Posted By RichC on August 23, 2011
Hopefully this will be the last year we’ll be paying for college expenses. This may make me a bit more in-tune to the high cost of college. Unfortunately for many students planning or going to college, the continual rise in tuition and living expenses has made it impossible without taking on significant debt. Some financial experts, including Dave Ramsey, recommend working and attending college locally as a way to decrease the cost of a higher education (Ramsey goes so far as to dissuade borrowing at all to go to college … classifying it as a Stupid Tax).
Project on Student Debt estimates the average debt for 2009 bachelor’s degree recipients at $24,000.
Still the majority going to college choose the debt route even when presented with the cost of borrowing. Who’s right … well in my opinion that depends on the demand and salary for the degree and effort put into an education. Those with a 4-year degrees seeing a high income shortly after graduation have a far easier path to pay back loans than those with majors which either pay little or require further education.
One would think that having experienced the 2008 mortgage meltdown, that “smart” college students, parents, the universities themselves and agencies who loan for an education could predict what is coming. A glance at the chart above demonstrated just how indebted students are becoming compared to the housing crisis. If we borrowed too much for homes until the collapse in 2008 (drop off on the blue line), imagine what is going to happen as the hyper borrowing for college (red line) can no longer continue to rise? For students, the monthly payments will be so larger that defaults will be the only answer. Unlike the home loan crisis where one defaults and loses their home or in hardship cases files bankruptcy … there isn’t collateral for lenders to liquidate. Garnishing wages for life may be what some college grads are facing.
Many students take on $100,000 or more in debt to finance their education. U.S. student loan debt has reached $900 billion, more than what Americans owe on credit cards. Those struggling with repayment can’t default on student loans in bankruptcy, and the problem continues to get worse as states cut funding for higher education and schools raise tuition.
There are some who are waving the red flag, but with all the debt and deficit battles in Washington DC, the powers that be probably aren’t going to panic until it is too late.