Student Loan Debt – Good, Bad, and Ugly

College graduate with large tuition bill, horizontal

Significant student loan debt is certainly a growing trend. If you’re the parent of a child . . . you already know! Either you’re looking at the impending costs with concern, looking at the checking account and contemplating if you should take that elaborate vacation instead, or you’re counting what the costs were and hoping your child is making the educational investment worthwhile. Certainly, there are scholarships and grants; furthermore, we’d be the first to encourage students work, save, and help pay their own way. But, when it’s all said and done, parents usually end up helping and students usually end up finishing with some debt.

The Good

The good news is that most students who actually graduate are eventually finding decent employment. According to the New York Federal Reserve, persons with a bachelor’s between the ages of 22 and 27 have 4.6% unemployment. Now, we can argue about what the true unemployment figure is, however this 4.6% figure is at least in line with general unemployment currently reported.  Also, of note, is that both the average salary ($50,651) and the median salary ($43,000) are up in 2015 from previous years for Bachelorettes.

The Bad

That said, student debt is becoming a much bigger concern. There are over 40 million Americans who collectively owe over $1.2 Trillion in student debt. Furthermore, the variance from the average wage after graduation is significant with upper margins being held mostly by information technology, healthcare, finance, and engineering majors. The lowest paying majors are varied, but include sociology, theology, and education. Also to consider is work experience when graduating and where the student is willing to move for a job, which can also impact income greatly. The average student loan debt is also at a record high of over $37,000 with seven in ten graduates borrowing for their education, according to Cappex, a website that connects students to colleges and scholarships.

The Ugly

As if the bad, was not bad enough, we have the ugly. The ugly truth is that it’s not the graduates with student loan debt, which are the greatest concern. According to Mark Kantrowitz, publisher of Cappex, most graduates’ debt burdens are “manageable” meaning they can be paid off in 10 years. The bigger problem is non-graduates who take on the debt, but don’t earn the degree. Kantrowitz states, “We don’t have a student-loan problem so much as we have a graduation problem.” And to exemplify how this could impact all of us, Lori Harfenist of The Resident summarizes a Wall Street Journal article stating, “7 million Americans are flat-out refusing to pay back their student loans because they feel scammed by their universities and government.” And, who are all student loan programs now managed by? You guessed it, the federal government, which means the American taxpayer is the one on the hook. In conclusion Kantrowitz states, “ . . . if current trends continue, we may be in a crisis point in two decades from now.” We think it could be sooner than that.

The information provided in Eddleman’s Economic Insight is not intended to be used as investment advice; rather it is provided as general economic news and information for your awareness or for discussions with your investment professional. Please consult your investment professional or CPA for advice specific to your situation! Past performance is not indicative of future results.

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