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The Real Story Behind the Lasting Impact of Student Loans for Millions of Young Americans

Sep 08, 2019

Ask a majority of Americans about the importance of a college education and you’ll often be met with the same answer: it’s essential. While this blog isn’t designed to open up that debate, it highlights the impression millions of Americans have about the value and importance of a college degree.

There has been mounting pressure over the past four or five decades (possibly even longer, depending on whom you talk to) about the value a college education offers.

During the past couple of decades, though, the cost of a college education has dramatically increased. According to Bloomberg, the cost of attending college has increased 1,120 percent since 1978 (Bloomberg). That was the first year records were actually maintained regarding this important topic.

There have been numerous factors contributing to this increase, and the availability of easy student loans has compounded the problem. 

How Would Student Loans Affect the Cost of a College Education?

Government-backed student loans (through FAFSA) have made it almost guaranteed that anyone over the age of 18 — regardless of age or other factors — can obtain a student loan to attend college. There are various factors that need to be taken into account before somebody can be approved, but for the most part it is a first-come, first serve funding option for millions of college aged men and women.

To my bewilderment, I recently learned that many school districts are requiring high school students to apply for these FASA loans. It’s a requirement!  And most kids are qualifying.  Stunning on one hand, yet not surprising on the other hand. What a fantastic strategy to create government dependence at such an early stage in life. More on this on another blog. 

As a result of this nearly guaranteed “money,” tuition fees have increased, far outpacing inflation. Why?  Because colleges and universities know there’s an endless supply of money available.  When colleges are essentially guaranteed tuition fees from a growing pool of potential students, what incentive do they have to keep their rates down? None.

So, now for a college-bound freshman to attend any college or university, the cost is over 10 times higher than it was in 1978.

In fact, when you look at the trends in college tuition and student loans, there is a near-perfect correlation between students accessing federally backed student loans and colleges and universities raising their tuition fees.

In other words, because of the easy access people have to student loans these past couple of decades, colleges have almost gone off the rails raising their tuition fees and rates to capitalize on it.

What difference does it make to them? The level of education, support, and benefit to students has not increased one bit, but they keep raising rates because they can. It comes down to simple economics: when someone else is willing to foot the bill, colleges and universities are going to keep charging higher and higher rates until and unless there is pushback.

To date, there has been no genuine pushback to lower or stop the increase for college tuition fees and other costs.

Publishers of academic books are getting rich too as the price of textbooks has tripled over the past 20 years.  Last I looked, non-academic books have gotten cheaper not more expensive.  What gives?  The same principles apply as with tuition.  These publishers know that students have an unlimited amount of money to spend, and as a  result they capitalize on this and jack up the prices as high as they can.  They know these students are a captive audience and they have no choice but to pay these prices.  In the end, this boils down to exploitation and no one says a word.    

How Does This Impact Americans?

If a student graduates college with $30,000 in student debt (which currently sits right around the average, with increasing numbers racking up $100,000 and more once they finish grad school to earn their masters degree or doctorate), it can reduce a person’s 401(k) balance by retirement by as much as $325,000 (CNBC).

Also according to CNBC, college students had borrowed an average of $28,950 in 2014. That was up from $18,550 just 10 years earlier. We are now six years beyond that most recent figure and, in 2014, 69 percent of college students had borrowed through student loans.

When you start looking at the compounding factors of student loans and repayments, including penalties and interest for those students who graduate and struggle to find work in their chosen field or who don’t earn a minimum of what they may have expected or needed to pay off that loan (or the minimum payments), the issue becomes dire.

In fact, in 1989, only 4% of people between the ages of 55 and 64 had any debt related to education. That figure may also account for parents who accrued debt to put their children to college, but in 2013, that percentage had jumped to 30.

It Is Impacting Everything

For Millennials, Gen Xers, and even people in their 40s and 50s, student loans are wreaking havoc on millions of Americans. When you take into account that currently, 78% of full-time working American adults are living paycheck to paycheck, you can easily understand how extra debt — especially significant student loan debt — can be affecting finances at every level.

There is no bankruptcy option when it comes to student loans. Like medical expenses, a person who files for Chapter 11 bankruptcy, for example, may be able to renegotiate rates with creditors and even have some debts completely eliminated, but not student loans.

There may be certain options for Americans who fell behind or defaulted on their student loans to finally get on top of the situation by reducing penalties, fees, and interest rates when they begin repayment (finally), but that doesn’t erase the debt.

It takes, on average, between 20 and 30 years for recent college graduate to pay off their student loans based on the minimum rate payments at the time of graduation. When you consider how much of a person’s paycheck is required to pay taxes and student loans, there’s likely little left over to invest in a 401(k) or other long-term retirement option.

Long-term student loan debt is also affecting home ownership. Among twentysomethings, home ownership among those who carry student loan debt hovers around 52 percent while it sits around 59 percent for those who don’t have any student loans whatsoever (Demos).

Debt Also Affects Health

Every person who reads this article understands stress. Every single person in the world is affected in some way or another by stress at some point in their life. For millions of Americans, it has become a way of life: dealing with stress.

Finances and health issues are often considered the most common and significant stressors in life. When you take into account the number of health issues that are the direct result of financial stress, it becomes quite clear that financial circumstances, including debt and difficulty or a failure to be of the pay off debt is affecting the health and well-being of millions upon millions of people.

When you consider that money is the number one cause of stress and stress is the leading cause of our deadliest diseases and health ailments, this problem is way more than a financial problem, it’s a health crisis. 

When a person is just starting out in life, graduated college, and found their first job in their chosen career fields, it used to be an exciting time.

Today, many of these college students are often surprised they can’t earn what they expected and struggle to pay their debts.

Many of these college students took on an exorbitant amount of student debt and chose degrees that will unlikely offer jobs capable of paying off their debt while providing meaningful living standards.   

Talk about stress!

A lot of these young men and women return home to live with mom and dad while they get their “feet under them.” Unfortunately, too many of these adults stay there well into their 30s and some even into their 40s.

That’s going to affect relationships, marriage, families, home buying and so many other things. The ramifications on these students and society are endless.  

Currently, Student Loan Debt Is Crippling America

As it stands now, student loan debt in the United States now sits at over $1.56 trillion. Approximately 40 percent of that is accrued on account of graduate student programs, including masters and doctorate degrees (Student Loan Hero by Lending Tree).

When you compare student loan debt to total US credit card debt, it sits at $521 billion more. 44.7 million Americans are saddled with student loan debt right now. Nearly 12 percent of those student loans are either 90 days or more delinquent or in default.

The average monthly student loan payment for those not in deferment is $393. When you consider that some recent college graduates can barely afford $400 in rent (and that is often in a house sharing situation), it becomes clear that this student loan crisis is only getting worse.

If you want more statistics that can hammer this point home consider this:

  • 65% of college seniors who expect to graduate from public and nonprofit colleges had student loan debt in 2017.
  • 88% of those who graduated from for-profit colleges had loans with an average debt of nearly $40,000.
  • Almost 50% of borrowers who attended for-profit colleges will likely default within 12 years. Compare that to 12% of those who attend public colleges.

What does all this mean? The student loan debt crisis in America is only getting worse and it is affecting everyone at every level when it comes to their finances. Soon, it will likely act as a deterrent for some to attend college, seeing their parents continue struggling to pay off their student loans while they move through their childhood and into their teenage and high school years.

Financial stress increases the risk of heart attack, stroke, diabetes, anxiety, and numerous other serious health issues. It isn’t going away and the numbers indicate it’s getting more dire.

What can be done about it? That’s a discussion for another blog.