As another fall term of college starts, another blast of hot air enters the burgeoning college loan bubble that exists in this country.
Out of our more than 20 million college students, about 12 million, or 60 percent, borrow money each year to help cover the costs of tuition. A Consumer Financial Protection Bureau report from last year states that student loan debt not only has hit the $1 trillion dollar mark – surpassing both credit card debt and auto loan debt – but that it is continuing to grow.
Here are some numbers that put it in an even more disturbing way:
- More than 40 percent of people under the age of 30 have outstanding student loan debt, according to a 2012 study by the Federal Reserve Bank of New York.
- About $580 billion of the debt total is owed by people under the age of 40, and — here’s the kicker — more than $80 billion of the debt is past due.
Whereas American college graduates once looked forward to borrowing money for a house or at least for a new car when they got their diplomas, today’s grads are working two, sometimes three, jobs and often living with their parents just to make ends meet.
Our lingering recession has caused many parents to have tapped their college savings funds or never to have started one in the first place. Couple that fact with out-of-control tuition rates and the belief that in order to be successful in America, you need a college degree, and you can get a glimpse of a financial crisis that could inhibit economic growth in our country for decades to come.
How we got into this mess is a tale of our government’s attempt to make higher education more accessible to all income levels by offering cheap, easy loans without any clear knowledge of a student’s ability to pay it back. Instead of helping lower-income students, the loan system we have created is placing them into a cycle of debt, one that Jeffrey Williams compares to indentured servitude in an article on the American Association of University Professors website.
In the 1960s, less than half of high school graduates enrolled in college. Unemployment was at less than 5 percent, and those who did get a college degree were pretty much guaranteed to find a job in their chosen profession. Today more than 70 percent of high school grads enroll in college, despite widespread unemployment. Our students have bought into the idea that a college degree still means success and have been willing to mortgage their future paychecks to obtain that goal.
So how do we keep this bubble from bursting? What can we as individuals do?
First, let’s look at postponing college. Today’s typical high school grad applies to college because it is expected of him. He has no real plan and no real goal other than being on his own for a while and having a good time.
A better option is to work for a year or more following high school in order to gain valuable life and work experience. Some options could include working as an au pair or a tutor abroad or joining our armed forces. Another idea is to explore your field of interest from the ground up. If you are considering medicine, for example, you could try working as a nurse’s aide. Living at home will enable you to save your salary for tuition, and you will gain valuable references and on-the-job experience for your college application.
Use this time to make sure there are indeed jobs available in your career. According to U.S. Department of Labor Bureau of Labor statistics, America has about 16,000 parking lot attendants, 83,000 bartenders and 115,000 janitors with bachelor’s degrees. The same study says that 15 percent of taxi drivers in America have a four-year college degree or better.
Another option to decrease your dependence on student loans is to attend a community college for a two-year degree or for a transfer degree.
Our nation’s community colleges offer core curriculum classes that transfer to same-state colleges and universities with ease. In addition to significantly lower tuition, community colleges offer the opportunity to save housing costs for two years so that you can bank any part-time or full-time job income for a transfer to a four-year institution. Smaller class sizes often offer community college students individual attention so that they can explore their interests and talents.
Online classes are another option for saving money. Colleges – both two-year and four-year institutions — are adding online courses to their curriculum all the time. These classes help save students money in commuting costs, and they offer scheduling flexibility that is valuable to working students.
A third way to handle college debt is to create a plan now to pay back the loan once you get the degree. This option is for those students who plan to turn that expensive diploma from an Ivy League school into a high-powered, high-paying career.
There is no rule that you have to go straight to law school or medical school after obtaining your undergraduate degree. Settle some of your debt by getting a fulltime job that is in your field. A future doctor could work as an EMT or a future lawyer could work as paralegal, for example. Not only will you be able to pay down your loan, but you will gain experience and references for your grad school applications.
Here are a few loan payback tips:
- First, you can pay off your loan earlier than scheduled by making extra payments. If you are eligible for the student loan interest tax deduction, the actual interest rate you are paying on your student loans may be lower.
- Consider teaching. Your loans could be forgiven after 10 years of payments if you work in certain teaching positions or under the Public Service Loan Forgiveness Program.
- Investigate interest rate discounts, and find out if your lender offers discounts for on-time payments, automatic payments, or loan consolidation.
- Forget the new car for now, and do not buy into the myth that you need to build up a charge card account to get a good credit rating.
Finally, a surefire way to avoid college debt is not go to college at all. The idea that a college diploma equals success in America is an outdated one. There are plenty of examples of successful people who have not graduated from college. In addition to Bill Gates and Steve Jobs, there are today’s entrepreneurs such as Matt Mullenweg who created WordPress; Danielle Morrill, the first employee of the cloud communications platform Twilio and the founder of Referly; and David Karp, the creator of Tumblr.
In addition to these Internet innovators, there are many small business owners who have achieved financial success without college diplomas. They may have worked their way up from part-time employee to management to franchise owner, or they may simply have had a great idea at the right time and the right place and made it work.
Intelligent, hard-working people can and do get ahead in this country with or without a degree. They always have. College is one way to obtain your goals, but it is not the only way. Don’t mortgage your future — and the rest of America’s taxpayers’ future — with the burden of debt.