College Students are racking up so much Student Loan debt. The good news is that this can be prevented.
It was reported by Consumer Reports in June 2016 that forty-two million Americans account for $1.3 trillion of student debt in the United States. Today nearly fifty percent of all adults (age 25 or higher) in the United States have at least started college. That is close to 100 million US citizens.
The upward spiral and reliance on debt to go to college has been skyrocketing at greater than five percent per year for three decades. The percentage of students graduating with debt has tripled since the nineties and now about three out of four graduates have debt with the average debt nearly quadrupling from $10k to over $35k. Consumer Reports also reported that more than half of those with student loan debts have had problems making loan payments.
It’s a problem. But the great news is that it can be prevented.
We will first review how the debt is where it is today and then describe how it can be prevented (or at least lessened) going forward.
How Did Student Debt Exceed Credit Card Debt in the US?
In the last Hired Graduate article titled Student Loan Debt is Eighty-Four Miles High we reviewed how student loan debt is now over $1 trillion. We outlined a brief history of student loan debt and six main contributors to the current student debt situation. Those six items are summarized below:
- #1. Everyone Is Doing It – It’s the New American Dream
- #2. There Are Limited Alternatives
- #3. College Loans Are Easy To Get
- #4. College Costs Are High – And Rising Faster
- #5. Some College Students Lack A Plan
- #6. Some College Students Lack Grit
Everything Seems So Expensive Today
The price of many things seems expensive these days.
Going out to eat can cost $10 per person and over $50 for a family of four. Shopping for clothes can cost several hundred dollars. The cost of going to a major sporting event with the family can be hundreds of dollars. The average price of a new car in the US is $33k and buying a new car like a Chevy Tahoe is about $70k. The average price of a home in the United States is approaching $200k. In neighborhoods with great public schools the average home price may be twice that amount. Homes in the most expensive zip codes within Charlotte, NC cost $500k to $1MM and up.
Moving over to consider the cost of attending college and the high costs persist. The average residential cost of college at a public university is $20k and a private college is twice that. It is realistic to think the average student attending in-state public university and living on campus will pay $100k for their college experience and degree. For private colleges the price is $200k.
And that is just for the undergraduate degree.
How To Go To College And Graduate With No Debt
There are several things that can be done to go to college and come out with little to no debt.
#1. Get College Credits While in High School
AP Classes. Many high schools offer AP classes. Students take the class and then take an AP test in that subject after the class is complete. Score high enough and come colleges will count the class as credit for college. Every college has different rules so it is worthwhile checking into that when considering which college to attend.
Get College Credit In High School. Many community colleges have matriculation agreements with many state high schools. Juniors and Seniors in states such as North Carolina are able to take college classes for free at community college. Students can choose to take electives at the local community college or online. For more details check out the article How Community College is An Excellent (And Cheaper) Path To Four-Year Degree and a podcast interview to discuss Taking College Classes in High School.
#2. Get an Associates Degree at Community College First
For those that do not have the opportunity to take a lot of classes or have no idea what they want to be one consideration is community college. Community college can be a great path to four-year degree because it allows you to take time to get an Associates Degree, work, and figure out what career path you may be interested in WITHOUT taking the full plunge into four-year university which requires a solid plan and track to graduate with a job in four years.
Associates Degrees in many states transfer right over to four-year university as a junior. You would then need to ensure you have the right degree coursework completed within the two years to get your bachelors degree.
#3. Graduate As Fast As Possible
One way to reduce the cost of college and a need for student loans is to graduate college within four total years, or as soon as is feasibly possible. As they say, life happens. A good plan is a tactical one. Stay focused and on task. The only reason you would take fewer than fifteen hours of classes (five classes per semester) would be due to perhaps a co-operative opportunity where you get paid to work in your major field. My wife was a computer science major and did a co-op program. She paid for her own college by working and it did take her six years to finish school, but she had no college debt, and had two years of work experience in her field of study. She had her choice of employers.
#4. Work Through Both High School And College
It has been said that kids today are not learning the value of a dollar. They are so wrapped up in extracurricular activities that they are not getting jobs. I am hearing from Directors of Admission and from those in Corporate America that something they want to see in their candidates are good old fashioned jobs.
If the jobs are in their field of study or are applicable to the work world, then those can be excellent ways to stand out and demonstrate many key skills.
The grit displayed by working through school scores points and demonstrates a solid work ethic, reliability, time management, and achievement. It also demonstrates that you understand the value of a dollar.
