Roundtable Discussion: Is Student Loan Debt About to Explode?
By rebeccasebek | September 27, 2011 at 6:30 am
To better understand how and why student loan debt has reached an unprecedented all-time high, Halogen TV spoke with experts Brent Wilsey of Wilsey Asset Management, Howard Dvorkin, CPA and founder of Consolidated Credit Counseling Services, Inc., Logan Abrams, author of Debt U: How Higher Education Breeds A Lifestyle of Debt, and Nicki Washington, Ph.D, author of Prepped for Success about student loan debt and what it means for the United States’ economy.
Graph by Federal Reserve Bank of New York Fed
Brent Wilsey: The reason the student loan debt has swelled 511 percent over the last 25 years or so can be contributed to two factors. First a 67 percent increase in the number of students who are enrolled in college. Over the same time period, average tuition costs have jumped 238 percent. Supply demand being what it is, the higher demand has pushed up the cost of tuition at a rate greater than the salary of a graduate. Still well worth the cost when comparing the salary for an advance degree at $83,144 compared to a high school grad salary of 31,283.
How does this affect/influence the United States’ economy?
Howard Dvorkin: Student loan debt is rising by about $100 billion a year and with it currently at around $930 billion, student loan debt has most definitely become a macroeconomic issue. By this year’s end it is expected to reach the $1 trillion mark. The problem is this affects our nation as a whole because students graduating with excessive debt are much more likely to delay buying a house, car, getting married, having children, saving for retirement. Because they are so focused on paying off their debt, they are spending less. Some $5 to $10 billion is being taken from the economy every month by students trying to pay their debt off even at a monthly rate of .5 to 1.0 percent of the overall amount they owe. Then you have the tougher than ever job market leaving these recent graduates unemployed and under-employed, which oftentimes leads to delinquency and default.
“By this year’s end it is expected to reach the $1 trillion mark.” – Howard Dvorkin
Graph by TransUnion LLC Trend Data
Logan Abrams: What can be done? Luckily there are many answers. Firstly, we must teach our children about personal finances by making mandatory high school and college courses. How can we expect them to make sound financial decisions if we haven’t taught them how to do so. Secondly, the government now controls the student loan market, so they have the ability to make it more affordable, not just more available. Thirdly, the colleges and universities will soon see increased competition on a cost basis of which they have never seen before. Instead of building new buildings each year, schools will practice restraint and focus on education, not entertainment, and in turn reduce costs by 25 percent over the next 5-10 years. Sure some schools and universities will go bankrupt, and people will be up in arms, but it will benefit us all. And finally, but most importantly, we MUST change the spending habits of people in school. I say, BE POOR! No seriously….be poor. College was long regarded as a time for new experiences, good times and little extravagance. Yet over the past 15 years most college students have elevated their lifestyle to that of equal or higher standards than they had while living at home. It’s simple – the easiest way to cut college costs is to revert back to the way college life was supposed to be.
How can a high student loan debt be avoided in the future?
Nicki Washington: Students and families must make wise decisions, when identifying and choosing schools to attend. Identify universities that have higher financial aid packages for students, those with lower tuition rates (public, in-state universities), etc.
Next, identify majors that have more financial aid opportunities for students. For example, students interested in majoring in science, technology, engineering and math (STEM) will find an abundance of scholarship opportunities for U.S. students, due to the low number of students entering these areas and the high demand for graduates.
“I say, BE POOR! No seriously….be poor.” – Logan Abrams
Start searching for scholarships and grants early and exhaust all opportunities. Most students and families wait until the student is a senior in high school to begin the college admissions process. You can begin searching for financial aid before this time. The only way to be sure that it has been exhausted is to begin searching as early as 9th grade for financial aid opportunities for college.
Finally, many students and families are considering community college programs and transferring to four-year institutions. These programs allow students to take most of their general education courses in the first two years at a community college for a significantly lower cost of tuition. After two years, students can transfer to a four-year institution as a junior and complete their final two years. You can find more information on what programs are available by speaking to community colleges in your area and four-year institutions of interest.
How are you handling your student debt?
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