A constant drumbeat of reports on escalating student debt prompted me to take a look at student loans and accumulated debt before tackling the bigger picture of financial aid (still to come).
Start with this article from The Atlantic with the chart showing a red line of student debt versus the blue line of mortgage debt (both pre- and post-housing bubble): Student debt is up 511% since 1999.
How does the housing bubble debt compare? If you add together mortgages and revolving home equity, then from the first quarter of 1999 to when housing-related debt peaked in the third quarter of 2008, the sum increased from $3.28 trillion to $9.98 trillion. Over this period, housing-related debt had increased threefold. Meanwhile, over the entire period shown on the chart, the balance of student loans grew by more than 6x. The growth of student loans has been twice as steep — and it’s showing no signs of slowing.
Move on to Real Time Economics and the chart here showing all types of consumer debt, 2008 – 2011 at the Wall Street Journal. All other types of consumer debt — credit card, mortgage, auto, home equity — have gone down during the three years of the recession. Only one has gone up.
Mortgage debt, home equity loans, credit card debt and auto loans are all down sharply — partly because people are being more careful, but also because many have defaulted. But student loans are up sharply.
In April, the New York Times Education section reported that two-thirds of 2008 graduates carried student loan debt, as opposed to less than half in 1993. In 2010 the average student indebtedness was $24,000. The article also touches on the difference between student loan debt and other types of consumer debt:
Unlike most other debt, student loans generally cannot be discharged in bankruptcy, and the government can garnish wages or take tax refunds or Social Security payments to recover the money owed.
1. Your Debt Should Relate To Future Pay.
It’s Common Sense 101, but somehow it eluded us. You must be able to make your student loan payments out of your post-college paycheck.
2. Guesstimate What You’ll Earn
Katharine S. Brooks, author of “You Majored in What? Mapping Your Path From Chaos to Career,” says anticipating your future salary is a challenge.
But Brooks advises: “Don’t hide out for four years,” delaying a visit to your school’s career office until graduation. Learning more about internship opportunities and what talents that job postings require can help students learn what skills to develop and what salaries and jobs will be available to them.
3. Choose the Right School
Saleh agrees that students and their parents should set a maximum student debt for themselves, regardless of what the career might be. “Students getting $40,000 in debt need to pull back and look at what they are doing, no matter how high-paying a career (they are aiming for),” Saleh says.
Finally, here’s a Boston Globe magazine article by Zac Bissonnette, whose book Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents is on my to-be-read shelf.
College is an active experience, not an intellectual amusement park ride where you strap in and see what happens. Find one with a wide array of programs and, above all, a price tag that won’t put parents’ retirement on the back burner or make a student an indentured servant of Sallie Mae into middle age. Just as driving a Mercedes won’t make you rich, attending an expensive school won’t make you smart. But it very well could make you poor.
I probably won’t ask Mod Squad Pete to read Bissonnette’s book, but I’ve already emailed him the link to this article. Maybe he can fit it in around homework…
- Chart Of The Day (andrewsullivan.thedailybeast.com)
- Student-Loan Delinquencies Rise, Adding To Fears Of An Education Bubble (huffingtonpost.com)
- How to Pay for College? Don’t Buy Sallie Mae’s Book (moneyland.time.com)