Student Debt – Where are we headed and what can we do?

A recent report from the NYT announced that we now have over a trillion dollars in student loan debt in the US.  Politics aside, what does this mean for the average college student?  

Since the 1970s, the purchasing power of the average salary has been cut in half – actually, the average income buys less than half of the goods that the average income in the 1970s does.   What this means, is that two-income families are now the norm – both the husband and the wife are wage earners.  It also means that you have to make double the current average salary in the US to buy the same amount of products / services / etc – to have the same purchasing power – as the average single family worker of the 1970s.   

To get a job in this economy, you have to have a bachelor’s degree, if not an advanced degree.   Tuition rates are increasing each year, and the overall costs of an education are escalating (textbooks for example have increased by 12 – 16% over the past two years – without justification).   These rising costs, coupled with the fact that to compete, both spouses must have a job – and a degree – means that we are working much harder for much less than our 1970s counterparts.

Graduating from college means too that we will have much more debt – that is repaid in 25 years.  Now the interest rates of the 1970s were much higher than they are today, but that is still irrelevant as even at 4.5% means that the average $100,000 student loan (x two for both parents) will mean that the amount repaid for this dual-income household will reach over $614,000.  This amount of debt repayment will limit the family’s ability to start a business, finance a home, save for college for their children (who without college will not have a chance in this new world), and will have a low quality of living.

Things that make an impact are the basics in life for the student.  If a student lives from home, owns their car, packs a lunch and has a part time job, the average student could make it through school just owing tuition – which at a state school is still reasonable.   However, things like buying books - $1000 in a semester results in a repayment of over $3000 for the same books – could save substantially.   Using a site like BookDefy in theory then could save a student (over 8 semesters) $8,000 in the short run, and $24,000 in the long run.   

Running up debt while in school is a very difficult proposition for a student.   Borrowing money needlessly is even more painful.  A ray of hope is the recent legislation that caps repayment at 15% of the student’s income after they graduate helps – but the long-term damage that this can due (the money still has to come from somewhere) may prove this policy impractical.