Student loan has long been a topic given its impact in American lives as well as what government’s role in it. Recently it has become center of attention again when senator Elizabeth Warren brings student loan cancellation front and center to her campaign. She is not the first politician who desired to have a solution in making college affordable. Many debates and campaigns have covered this topic. While it is second largest debt for American right after mortgage, the effect it imposes to American young generation and economy is significant.
Exactly how big is the student loan in America?
Below is the data from the U.S. Federal Reserve bank.
$1.56 trillion in total U.S. student loan debt
44.7 million Americans with student loan debt
11.5% of student loans are 90 days or more delinquent or are in default
Average monthly student loan payment (among those not in deferment): $393
Median monthly student loan payment (among those not in deferment): $222
In 2019, America credit card is at all time high reaching 1.03 trillion dollar. Average American credit card balance per Experian is $6,838. However, if you think American credit card debt is a problem, American student loan is about $521 billion more than the total U.S. credit card debt.
Per ValuePanguin research, average college cost has been on the rising year over year. As of 2017, The average public school tuition has reached $21,000. Private school tuition is more than twice of public school tuition.
Comparing to average American wage at $48,000 per year, the tuition is equivalent to a one year salary after tax paid.
What is driving such fast growth of college tuition?
Less option in cheaper living
The option of living cheaply for college years has narrowed with fewer and fewer affordable options. The average living standard is rising. The higher living cost comes with expected higher loan amount to keep up with.
Cost of college management level salaries
The average salary of a university president has grown 10 to 30 times over the past decades. Many college presidents make high income or even million in their salaries. There is really no obvious reason why it should be the case except that student loans are paying for it.
Availability of student loans
With such a high cost of college education, more average Americans turn to student loans. To ask a teenage before even starting the very first step working for the society to take on such a lifetime loan is beyond my comprehension. The college students should be given knowledge and building out skills, instead of deciding on a debt that is as big as buying a house.
Many might argue that student loan is a “good loan” that enables students to gain education and land a good job to pay back. However, this theory has been challenged by the income disparity from occupation to occupation. Unlike other debts, you can never walk away from your student loans. Student loans survive bankruptcy and follow you to every earning you might have even social security income. This is the reason that the banks are happily to issue student loans to those young kids.
The availability of American wealth management and student loan products is so vast and convenient that can easily make people believe that the loan is a normal and necessary solution. However, just like any other loan, it is a debt that you are bound to repay back in the future, except that this time it is a loan signed up by a kid who has not even figured out their future yet.
What are effects of student loans to young American?
While going to college is a major milestone with high expectation for a bright future, signing on a huge student loan before life in workplace starts bring in many effects.
Study has shown that the burden of student loan drives graduates to pursue money over skills and passions. This has adversely impacted effectiveness and productivity for society. The dream very often needs to be put to backseat while the debt is on shoulders.
Heavy student loan also means less savings and less likely to own a home. Many of graduates could not afford the down payments and chose to stay with parents or leasing in order to save. Home ownership is a sign of stability and economy growth. Less ownership drives less stability and increase stress as well as depression level.
With the substantial burden of a student loan, it comes as no surprise that the rate of home ownership among the youth has dropped. The study by Student Debt Crises also indicated that 56% of the borrowers are unable to buy a home and 19% delay getting married.
Many of the student loans also go into default due to low pay jobs. This has make new generation to bear the low credit score risk. Undesired credit means higher interest rates for loans and mortgages, which become a snowball effect of higher debt.
With 3 to 4 times of American population, China, however, does not have this same problem.
It is almost non-exist for Chinese to worry about getting education throughout college, even graduate schools. The average tuition in China is about $2,200 per year. With rising wage, it is a very affordable spend. Literally no one in China talks about paying off debt for attending colleges.
The reason that China can offer very affordable education all the way through college and graduate schools is largely due to government subsidies, which is estimated at about $250 billion a year. In addition, scholarships will also cover living cost, food and books etc. for those who can not afford. Very few people had to withdraw college due to tuition and living costs.
The living condition for college students, by all means, are not luxury and very often can’t compare to American colleges. Few parties, no starbucks, only shared dorm and cafeteria foods, however, the option of cheaper living make it possible for as many students as possible to afford education.
Majority of China colleges are public schools vs. in the U.S. top schools are typically private. In the past decades, despite of significant gap of China and American tuition, many Chinese students still opted to get American education due to quality of education.
Data showed that in 1949, only 0.26% of Chinese aged 18-22 were attending college. Last year, that figure was 40% and is projected to hit 50% in 2019. International schools look to recruit Chinese students to drive profitability. In the past few years, recognizing the outflow of quality students and with growing economy, China has focused on growing its higher education system. “The fast development of higher education in China has offered more ordinary Chinese people the opportunity to attend college. It has also provided intelligent support for the dramatic transformation of Chinese society,” said Wu Yan, director of the Higher Education Evaluation Center.
What solutions could be for student loan?
I am all for personal responsibility and pay for the debt incurred, but student loan is one area I believe should be diminished. Education is a broader social responsibility that we need to provide for young generation. Except for the normal, but very limited scholarship offered, I would support for the subsidy from society to allow education available for students especially for those areas where occupancy is still in low pay i.e. teachers.
Before any policy to address this, don’t stop looking for other ways of reducing your tuition burden. Many corporations started offering the benefit for employee families in support of tuition payment. I would highly encourage to check out those benefits that might be available to you.
Start saving for college expense is never late. That means put savings to an investment tool that can beat inflation.
Last, I would consider your final education needs. I don’t like to recommend a downgrade to your college choices especially when you are qualified. Be smart at selecting the colleges if you aim in a higher graduate degree. While it is great to go to top colleges, sometimes to opt for a cheaper college so that you can save for later graduate school can be a smart balance. It is not an ideal choice, but it has its own practical advantage.
Simple Wealth For Women is a blogging website focusing on financial discussions. I help women to crush debt, learn how to invest and make more money. I show you simple approach and provide you with specific ideas to help you get to financial freedom and build an amazing life.
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