Outstanding student loans in the U.S. have surpassed $1 trillion — exceeding the nation’s credit card debt. This is the highest student loan debt the U.S. has ever seen. The student loan debt crisis could threaten our country’s financial stability if the cost of higher education continues to rise and if the true costs of student loans aren’t made more clear to potential borrowers.
A Diploma and Some Debt
I graduated from college in 2011 and am among the two-thirds of graduates in my class nationwide who were burdened with the reality of our student debt as soon as we walked across the stage at graduation. Not only are students debt-stricken before their careers get underway, but the amount of debt on their shoulders is substantially increasing. In this day and age, children grow up being told to get an education because it will pave a path to success and many buy into this methodology without understanding the financial burden they are taking on. In 2011, the average borrower owed $26,000 in student loans. This number is up more than 14% from 2007. In 2012 alone, more than 5.4 million borrowers are in default; that is more than twice the amount of those who defaulted in 2003.
Since I was on a full volleyball scholarship to a private out-of-state school I had every penny of my education, room, and board accounted for and didn’t think once about the cost of my education. After my freshman year, I decided to transfer to a more academically challenging university (still out-of-state) and had to give up my scholarship. I didn’t qualify for financial aid and had to take out loans to cover the remaining three years. Having little understanding of the burden I was taking on as a 20-year-old, I signed on the line and before I knew it had acquired debt that will take me more than a decade to pay back.
Educated and Unemployed: Between a Rock and a Hard Place
When I began college, it was common for the students to graduate with a full-time job and a good starting salary lined up. While I was in school the recession hit and all that changed. Luckily, after graduation I was among those able to secure a job that allows me to make my monthly student loan payments, but many are not in the same boat. Studies show that graduates since 2009 were three times less likely to find a job within a year of graduating than those who graduated before the height of the recession. A decrease in the number of positions new graduates are qualified for is only part of the problem.
Another factor in the student loan debt crisis is that entry level position salaries decreased after the economic downturn in 2008. Graduates since 2009 have earned an average starting salary of $27,000, down $3,000 from the classes of 2006 and 2007. The decrease in average salary would sting less if tuition was also decreasing. Instead, tuition increase 50% in the last 10 years.
With deferral and forbearance options, borrowers are able to buy themselves some time after graduation if they are unemployed, working part-time, or are making a subpar salary. These options will eventually run out and borrowers will have to start paying off their debts.
Loan repayment is absorbing an ever increasing percentage of recent graduate’s incomes. Graduates who are able to start repaying their student debt will postpone spending money on large purchases often made by young adults, such as buying a home. As if the financial challenges around buying a home isn’t enough, many students are unable to pursue other aspects of achieving the American Dream such as deciding to become an entrepreneur or taking on risk to invest. This in turn negatively affects the economy.
Time for a New Approach
As a society, we need to start taking responsibility for the student debt crisis. Lenders need to ensure they are carefully considering a borrower’s credit history and ability to repay their debt prior to issuing student loans. Universities and colleges need to lower higher education costs to make getting a degree affordable again. Finally, student borrowers (like me) need to educate themselves on the debt they plan to acquire and determine the right amount to borrow that will be manageable to repay.
There is no quick fix to this problem, but if steps towards change are not taken soon, borrowers are going to continue to be deprived from making financial purchases and investments and our economy will continue to be negatively affected because of it.