The following is a post by MPFJ staff writer, Derek Sall. Derek is the owner of the blog, LifeAndMyFinances.com, where he teaches people how to get out of debt, save money, and become wealthy.
Have you ever stopped and studied the soaring trends of the cost of college tuition? Back in 1972, the tuition costs per year of a private institution were only $1,832. Today, tuition costs of the same institutions are north of $31,000 each year. If you attend school for five years (as many are doing) and have no financial aid during that time, you will owe more than $150,000 by the time you are handed that ever-so-special piece of paper!
With the rising costs of tuition, student loan debt is becoming a very real issue today. While many students are not graduating with $150k in debt, the average student loan debt is still a staggering $33,000 for each graduating student, and the average just continues to rise with each passing year.
For working professionals, $33,000 may not sound like that much, but consider the these costs when the average graduating student earns only $44,828 in their first year on the job. Paying rent, food, insurance, and transportation is hard enough without tacking on an addition $400 student loan payment each month.
The Impact of the Rising Student Loan Debt
Without even studying the trends or reading the reports, I have seen first-hand the impacts that the rising student loan debts are having on college grads today.
1) Debt Acceptance
This simple shift in perception is changing everything. When I was in college, many of us had debt sure, but we were all still trying to fight it. We worked jobs at night and on the weekends and put every extra penny we had toward our educational expense so we could keep our debts at a minimum.
Today, students go into college assuming that they’ll leave with mountains of debt. With this perception shift into “debt acceptance”, students are no longer scouring the neighborhood for jobs and could really care less if they put money toward their debts while they’re still in school. Many simply assume that they’ll be making bank once they graduate and get their fancy new job and can take care of their debts then. Oh, if they only knew how much this debt will affect them in the future…
2) Getting Chummy with the Parents, Take Two
After graduating with massive debts, new grads are coming to the realization that jobs aren’t all that easy to get. And, even if they can find a job, their loan payments are crippling their independence. With the huge payments that they need to make each month, many new graduates are finding themselves moving back in with mom and dad. It certainly isn’t life as they planned it, but it’s the direct result of taking on too much debt while in college.
Keep in mind that this action not only hurts the young adults and their freedoms, it’s hurting mom and dad as well! The additional stress and expense is likely keeping them from socking the amount of money away that they’ll need for their retirement.
3) A Lonely Retirement Fund
We just mentioned that mom and dad’s retirement fund might be hindered by the new grad’s student loan overage, but it’s killing their own retirement account as well! The most important time to start investing is in those early years and if your student loan costs are through the roof, then you probably won’t be jumping at the opportunity to take money out of your check and put it into your company 401(k). This will likely cost you hundreds of thousands of dollars in the long run.
4) The Downward Spiral of America
As I see it, this increased student loan debt issue is not only affecting us in the current moment, but it is hurting us exponentially in the future. This rising trend means parents aren’t able to fund their retirement fund properly, which means fewer dollars are passed onto their children when they die. Those kids’ retirement funds look even worse because they didn’t start them until they reached their late 30’s. With little-to-no inheritance, they will be looking to the government to fund their retirement, but as many of us know, Social Security likely won’t even exist 20 years from now.
It’s not a cheery picture, but it is very likely that our great country is heading down the hole in a hurry.
How about you all? Is Derek wrong? What is your opinion on the effect of student loans on our nation’s future?
Share your experiences by commenting below!
