There was recently an article in the well-respected Wall Street Journal that really upsets me. It bothers me as a taxpayer and concerns me even more as a financial advisor.
The article revealed some startling statistics garnered by the U. S. Department of Education. There are now more than 100 people that owe in excess of $1 million on their student loans.
What makes it even more staggering is that only five years ago there were just 14 people carrying a seven-figure debt load. Equally alarming is that 2.5 million people that still owe more than $100,000.
According to several sources, including the Federal Reserve Bank of New York, total student debt currently exceeds $1.4 trillion. Yes, trillion. The total number of student borrowers is more than 45 million. That’s an incredible 70% of all college students.
As a financial advisor I can’t help but ask myself how such a circumstance could arise. I’m not suggesting that student loans should be eliminated, but borrowers really need to calculate what it takes to repay the loan, including the interest.
Those numbers can balloon into an overwhelming financial burden. Because lenders are overly eager and generous and because students either don’t calculate or understand what they’re getting into, it looks like the
taxpayers will be on the hook for a significant amount of the money owed.
As it currently exists, the student loan program simply is not working.
And the large number of student loan defaults is proof. By now, most high school seniors know where they’ll be attending school in the fall. It will be the beginning of a journey that will entail many financial decisions along the way.
Unless a student has a full scholarship or a benefactor that can afford the enormous cost of higher education, it’s likely that he or she will have to resort to getting a loan.
But before anyone gets a student loan, I suggest they do the math. Just because you qualify for a loan doesn’t mean you should rush to get one. There are several steps you can take to help avoid one, or at least to minimize the loan amount.
For example, instead of enrolling at the university of your dreams, take your prerequisite courses at a local and less expensive community college. Also make certain that, if you do get a loan, the money is used only for educational purposes. I fear that some borrowed monies end up on spring break trips. As much as I like a good time, I don’t think vacations should be taken on Uncle Sam’s dime.
I’m not pointing fingers, but the cost of education is escalating at an alarming rate. I have clients that, years ago, worked at auto plants over the summer and made enough to cover the next school year’s expenses.
Granted, everything was cheaper back then, and since those days costs have escalated astronomically. Those high paying summer jobs are few and far between as well. It’s no wonder the student loan programs are in such a mess today.
At the end of the day, we, as a nation need a viable solution that does not tie a financial anchor around a young person’s ankles. Nor should any solution force the taxpayers to pay for a bailout.
E-mail your questions to kenmorris@lifetimeplanning.com. Ken is a Registered Representative of LPL Financial. Ken is Vice-President of the Society for Lifetime Planning. All opinions expressed are those of Ken Morris. LPL and Society for Lifetime Planning are independent companies. Securities offered through LPL Financial, Member FINRA/SIPC. Investing involves risk including loss of principal. No strategy assures success or protects against loss.