The average college undergrad now leaves school with $30,000 in student loan debt.
Scary, isn't it? Factor in the Federal Stafford Loan interest rate of 4.66% and it means a student will take almost eleven years of $300 monthly payments to pay off that average student loan debt (yeah, just average!). The amount will be even more for those taking private loans, which charge much higher interest rates than federal loans. This is grim news, especially considering that tuition increases have been well beyond the rate of wage increases.
As college students leave their dorms in search of jobs, many of them discover that their massive amount of debt probably wasn't worth the risk. After the standard six-month grace period, the first loan bill will come just in time for Christmas.
'Tis the season to be indebted! The opportunity cost of student loan debt is huge – that monthly payment is money that could be going into a mutual/index fund and delivering real returns. By missing out on the crucial early years of investing, graduates are missing the enormous power of compound interest, causing their retirement to suffer. They may go on to start a family and try to fund a child's college plan while still being shackled to their own debt.
According to the Pew Research Center, the average college-educated household without student loan debt was worth approximately $65,000. For the student debt household, that number drops to about $9,000. Those without a college education actually have a higher net worth! The average person under 40 without a degree has a net worth of approximately $11,000. This is even more depressing when you understand that the $11,000 household didn’t require a four-year investment.
There are some rays of sunshine, though! The average college grad is much more likely to be in his/her desired career and make more money than someone with just a high-school diploma. Yes, a degree will get you more money but you’ll have less in your pocket because of the loans. Plus, a millennial college grad’s chances of living in poverty are much lower – 5.8% versus the 21.8% of high-school graduates living in poverty. To many, a degree represents better job security. Without any college, unemployment is 12%. With a bachelor’s degree, unemployment is much lower at 4%.
Ultimately, it is up to the individual to make the decision, but a good option is a local college. Average in-state tuition runs about $15,000 where out-of-state and private college is over double. If you know you will have to take on some type of student loan, do whatever you can to get the cost down. Apply for scholarships, try to score grants, and be aware of how the debt will impact you later in life. A college education is still good (at least for now), but ultimately, financial literacy can help us navigate through the student debt crisis.