Lasting Situations of Wealth

“A millstone around your neck”
Definition: a problem or responsibility that you have all the time which prevents you from doing what you want.

College-Loan Debt: A Millstone on a Graduate’s Future

Want to give your children a financial advantage for the rest of their lives? Then help them graduate from college without any debt, particularly student loan debt.

As Tamara Lewin reported in an April 11, 2011, New York Times article, “Student loan debt outpaced credit card debt for the first time last year and is likely to top a trillion dollars this year as more students go to college and a growing share borrow money to do so.”

There are plenty of statistics supporting the long-term economic benefits that coincide with a college education. But these benefits can be blunted by heavy debt burdens. Consider the following statistics cited by Ms. Lewin:

•    Two-thirds of bachelor’s degree recipients graduated with debt in 2008, compared with less than half in 1993.
•    Last year, graduates who took out loans left college
•    With an average of $24,000 in debt.

And then, there’s this personal anecdote:

During the 2008 presidential campaign, Barack and Michelle Obama spoke about how their loan payments after graduating from Harvard Law School were more than their mortgage payments. At that time, Mr. Obama said:

We left school with a mountain of debt. Michelle, I know, had at least $60,000. I had at least $60,000. So when we got together we had a lot of loans to pay. In fact, we did not finish paying them off until, probably, we’d been married for at least eight years, maybe nine.

Ms. Lewin adds that Mrs. Obama said it took the royalties from her husband’s best-selling books to help pay off their loans.

Beginning a career with significant debt obligations is like entering a race with a grand piano tied around your waist. The dead weight of debt not only makes it harder to get started, but also means it will take longer to reach milestones. And most college graduates will not be able to write a book to pay off the debt. In the NYT article, Lauren Asher, president of the Institute for College Access and Success, summarized the impact as follows:

If you have a lot of people finishing or leaving school with a lot of debt, their choices may be very different than the generation before them. Things like buying a home, starting a family, starting a business, saving for their own kids’ education may not be options for people who are paying off a lot of student debt.

And for many graduates, the dilemma of student-loan debt is not going to be resolved after a few years of working. In the current environment, student loans are becoming more long-term in their impact. Mark Kantrowitz, publisher of FinAid.org and Fastweb.com, who has compiled the estimates of student debt, added this sobering thought:

In the coming years, a lot of people will be paying off their student loans when it’s time for their kids to go to college.
 
From a personal fulfillment and employment perspective, a college education may provide an entrée to a long and satisfying career. But if obtaining a degree also means that other material aspirations will have to be postponed or eliminated, the financial advantage is diminished. If you have children (of any age) who will want to attend college, these realities should prompt some serious discussions about tough alternatives. For example:

•    Is community college a better financial alternative, particularly for obtaining undergraduate credits?
•    Is a program of part-time school and part-time employment a good idea, even if it takes longer to graduate?
•    Should military service be considered because of the tuition assistance programs?
•    Would your children rather have an inheritance or a college fund?
•    Can any current financial assets be rearranged to qualify for greater financial aid?

And…if your child’s college education is a priority, you should be thinking of ways to save for these upcoming expenses. You should also be educating your child about the financial ramifications of debt, helping him/her to understand the value of a debt-free start on his/her working life. 

Like several other topics in this issue, small decisions made today can make a huge difference in the future, both for you and your children. The sooner you start preparing, the more resources you’ll have, as well as better options for allowing your children to graduate debt-free.