Plus, you can make money. If you worked full-time through summers and part-time during the school year it is realistic to think you can earn thousands of dollars during your high school and college years.
#5. Pay Your Way Through College (Students and Parents)
One thing that can reduce the need for debt is to pay for college as you go. You may have a college savings plan or fund that you have been investing in. This is a great way to pay for college, for funds earmarked toward college expenses to help your children get through college and into adulthood beyond college.
If you have invested in a 529 college savings plan you can take the money out of the account with no tax penalty for funds used toward college and college living expenses. If you start when junior is a newborn that gives you eighteen years to get this fund to a meaningful amount. Many families start at just $100 per month and then raise the amount each year with raises and make extra contributions with bonuses or gifts from family.
You can also check out past blog articles on Hired Graduate:
If you do not have savings to use to pay for college then perhaps you will be using your income to foot the bill. This is acceptable and not a bad way to go. The goal is to not get the student into student loan debt. At minimum, subsidized Stafford Loans that do not start accruing interest until AFTER college is completed may be considered.
#6. Start Figuring Out What You Want To Be In High School
It is wise to start considering what you want to be when you grow up while you are in high school. You can try a bunch of elective classes in high school.
You can see what classes you excel at naturally that may show an affinity for certain types of careers or jobs that others. There are many personality and career tests that show possible fields that you may be interested in.
It is still hard to believe that an 16, 17 or 18-year old is mature enough to identify that career path that makes the most sense. But it is quite possible that such a thing exists.
There are lots of reasons to like classes – and careers. You can check out courses offered at any college and review those course descriptions to see which ones may seem interesting to you.
I loved numbers, math, and that drew me to the stock market. I tried some accounting classes and on my 4th one made the decision to declare my major in Finance. I loved statistics and investments and finance classes. My Hewlett Packard 12B calculator got some use.
I learned the Time value of money, present value concepts, the rule of 72, dollar cost averaging, the ten-bagger, value investing and fundamental analysis. I got a Finance degree and found the choice was easy as my passion matched my talent.
Likewise, I joined a business fraternity, got an internship at a brokerage firm, then an internship in the finance department of an insurance company.
That all laid the ground work for my job offer the spring of my senior year. I was offered a position in the management trainee of Conagra on a commodities trading desk.
Get some jobs during high school and summer months. Identify what types of work you like. Ask to try different things. Even if it is not in your job description. You want and need to learn. Apply yourself, show initiative, be punctual, and it will get noticed. Opportunities will start to show themselves. You can then navigate to those opportunities that most interest you.
Seek out those people successful in your workplace and ask to go to lunch. Inquire why they selected their career path, what type of education is required, and what they would do again if they were starting over.
You will begin to form your own awareness about the types of things that are appealing. Higher education and more specialized training can lead to a rewarding career path, both monetarily but also satisfaction, and benefits.
If you have not figured it out by college, that’s okay. But you do want to angle toward a major that makes the most sense for you. Again, check out the courses that sound the most interesting. Study their career paths. Go to the Career Services office and meet with someone in their office who can provide some direction and guidance based on your interests. They may even have some career aptitude tests you can take and some materials you can read.
By sophomore year you want to declare your major – and you want it to stick. Changing your mind later can be costly.
#7. Pick A College That You Can Afford
This goes without saying. Financial fit is a major component of college selection. If you get little merit aid (scholarships) from the school or from parents then you will want to be cautious about what loans you take on.
The undergraduate degree may the first line of degrees you need depending on your career track.
Keep that in mind.
There are amazing local, state, community, and public universities that offer great vocation tracks that lead to certifications and jobs at graduation.
Life After The Undergraduate Degree
One thing to keep in mind as a reason to get out of undergraduate school with little to no debt.The graduate and professional degrees cost a lot too.
The average MBA cost $30-40k per year for tuition only. For two-year full time residential the total cost approaches $110-130k. Factor in opportunity cost of not working and the additional cost is $60-70k more, bringing the total cost closer to $2ook.
The median four-year cost of medical school (including books and expenses) was $278k for private schools and $207k for public schools in 2013 according to the Association of American Medical Colleges. Law school is not much cheaper than medical school per year.
Planning for what’s next beyond college is arguably more important that planning for college. Both require some coordinated strategy to achieving your short-term and long-term goals in a safe and responsible way.
Remember to be awesome.