Student Loans a Gift or Curse?

The United States federal student loan system was created to increase social mobility and invest in our nation’s future by ensuring that those without the means of securing a higher education could receive government assistance to attend college and contribute to the economic strength of the nation. For many years student loans were a stepping stone to higher education that could all but ensure generations of students would have a secure economic future.

In 1985, Congressman William Ford of Michigan, one of the nation’s strongest advocates for federal support of student aid, predicted that many would be working just to pay off their student loans. Leaving them with little to no disposable income to purchase a car, home or even start a business.

Ford’s prophecy came true; many student borrowers face just that dilemma today—struggling to find ways to actively participate in building and stabilizing our economy while managing burdensome amounts of student loan debt. The promise of economic opportunity with the help of student loans has went from Student Loans the Gift to Student Loans the Curse, as today’s students now find their financial futures imperiled by the economic realities of holding student loan debt in today’s economy.

Take a closer look at the harsh reality of many Americans. In 1985, the average in-state cost of tuition at a four-year public institution was $1,318 while tuition at a four-year private college or university averaged $6,121. Today, that number is $8,655 for a public four-year institution and $29,056 for a four-year private school. There was $35 billion in outstanding student loan debt in 1985. Today two thirds of students attending a four-year bachelor’s degree program borrow to attend school and leave with an average of $26,600 in debt. Over 43 million Americans are oppressed by student loan debt. This has led to the current level of $1.3 trillion dollars in outstanding student loan debt.

How did this get so out of control? The reasons for the rise in student loan debt are numerous and widespread—a shift in federal student aid policy from grants to loans, rising tuition costs that drive the need for more borrowing, and GREED. Whatever the reasons behind borrowing and debt, the struggle to manage education loans is having a devastating impact on generations of American student borrowers.

Student loan debt has reduced the lifetime wealth building opportunities for many households—as people are forced to make payments instead of saving for retirement, buying homes, starting families and purchasing cars. It also affects career and job selections and their ability to save for emergencies.

A 2002 study found that 17% of student loan borrowers reported their loans had a significant impact on their career plans. 2016, after the economic downturn, ASA’s survey suggests that number has nearly doubled, as 30% of respondents said their student loan debt was a deciding factor or had considerable impact on their choice of career. In addition, 52% said they either strongly or somewhat agreed with the statement that their “need to pay student loan debt is hampering my ability to further my career.” One ASA survey respondent commented, “I need to have two jobs because of my student debt, and I cannot take employment opportunities that will not make enough money, regardless of the potential that they may have in the future.” Student loans are not just putting a strain on those with typically low paying professions. Even those outside of public service fields are feeling the pinch. The number one career regret is cited as taking a job just for the money, but a 2008 study found that, regardless of the career field of choice of respondents, about “40% of recent graduates took a job that provided higher pay, but less satisfaction, in order to pay off their student loans.” As one ASA survey respondent commented, “I took a job with a company I didn’t care to work for rather than spending time looking for a good fit because I was fearful I wouldn’t be able to make my student loan payments. I stayed at that job longer than I would’ve liked because of the same fear.” The New York Federal Reserve found that for the first time since the advent of student loans, “30 year olds with no history of student loans are more likely to have home-secured debt than those with a history of student loans.” In addition, a survey completed by Rutgers University found that 40% of college graduates directly correlated their delay in major purchases like a home to their student loan debt. Respondents in ASA’s survey suggested that the impact of student debt may be even larger with an overwhelming percentage of survey respondents, 75%, saying their student debt has affected their ability or decision to purchase a home.

The psychological strain of living in debt has led to many stress related and overall poor health issues. Student loan debt has weakened our economy bringing forth adverse social ramifications, reducing our community’s growth, and stability, while hitting our minority communities the hardest. Consider this horrifying example:

The national median existing-home price as of June 2013 was $214,200. With a 3.41% interest rate (the average low for a 30-year fixed rate mortgage as of January 2013), a monthly mortgage payment with average taxes and insurance would be about $1217.07 for a home mortgage if the entire housing cost is mortgaged.

The average student loan borrower in 2011 graduated with $26,600 in loans. If paid back over a standard 10-year period with an average interest rate of 5.725%, the monthly payment would be approximately $291.65.

The average amount of credit card debt for 25 to 34 year olds is $5,156, with a required monthly minimum payment of 2% or $103.12.

A 2012 college graduate with an average salary of $44,445 would bring home approximately $3,700 a month before taxes.

This means that the average amount paid for a mortgage, student loans, and credit card debts equals $1611.86, or 43.56% of the average college graduate’s gross pay—7% higher than the maximum debt-to-income ratio required to qualify for a typical home mortgage, and with no room left for an auto loan or any other type of installment loan.

Let’s recap why student loans were created.

Student loans are meant to provide opportunity for more people to participate in that social compact—the government will give you a benefit now, and you will pay that back over time both financially and by participating in society and our country’s economic success. But when we use debt to fund this social compact, we must understand the effect of that debt and the fundamental impact it is having on the ability of generations of Americans to prosper from higher education in all the ways intended.

I created the company Student Loan Relief LLC to assist the millions of oppressed student borrowers to reclaim their Student Loan Gift. Through precise strategic education and wealth building techniques we can eliminate student loan debt while establishing you financial freedom.

Contact Morsell Ector studentloanreliefllc@yahoo.com or 480-232-5717