Evaluating Student Debt

Student Debt

Student Debt


In an economy that is in a downturn it is increasingly difficult to find a job. Many thousands of college students now find themselves graduating into that economy, unable to find a job and also unable to pay their college loans. In the USA an estimated 1.75 million students will graduate this year and will join other job seekers in looking for full time employment and a way to pay their substantial college loans.

Many of those students have degrees that don’t suit the current job market so will struggle even more in their job search. For those unable to secure full time employment, they will start to wonder – was college worth it, or have they simply landed themselves with tens of thousands of dollars in debt. A burden which may haunt them for decades to come.

College is also becoming more expensive so the level of college debt that students are forced to take on is increasing. Most adults consider student debt above $50’000 as far too much for a young person to handle as they enter the work force for the first time, but many students have far more debt than that. Some even reach the $100’000 mark. The students themselves think that the level of debt is acceptable for a college education, but older generations are horrified at the level of spending required to get a degree in 2013.

The opinions of wanna-be graduates change dramatically once they enter the workforce and the real burden of that high debt becomes apparent, with over 70% of polled young adults with college debt saying they are struggling with the student loans, even with a job. It quickly becomes apparent that the other debts which are involved with living, a car loan, paying rent, buying food and paying for utilities make it very hard to afford a student loan obligation as well.

The percentage of people that require large loans to finish college has also increased compared to previous generations. Nearly half of all college graduates finish their degree with debt, compared to 40% of Gen X students having to take on debt and only 25% of baby boomers who needed to take on debt to finish college.

The median debt that students take on is also increasing, now close to $40’000, compared to $25’000 (adjusted for inflation) that people had to take on 20 years ago. According to some student groups there has actually been a 40% increase in student debt within the last 10 years.

The unemployment rate in the USA has been gradually improving but is still sitting above 7%, which is a scary proposition for job seekers. For young adults this is even higher, with the average unemployment rate across the country at 12%+ for people aged 20 to 25. It is estimated that there are about 1.5 million college degree holders under the age of 25 who are unemployed, many of them carrying large sums of debt.

Scary figures, but the unemployment rate is even worse for young people who only graduated high school and didn’t go to college, with their unemployment rate being twice as high. Times are gloomy for young Americans looking for work.

The combination of high debt and a slow economy has meant that an estimated 13% of college graduates default on their loans within 3 years of leaving college. If we have so many young people unemployed and mired in massive debt, how can they be active consumers in the economy? They won’t be able to buy a house or a car or buy high priced luxury items if they can’t get a job or manage to pay their student loans. So it’s a terrible sign for the entire economy.

America still needs graduates, still needs their skills but unfortunately the downturn and expensive college loans are not making it easy for our best and brightest to make a good life here. So plan your education carefully – if you want to go to college, make sure you continue to save money and seek the assistance of your parents or go for a scholarship. By planning for worst case scenarios you may avoid the kinds of situations many of our students are in.

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