Have you ever heard someone say that the best thing about an education is that nobody can take it away from you? As true as this statement is on its own, it is completely ignoring the fact that the very same irrevocable education can cost hundreds of thousands of dollars – plus interest.
As of early 2019, total student loan debt rose to 1.52 trillion dollars. On average, today’s college student is paying over twice what their parents paid for the same level of education. Additionally, more students who come from low income households are enrolling in college programs now more than ever. With the rising cost of tuition along with the higher enrollment rates, more students are taking out loans to cover the cost of their education.
So why is this a problem?
Minimum Payments:
Depending on the type of loan a student receives, but with many unsubsidized federal loans, the interest rate starts accruing immediately on the principal balance at the time of disbursement. As soon as a student graduates college, they have 6 months from the date of graduation before the repayment plan is activated and the loans become due and payable. Many times, the student will not be in a financial position to repay the loans and will only make the minimum payments, paying down the only the interest, leaving the principal balance untouched.
Delinquent Student Loans:
The recent rise of uncollected debt in regard to student loans has dramatically risen since 2017 and even more, the uncollected debt that is not due is lingering because students are either staying in school longer or are not employed, making the loans uncollectable.
The Cost of College:
The average yearly cost for a public, four-year degree stands at around $9,410.00. Read more on the cost of college here. This amount does not account for housing, food, books and supplies along with any other additional transportation or living costs. Although the education benefit is priceless, most middle-class families cannot afford the cost of full tuition for their child, forcing the child (or sometimes the parents) to take out loans for this very purpose.
Lack of Financial Information/Education:
Frequently, the cost of attending college and the amount of loans a student is able to receive are not the same and are the difference is not always communicated effectively to the student. Many times, students will take out more than the cost of tuition so that they can have money to live on during their studies. This constant over-borrowing can create a lot of confusion and increases the student’s debt obligation dramatically. Some colleges send out debt letters informing the student of how much debt they have acquired, but this not a big enough action to change the way a student borrows.
The reality is that because employers are able to require levels of education as prerequisites to employment, many young adults feel that college is a necessary tool in order to acquire a bright and successful future.
The 2020 Presidential campaign has brought the student loan crisis to the forefront of social issues. Some candidates propose canceling student loan debt while others look to re-purposing the student loan system.
Regardless of the proposed solution, it is about time that this issue be taken seriously because it is becoming an ever-growing problem that we can no longer ignore.
-by Laura Bown, J.D. with Tiffany Ballenger Floyd, Esq. (Nevada & California Estate Planning Attorney), © 2019, Phillips Ballenger, PLLC
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