In today's chronically uncertain economic climate, the job market only promises to become more and more competitive. This sobering fact has prompted many people to pursue college degrees in order to increase their skill set and marketability to potential employers. Unfortunately, scholarship opportunities are not readily available for many would-be college students, forcing them to seek financial aid to help fund their studies With total outstanding U.S. student loan debt now exceeding $1.1 trillion, many financial pundits are now concerned that this trend of expensive student loan debt is eerily following in the footsteps of the housing crisis that rocked the nation just a few short years ago.
According to a recent study published by Fidelity, 70% of the class of 2013 is graduating with an average of $35,000 in college-related debt, including federal and private loans, credit card debt, and loans from family members. As it stands today, student loan debt is second only to mortgages as a portion of overall household debt. This bleak picture has prompted many to speculate whether or not their college expenses can even be considered an "investment" into their future as the prospect of increasing interest rates will no doubt make repaying their student debts more difficult. While the harsh reality of student loans will certainly settle in after graduation, it is not entirely fair to judge the value of your education based on a short time span. Countless studies have proven that people who have a college degree will on average earn more money over their lifetime than those who do not have a degree. This lends quite a bit of truth to the famous saying, "If you think education is expensive, you should try ignorance."
As it stands currently, the average student loan debt per person is roughly $24,000, and the approximate number of students who have outstanding loans is 37 million. Of this number, a full 14% of borrowers have defaulted to some degree on their obligations. Recent statistics estimate that of the $1.1 trillion in total student loan debt, $85 billion is past due. This has raised several concerns in the financial community, and many economists speculate that a massive loan default meltdown is imminent within the next few years. In light of the increasing risks involved with college-based lending, many leading financial institutions have opted to shut down their student loan divisions, including banking giants JP Morgan and US Bancorp. When asked why JP Morgan decided to shut down its student lending division, chief executive for auto and student loans Thasunda Duckett stated "We just don't see this as a market that we can significantly grow." The continued threat of uncertainty regarding the fragile state of the U.S.'s economic recovery has prompted these institutions to shutter their student lending divisions in an effort to avoid a perceived increase of risk in that sector.
So what should students do about this problem? One of the central ideas to keep in mind moving forward is to avoid unnecessary expenses as much as possible, and try to cut costs at every opportunity. Since housing is normally one of the biggest slices of most people's budgets, if you have the opportunity to live with family for free, you should seriously consider doing it. The average rent in the U.S. is $804 per month, which translates into roughly $10,000 per year of money that you could save if you can live with family for free. Many banks and other businesses offer various student discounts for you to take advantage of, as well. As an example. Bank of America waives its $12 monthly fee for students; this means $144 per year that you can keep in your pocket. Other expenses that can put a strain on your finances are often more subtle; for example, the average cup of coffee costs $1.38, which doesn't seem like a big deal on the surface, but if you were to buy one cup of coffee at that price every day for a solid year (not too uncommon for students that regularly depend on caffeine for those marathon study sessions], you will have spent over $500 at the end of the year! Seemingly insignificant expenses like these have more of a cumulative effect on your finances, and when you make more of a conscious effort to curb these impulse purchases, you will find that you have more money in your pocket to put towards higher financial priorities.
Although these types of changes will require sacrifice, you will find that it will all be worth it when you experience the peace of mind that comes with taking greater control of your finances. By making small but significant adjustments like the ones mentioned above, you can begin to reign in your student loan debt and put yourself on a solid road to greater financial stability.