Caveat Emptor; The “Student Loan Debt Crisis”

Fellow Educators and Supporters,

Given the current “student loan debt crisis”, we believe it is important now more than ever to discuss with high school students how an individual school or educational program fits within their personal, professional AND individual financial goals. Oftentimes, students and/or parents do not fully understand the financial impact of financing college until they are in the midst of the college experience or after college. And, in some cases, this may result, over the long term, in students and parents postponing their long-term goals and/or weakening their short and long term financial well-being.

According to Consumer Reports (June 2016), “42 million Americans” are “bearing $1.3 trillion in student debt” and as a result “that’s altering lives, relationships, and even retirement” (Steele & Williams, 2016). What’s important for consumers to consider is that the Student Loan industry is a money making venture and understandably so in a mixed market economic system (Steele & Williams, 2016). But, the “industry is faring a lot better than a lot of the students” reportedly, making approximately “$140 billion a year” (Steele & Williams, 2016).

And interestingly enough, the profitability is not just within the private sector. According to the “Department of Education’s own calculations, the government earned an astonishing 20 percent for the loans it made in 2013” (Steele & Williams, 2016). At present, the U.S. government “holds” approximately “93% of the $1.3 trillion in outstanding student loans” (Steele & Williams, 2016). While going to college or seeking postsecondary training is certainly beneficial for individuals and the general economy, considering how this investment will pay off over the long run, and how you pay for the products and services that help you achieve your goal is also key to ensuring your investment pays off. Although progress has been made to make the industry more in-tune to the borrower and his/or her ability to pay, “one in four borrowers are behind in their payments” and “7.6 million are in default” (Steele & Williams, 2016).

So what this boils down to for both students and parents is that it pays to be a savvy consumer. That is, for households to avail themselves with the information necessary to make informed choices about the costs involved in the college or postsecondary education decision and its financing options. And once the initial choice is made (prior to commitments), to find out the cost of the opportunity not taken. It may be that your second-best college or vocational choice, may actually fit better within your personal, professional, and financial goals. There are a number of tools that both parents and students can use to help with this decision. Some of these tools are noted below. Although research supports that a college degree pays over the long term, this is given that households responsibly manage their income, expenditures and wealth over time. And of course, this includes best positioning our students for success; finding out the true costs of their college or vocational options (including financing) prior to the actual decision. So, caveat emptor, let the buyer beware.

Parents, students and teachers, check out this online series of articles from Consumer Report (June 28, 2016) on the student loan debt crisis. It’s an interesting read: http://www.consumerreports.org/student-loan-debt-crisis/lives-on-hold/

Also, please note, I have attached a number of online links that may help teachers, parents and students navigate the student loan process.

References:

James B. Steele and Lance Williams (2016, June 28).www.consumerreports.org. Student Debt: Lives on Hold. Retrieved on July 13, 2016, from http://www.consumerreports.org/student-loan-debt-crisis/lives-on-hold/

 

Resources for Parents and Students:

  • Consumer Finance Protection Bureau “Paying for College”

 

 

 

 

  • Federal Student Aid

 

 

Resources for Teachers:

  • Investing in a College Education (12 lesson plans & teaching resources)

 

 

  • Saving for College

 

https://www.stlouisfed.org/education/continuing-feducation-video-series/episode-2-saving-for-college

 

 

 

 

 

 

 

Students may also like to find out the demand and median income for their future vocation when balancing college costs. Check out these two options to share with your students: