Approximately 37 million Americans are in shackles with more than $1 trillion in student loan debt. The average student loan debt is more than $29,000 per student. With an extremely difficult labor market, students are in for a very long ride in the United States economy because it’s contributing to the wealth gap, says William Elliott III, director of the Assets and Education Initiative at the University of Kansas in an interview with the Associated Press.
Bottom line: the more student debt you have, the more difficult it’ll be to accumulate valuable assets over the course of a lifetime because you’re straddled with high debt volumes. According to the Pew Research Center’s analysis of government data, 40 percent of households captained by someone 35 years of age or older have student loan debt.
“If you graduate with a B.A. or doctorate and you get the same job at the same place, you make the same amount of money,” stated Elliott. “But that money will actually mean less to you in the sense of accumulating assets in the long term.”
University graduates who can’t find a job in their field and have a lot of debt will spend a bulk of their time paying back that money. However, those who left college debt-free or with very little debt, will now have the time to make investments and purchase a house.
A report co-authored by Elliott last year discovered that the median 2009 net worth of a house without student debt was $117,700, but a household with student debt was only $42,800, nearly three times.
Statistics from the Federal Reserve indicate that student loan debt is the biggest non-mortgage debt in the U.S. – $1.03 trillion – and it was the only one to actually rise during the economic collapse: borrowers and the student loan amount increased by 70 percent between the years 2004 and 2012. Also, the student loan 90-day delinquency rate has surged to 12 percent.
What to show for it? A youth unemployment rate of 14 percent.
Most libertarian economists would concur that students are highly indebted because of government guaranteeing loans. This causes an effect because post-secondary institutions will raise tuition rates because they have the thinking that students will have the money to pay for these exorbitant costs.
Education costs only started to skyrocket in the U.S. when the government got involved akin to housing and medicine towards the end of the President Jimmy Carter administration in the late 1970s.
“When I went to school, we didn’t have a federal student loan program, and I was able to work my way through college and medical school because it wasn’t so expensive. What has changed?” wrote former Texas Republican Congressman Ron Paul in a 2011 op-ed piece in the USA Today. “In the name of ‘helping’ students through federal loans, the government has really hurt them in the long run by drastically driving up the overall cost of education and forcing poor and middle class Americans, who are just trying to better their lives, to take on unreasonable debt.”
Another aspect to address is what students are taking. It was reported late last year that college student majoring in science, technology, engineering and math (STEM) are opting for liberal arts degrees, such as journalists, psychologists, painters, public relations and philosophy – 40 percent of students have left a STEM major within four to five years.
Possible solutions for students:
– Investigate the degree: is there a demand in the field? How much will it pay?
– Research tuition rates: how much will tuition be over four years? Is it cheaper elsewhere?
– Paying for it: can you pay back the student loans in a reasonable time frame? How will you pay it back? Can you pay some of it now?