Student Loan Debt Can Become a Blessing in Disguise

Student loan debt: my bugaboo and one of my passions—definitely not the good kind. Why wouldn’t it be? I experienced it, and yes, that is past tense, fortunately. While it may be a means to an end of sorts, it feels awful to know that mostly 17- to 19-year-olds basically can sign away years to decades of their lives without even knowing fully what it means to take on a loan. Yes, many of these kids and young adults have made mistakes with financing their secondary education, but many also were told lies.

This is where we are as of at least the end of March 2018 according to NerdWallet:

• Federal student loan borrowers: 44.5 million, about 14% of the population
• Outstanding federal student loan debt: $1.5 trillion
  • Based on this, the average, federal debt balance is $33,708. That’s more than the overall, average debt balance, which also takes into account private student loans, of $28,446.
• About 11% of federal loan borrowers are in default
• About 45%, nearly half, of class of 2018 graduates have student debt

While only 14% of Americans have student loans, Americans appear to be fine with any sort of debt because 70% of them have some type. Because degrees and education have no intrinsic value, a fact that more people understand particularly when they realize the debt used to fund them rarely can be discharged in bankruptcy, student loan debt may become the gateway to avoiding debt in general for those that have had it and for those who have seen or heard of other’s negative experiences. That also may be difficult to prove because a survey reflecting (subsequent) debt avoidance probably does not exist. Additionally, 78% of Americans live paycheck to paycheck, many of whom do so because real wages have stagnated since the late 1970s. It can be difficult to avoid debt when there are no savings available, and the figures support this. This avoidance may be true for some, but this group ultimately is a minority because these balances increase nearly continuously for such reasons. Behind only mortgages at $10.3 trillion, student loans have the second highest outstanding amount at $1.56 trillion, ahead of auto loan and credit cards at $1.11 trillion and $1.0 trillion, respectively.

Generation Z apparently is learning to avoiding college and enter the trades and similar occupations more. This is not to say a college education does not have its benefits, but not all degrees and their related occupations are created equally. Degrees have been experiencing diminishing returns because of the increases in supply and demand created by increased college enrollment, and some more than others. Easier studies which already have experienced diminishing returns in relation to their more technical counterparts are made worse if their supply increases more quickly in comparison. There also is good value, and one that is increasing, in the many trades in part because the supply of labor has not kept up with the demand. While Generation Z certainly does attend college, they may be obtaining lesser degrees at a lower rate than prior generations. We’ll have to see if this and higher trade enrollment will lead to decreases or at least decelerated increases in these balances. After all, the oldest people of Generation Z have just started becoming adults.

If you care about saving money and having some sort of retirement, even if you are living paycheck to paycheck or close to it, do not follow this path of debt servitude. Take on as little as you can if you need it and pay it back quickly. Savings, no matter how little, cannot grow if money constantly is being owed to someone else. There are cases where having a loan or line of credit is fine as a means to an end, but it is crucial to budget beforehand and determine a financial ceiling. In regards to education, is it really worth it to go to a public university outside your home state if one within it is offering more grants and scholarships, for example? Is this worth sacrificing another half-decade or so or more in debt and delaying purchasing a home or raising a family? Speaking of home purchases, the same thought process can apply to the homes and vehicles that could be bought and often are done so with loans also as we can observe. The anecdote of experience over education won’t necessarily be true universally. However, if employers have explained that they would rather have employees with portfolios (and a degree from a less known school) than a degree from a prestigious school, then do your future self and savings a favor and do just that if you attend college.

From Chio’s School Road via Raging Golden Eagle