In 2012, student loan debt surpassed $1 trillion dollars in the U.S. We’ve added another $200 billion since then. Nearly one in five American households is paying off student loan debt, as are approximately two-thirds (37 million) of American students.
The average debt per student is around $27,000, surpassing car loans and credit cards as the largest source of personal debt in America. It is the second most important type of consumer debt behind mortgages. Left unchecked, student loans could be the next subprime mortgage.
The repercussions of rising student debt extend far beyond college-age kids and their parents; it affects everyone in America. Student loans haunt graduates for decades and siphon off income that might have been spent on cars and houses, dragging on the wider economy.
According to the study “How student debt reduces lifetime wealth,” Demos calculated that the $1 trillion in outstanding student loan debt will lead to total lifetime wealth loss of $4 trillion for indebted households. And the burden is only getting heavier.
Tuition in the U.S. is expected to double in the next ten years. A recent report from Goldman Sachs, based on Department of Labor Statistics, found that the unemployment rates of college graduates have surpassed those of workers without a high school education. That costly college degree no longer guarantees a lucrative career and a quick exit from debt.
So an entire generation of American workers are beginning their professional and financial careers in the red, with no end in sight. Which raises the question — is college a good investment?
The answer, despite soaring debt and high unemployment, is still a definitive yes.
A recent report from Pew found that college graduates ages 25 to 32 who are working full time about $17,500 more annually than employed young adults holding only a high school diploma.
“On virtually every measure of economic well-being and career attainment—from personal earnings to job satisfaction to the share employed full time—young college graduates are outperforming their peers with less education,” the report said. “And when today’s young adults are compared with previous generations, the disparity in economic outcomes between college graduates and those with a high school diploma or less formal schooling has never been greater in the modern era.”
The reality is that, while college may saddle students with decades of debt, the alternative is even worse. Paying for college remains one of the few good reasons to take on debt. It is also one of the many reasons that saving early and investing wisely is so important. Your ability to put money away for college has a major impact on the educational and financial future of your children, and your childrens’ children.
The silver lining of rising tuition, rising debt, and rising doubts about the value of higher education is that these issues are finally attracting attention and calls for change. The White House’s latest budget proposal includes new initiatives to ease the burden of student loans through a “Pay As You Earn” program, which caps monthly loan bills as a percentage of income and forgives some of the debt.
Entrepreneurs are also addressing the crisis by developing innovative new approaches to attaining a degree.
The explosion of Massive Open Online Courses (MOOCs) such as Khan Academy, Udacity and Coursera make high-quality educational content accessible to everyone at a low-cost. SoFi and Common Bond connect students with more affordable loan opportunities. FutureAdvisor and GradSave make it easier for parents to save money for the education.
These startups leverage technology to offer students more choices when it comes to attending and funding college. Greater choice means greater accessibility. For most people, the issue isn’t deciding whether or not a college education is worthwhile. It is deciding what degree, and what method of financing, are right for you and your family.
The views expressed represent the opinion of the author and are not intended to reflect those of FutureAdvisor and are not intended as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities.