them understand that they’ll eventually have to pay back all those loans. Let them know about other options like scholarships, grants and even going to community college for a year or two.

A college education is an investment, just like stocks or starting your own business. Therefore, students need to think about whether the benefits outweigh the costs for their chosen school and what their likely salary will be based on their major. This will give them motivation to limit their borrowing and think ahead to the repayment process after graduation.

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11 thoughts on “Student Loan Debt is Crushing Dreams

  1. Dave Ramsey has talked a lot about this lately on his radio show. It’s amazing how much people are paying for a higher level education these days. He’s had people on his show with $130K in student loan debt and then are not able to pay it back because they are working a $45K job or are staying home w/kids. That’s great that you’re talking to your sister about all of this. My husband wishes now that he had invested more time and thought into his degree (which he has never used). He really just wanted to say that he graduated from A&M.

    • Hi Whitney! Thanks for your comment. I’ve also heard about people with over $100K in student loans. For those in law or medicine it can easily approach $200K. It simply isn’t sustainable.

      We need to look for more creative ways to offset the costs of going to college. Whether it means completing a degree in three years or working during school, every bit helps. If everyone limited their total borrowing to their likely first year salary after graduation, I believe we wouldn’t be in this mess.

  2. Going to a community college for the first two years is a good option. A student could save a lot of money and avoid student loans. The reality is a lot of people will take out student loans t get a degree and then they won’t be abe to find a job or they will find a low paying job. I think that risk needs to be taken into consideration before getting a bunch of loans

    • Right, this is along the lines of what Whitney mentioned above. I think most high school seniors have no idea what they want to do with their careers, so trying to pick a major is a shot in the dark. You are right that students need to consider the risk that they may have to settle for a low-paying job at first.

  3. MARK MY WORDS – College debt will be our next economic bubble. There is no way something can increase this much for this long and be sustainable. I really only see two outcomes – 1) Tuition fizzles out and comes back down to normal prices, 2) Debt continues to climb at a ridiculous rate and fewer and fewer of us actually get to go to college. I really hope that doesn’t happen because then America has a long-shot at staying a Number 1 economic leader.

    • It does have all the tell-tale signs of a bubble, doesn’t it? Colleges need to figure out how to provide an education in a way that’s cheaper and more streamlined. Whether that means finding new ways to offer classes (i.e. online) or eliminating unpopular majors, colleges need to look closely at what they specialize in and stick to that.

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  6. We need to change our lock-step approach to “everyone needs to go to college, finish in 4 years and go immediately after completing high school.” That gap year?

    If everyone took some time to work for pay, perform community service, or take part in Americorps, CityYear or the Peace Corps, they would be one year older, have more life experience, and be better able to make a positive contribution to their next school or training opportunity. High school grads would also have learned how much it costs to live in today’s world, had the chance to pay for groceries, rent, transportation etc.
    There is also the military, technical training and internships to explore and be supported by high school counselors.

    • Very good point. Four years of college right after high school is not the best choice for everyone. Delaying college by a year not only makes you more responsible as you say, it also gives you a chance to think about what you want to do with life. Then you can pick a major accordingly.

      I also think students need more skin in the game. Rather than using student loans to finance 100% of their education, students need to work part time or find ways to offset some of the cost. This allows them to contribute to their own success and appreciate the value of hard work.

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