Myth 2: College Debt is an Insurmountable Obstacle
It is all over the news, student loan debt in American has passed the $1 trillion mark and is now even larger than credit card debt. Recent documentaries highlight accounts of students with crushing loan balances of $150,000 or more that will follow them for the rest of their lives. Particularly with the weak job market of the last few years, students and families are questioning whether college is still a good investment. Is education no longer the great equalizer that helps people climb from poverty to prosperity? Is it now a cycle that leads them back to poverty?
It is true that loan debt has risen quickly, along with the price of college tuition. Education is one of the most people-intensive sectors of the economy, and when your primary assets are people, that means skyrocketing health care costs among other things. But recent stories in the media have done the public a great disservice by not clearly defining what they are measuring. The media seldom, if ever, clarifies that as much as 40 percent of that $1 trillion loan debt belongs to graduate students, even though there are far fewer graduate students than undergraduates. (1)
This difference is particularly pronounced when you look at levels of debt. The average student loan debt level for undergraduates is a little over $20,000. That is still a substantial amount of money, but not an unreasonable investment. It represents about $200 a month for 10 years at current federal loan rates. Those huge loan burdens so often quoted in news stories are almost universally attributable to graduate-level loans. (2)
Part of the problem is that the federal aid system that was built to provide access has also retrained our behavior. In previous generations, we saved to pay for college and many students worked their way through, paying as they went. The aid system has made it easier and more convenient just to borrow. I still know students who are paying their way by working, even while they attend full-time, but this is far less common. Borrowing is the norm, and the system makes it quite easy – providing lower interest loans and convenient processes.
This is not always a bad thing. It does provide more access for families for whom college does not even seem like an option, but it also starts students in the pattern of buying things they cannot really afford. This does not do so much damage at the undergraduate level, where federal and state aid are relatively plentiful and the costs are (or can be) lower. But continuing this trend into graduate school – especially in areas like medicine or law – can result in astronomical levels of debt.
The bottom line is that debt does not have to be an insurmountable obstacle. Step one is to start saving as soon as possible. Nobody likes this part. We are all used to living at our current lifestyle, and serious saving means sacrifice, but that is how previous generations did it. There are more options than ever, including a wide variety of 529 and pre-paid tution plans. It may mean that your gift to your kids is college instead of big family vacations, but they will thank you when they are not paying that $200 a month for 10 years.
Step two is to get your student involved in the process. Saving for college is a great exercise for them to learn that you buy what you can afford. If your student works a summer job, have them set aside a certain amount for college costs. You could make them responsible for saving for their textbook costs. This is still a significant cost – The College Board reports the average book costs for students is about $1200 a year. (3) Find a way to give your student a stake in the game.
Start early looking for scholarships. They are out there. Never pay for a scholarship search service, but do use a free service like www.fastweb.com to have potential scholarship opportunities sent to you. Also, check your library or online for scholarships sponsored by local service organizations in your area.
Invest the time and effort to help your student figure out his or her career goals. Many students change their majors in college, sometime multiple times. This can lead to additional semesters and higher costs. Students who progress through the undergraduate years without a career plan also often meander into grad school because they aren’t sure what else to do, also resulting in additional loans. Investing now in career exploration and planning can make a big difference. This blog is full of career tools, and a perfect start is my new book, What’s Your Function? Working it Out with God, which helps readers understand the role of work and figure out what they were born to do.
We’ll explore more ways to get full value out of the college investment in future posts, but again, don’t let debt scare you. If you understand the landscape you can make a plan.
(1) Delisle, Jason, Policy Brief, “Graduate Student Debt Review,” New American Education Policy Review Program, March 2014, http://newamerica.net/sites/newamerica.net/files/policydocs/GradStudentDebtReview-Delisle-Final.pdf
(2) Education Advisory Board State of the Collaborative 2014, Student Success Collaborative Summit, December 4, 2014
(3) Quick Guide:College Costs, Big Future.com from the College Board, https://bigfuture.collegeboard.org/pay-for-college/college-costs/quick-guide-college-costs