As we watch the DOW Jones Industrial Average teeter at record highs the talking heads of the news media debate on whether we’re going to continue seeing economic bliss or a record breaking correction. However, no matter which channel you turn on you’ll be hard pressed to hear anyone talking about one of the biggest issues plaguing our country, the pending student loan crisis.
Our Current State
As of 2018 American student loan debt has reached a staggering $1.48 trillion, 10.7% of which is over 90 days past due. That’s $620 billion more than the nations credit card debt. 44.2 million Americans currently have some sort of student loan debt. Colleges and universities are churning out students buried in debt that by all reasonable expectations are un-lendable for homes, cars, or hell, a credit card. However knowing that this could cripple our economy the government and the banks are changing lending guidelines. So now that 24 year old with his first job is not only $100k in student loan debt but he just leased a BMW and the bank pre-approved him for a $250,000 home. This is unsustainable.
What’s Causing the Student Loan Crisis?
Every year college education becomes more and more expensive. The unfortunate part is that an increasing number of students are graduating from Universities only to have trouble finding work or they struggle to find a job that pays enough to cover the monthly payments they’re about to take on. This forces students to use deferments or forbearance, or worse yet, go back to school in order to continue to put off repaying the student loans all together. It’s safe to say that the entire educational system needs to change, but how? How do we stop the bleeding and begin to fix the student loan crisis.
Most students start college at 18 years old, far too young and inexperienced to possibly have any idea what they want to do with their lives. According to a study done by Ohio State University, 50%-75% of college students change their major. In fact, the average college student changes their major three times. Meanwhile academic advisers are telling kids to take classes based on their interests, wasting money and time on credits they may not even end up using. It seems to me that the better answer is for a student to first find work.
In order to answer the question of what to do to fix the problem, first ask yourself a question: If you could choose a career right now, based on all of your past work and life experiences, what would it be? Would you still do the same thing? My guess is the majority would say no.
My Proposal
Coming out of High School most students are still in a position where they don’t have any real financial responsibilities. Isn’t this the most ideal time for them to take on an internship or job shadow someone. For instance, if you think you want to have a career in politics, call a Congressman, State Senator, or Borough Councilperson and work for them, for free. You may very well decide three months later that this isn’t the line of work for you, and it cost you nothing but some time to figure that out. Once you find your niche, the industry that doesn’t feel like work at all, that’s when it’s time to start your formal education. But that doesn’t mean you go full time for four years, no you continue to work in the industry while you attend classes. Take classes as you can afford to pay for them upfront.
I would be willing to bet that if this became common practice that companies would start helping students pay for their bachelors degree in exchange for promising to work for the company after graduation. This also gives these companies the opportunity to mold the students into the ideal employee making it even more worth their investment. So four, six, or even eight years later you will find yourself finishing your degree, with real world work experience, and little to no student loan debt. What better position could you possibly be in?
The timeline that we’ve all been forced to accept is what’s creating this problem in our country. For some reason our society has this idea that if our kids don’t graduate high school at 18 and graduate college and have a job by 22 that they’re failures. I have news for you, the failures will come at 27 or 28 when our kids want to buy a house or a car and they can’t because they’re up to their eyeballs in student loan debt.
Compare The Two Options
Student A
Student A is our typical student, pressured by parents and society to take the path that so many before him have traveled. He graduates at 18 and has decided he wants to start a career in accounting. He applies and is accepted to his nearest State University and will be paying $25k per year for the next 4 years for his bachelors in accounting. Let’s say for the sake of making my point Student A doesn’t change his major three times and decides he loves accounting (easy with the accounting jokes). He graduates with honors at 22 years old, $100,000 in student loan debt and even has the good fortune of getting a job right out of college making $40k per year. That student will then begin paying $764 per month for the following 20 years in order to pay that off, assuming the interest rate stays fixed at 6.8%. That’s 23% of their gross monthly income going to paying back student loan debt and a total of $83,360 worth of interest over 20 years, if they never use any deferment or forbearance, never pay a late fee, and never have to go on an “interest only plan.”
Student B
Now let’s consider Student B. He also decides at the early age of 18 that accounting is the field for him. However he decided that he is going to get a part time job at a local tax and accounting office while he attends school. They offer him a part time position making $25k per year. He takes $15k per year and spends that on school and since he still lives with his parents he takes the rest of the money and does what all college kids do… donates it to, um, charity. Moving on… Since he’s only spending $15k per year on school it takes him seven years to complete college, so he’s 25 when he graduates. He calls his friend, Student A, and gets an interview at his company. He gets the job making $40k per year. Since he’s 3 years behind Student A, and assuming Student A gets a 3% annual increase, he’ll be making $3,709 per year less. That’s approximately $309 per month, gross. Since he won’t have any student loans to worry about, he’s still $455 per month better off than Student A.
One can argue that Student A will have a head start and could theoretically, over the course of his career, make more money, but we all know that’s not necessarily the case. Let’s not forget that Student B has spent 7 years working for a local accounting and tax office. He has REAL WORLD experience in the field and knows more about what actually happens in real life than Student A. Of course there are a lot of variables here, but as you can see this at least shows that rushing through a degree in 4 years and burying yourself in student loan debt isn’t not the only option.
Conclusion
The bottom line is that if we don’t do something to fix the student loan crisis it will be the cause of the next financial collapse. Will the government step in? And if they do, will they bail out the student loan companies or the students?
