This morning USA Today reported “Student loans outstanding will exceed $1 trillion this year”. Let that settle in for a minute. That is a one followed by twelve zeroes. It’s also a million million. By contrast, the amount of credit card debt outstanding in the United States is $793 billion. According to the article, the amount of student loans taken out in the last year crossed the $100 billion mark for the first time. This is a staggering number and is a sobering statistic of the state of student loans in this country. Further, the default rate on these loans reached 8.8% in 2009. This means that more students than ever are unable to service this debt that they’ve taken on in the name of furthering their education. The average amount of student loan debt for the class of 2011 was $22,900, according to the Wall Street Journal.
What does this mean for future students? Does this trend have to continue? Without a plan, direction, and discipline these numbers are sure to skyrocket as new students enter college every year with student loans as their only option. Federally guaranteed student loans are generally made without regard to the borrower’s ability to repay, largely because the loans are guaranteed by the federal government. You can’t bankrupt student loans. The only way you get out from under them is if you pay them off, if you are declared permanently disabled, or if you die. The last two options seem pretty bleak to me. And, if you default on these loans, the federal government has the right to garnish your wages to collect on these loans without going through the court system. In short, if you have a federally backed student loan, you will pay it back.
Your best option is to never take out student loans. You may start school with the best intentions of finishing, only to have life reach up and slap you in the face. Think it can’t happen? How many friends do you know who had to drop out of school because they or their significant other winds up pregnant? How many of you know someone who failed out of school? Parents can get sick and you might have to care for your younger siblings. Maybe you get sick and have to drop out for awhile. One bad decision leads to an arrest, which leads to you getting kicked out of college. Or, you simply get bored with school, or find out that you don’t fit in, or that your major is wrong, or that you can’t deal with your roommate, or that you’re just homesick. Adult students, maybe your spouse loses their job and you have to go back to work to support the family. As you can see, any number of things can happen but you still have the loan. The student loan folks don’t care why you had to drop out, they just want their money. Even if you plan to go back someday, once you have been out of school for six months you must begin to repay your loans.
Students and parents, take note. Many good-intentioned folks will tell you that student loan debt is “good debt”. I believe that there is no such thing. Post-secondary education is still a luxury in this country, and we should either save up and pay cash or earn enough money to cash flow our luxuries. Put the other practices for the Affluent Student into play and you should have more than enough to pay for college – without student loans.