I found an interesting article yesterday on Forbes that claimed that the real problem behind the burgeoning student loan crisis is not the trillions of dollars in outstanding loan debt.
Instead, the article claims, the problem is that many people are not paying their loans even though they can afford to.
Why? Because they’re convinced that all student loan debt will soon be wiped away by a government plan to come and rescue them.
The Numbers Behind the Student Loan Problem
While the article writer did acknowledge that there is a percentage of people with legitimate problems when it came to student loan repayment (namely those who didn’t finish school and have no degree but still need to earn enough to cover student loan payments along with other expenses) the numbers he shared showed that there might be some truth to his theory.
Recent studies show that Americans owe approximately $1.4 trillion in student loan debt. The average 2016 class graduate had $37.172 in student loans – yikes!!
But what about default rates compared to loan balances?
“The rate of borrowers who are in default or more than 90 days past due is approaching 40% and total student loan debt is around $1.4 trillion, making it sound like this is a problem of out-of-control ballooning debt. However, the average student loan balance for students in default is only $16,381 according to a recent report by Demos, virtually identical to the $15,654 balance for people paying on their student loans.”
“Why should these people pay their student loans if there is a probability that all student loans will be wiped away in the near future?” he quips.
For cynics of the education system, such as Mr. Groovy, the author’s theory makes complete sense. It’s tough to feel compelled to pay your student loans when you feel like the rest of the country will be getting off scot-free soon enough.
Why waste the money you earn on paying off your loans when you can be spending it on the average new car payment of $502 a month?
What do you think: does the Forbes’ author’s article and theory hold water?
What’s the Answer?
And if it does, what is the solution?
A cynic might say (and the author of this article did) that the solution is to not allow student loan forgiveness. After all, it’s funny how people buck up and take responsibility for their debts when they know that if they don’t it will indeed affect them in the future.
Loan defaulters are usually not allowed to buy homes or do other grown-up things until they have made good on their student loan payments.
While this type of reprimand might not be a big deal when you’re 21, it might really start to hurt when you’re 31 and your spouse and kids need a place to live.
I Promote Debt Free (or as debt free as possible) College
A better way to avoid people defaulting on student loans is to encourage them to not take them out. Here are a few ways we can do that.
1. Help Them Decide Whether or Not College is Really Their Best Option
I hate to burst your bubble, but college is NOT for everyone, and we need to stop forcing every kid to go to college. There are some kids who are meant to be (and would love to be) plumbers, electricians and auto mechanics.
Let them live their dreams and stop forcing them into careers where they will be miserable and have tens of thousands in college debt to boot.
2. Encourage Them to Save Money Before They Go
I know this is a novel and often crazy idea, but it is possible for working teens to save their money instead of blowing it on continual trips to the mall and their favorite fast food restaurant or clothing store.
I realize self-discipline is hard, but paying off student loans for decades on end will be more difficult, I promise.
3. Work Hard and Earn Scholarships and Grants When Available
Yep, there are legit ways to get free money for college besides hoping that the government will come and rescue you by wiping away student loan debt and making it the problem of the American taxpayer.
Scholarships and grants abound: just talk to your student counselor about it and make a plan. This website is one place to look.
Looking for more options for debt free college? Check out this article on How to Avoid Student Loan Debt While Earning Your Degree.
It won’t be as easy to go to college debt free as it will to apply for student loans – this I can promise you. But by minimizing the money you spend in college – both on schooling and on miscellaneous spending – and by planning ahead, a life without burdening student loans is possible.