Average Amount of Student Loan Debt
Currently there is $1.3 trillion outstanding student loans in the United States.
Debt relief from student loans has become a major issue for students and their parents. For example, the average student loan for undergraduate students at the University of Minnesota averages just under $26,000. About 60% of the University of Minnesota undergraduate students carry that amount of student loan debt.
What Is the Average Student Loan Debt?
Across the United States, seven in ten graduating college seniors or actually 69% who graduated from public and non-profit colleges in 2014, had an average amount of student loans of just under $29,000 per student. Of course, it varies by state and by university or college, but as an example, the average amount of student debt in the state of Texas is $26,000 and 59% of the student population is saddled with that debt.
Effects of Student Loan Debt
Students entering college should pay attention to student loan debt very carefully to determine the major they wish to pursue. With the ever increasing college costs, students are beginning to look at careers that offer higher paying jobs so that they can have the income necessary to satisfy their debt service on their student loan debt. As an example, a student with the average amount of student loan debt of $29,000, would pay over 10 years at 5.75%. That amounts to $318.33 per month or $3819.97 per year. For the student who might be able to earn $50,000 per year, this payment represents 7.6% of their gross earnings.
That average student loan debt has a potential negative effect on the economy. One potential effect would be due to the simple fact of delaying the ability to purchase a home. With all of the other expenses to start out on your own, rent, utilities, food, transportation (including insurance, maintenance, gas, etc.), insurance (health, life, disability), and taxes it becomes extremely difficult to save for a down payment. The debt to income ratio (DTI) is what lenders pay attention to when considering the ability to pay back a home loan. If other debt, like a car loan exists, the maximum amount a lender will loan for a house becomes smaller and smaller. This makes purchasing a home more difficult since rents are increasing as are home prices in most areas of the country. It could also cause young marrieds to delay starting a family.
What Can Be Done About Student Loan Debt?
Government could get involved. Recently the governor of Minnesota, Mark Dayton announced a refinancing program to help loan debt. Minnesotans carry the fifth highest college debt load in the nation. Lowering interest rates or extending payout periods could lower payment amounts. This would make it easier for graduates to contribute income to the economy.
Companies hiring college graduates could help. Instead of offering gym memberships or free snacks, or other perks, companies could offer several incentives to help pay off the amount of student loan debt their new hires possess. This could include monthly stipends or longevity bonuses directly applied to student loan debt. Human resource departments of major companies I am sure, could come up with lots of creative ideas on how to assist new hires on helping them pay down their average student loan debt.
Another important factor is lowering the amount of debt to begin with. Most families have a very difficult time understanding how to maximize free college financial aid in order to reduce their out of pocket college expenses. Knowing how to fill out the FAFSA (Free Application for Federal Student Aid) correctly is complex and intimidating. In excess of 60% of FAFSA forms are filed incorrectly. This has a significant impact on the amount of free aid offered to students based on need. Filing it out correctly also has a major impact on merit based aid received. This would have a significant impact on lowering student loans.
Average Amount of Student Debt in Retirement
A recent US. Government Accountability Office study showed that 706,000 households, with heads of those households being age 65 or older, have outstanding student loans. That represents only 3% of all households in the US, but the debt owed represents $18.2 billion, and 27% of those student loans are in default.
In conclusion, several things can be done to help reduce the average amount of student loan debt. A lot of us look for help from either the federal or state governments to rescue us. Employers could also get involved to help new employees hired out of colleges and universities reduce their student loan debt as part of their benefit packages.
However in my mind, it is our individual responsibility to figure out how to manage the expense of an education more effectively on the front end. Numerous methods exist to reduce the out of pocket expense (including student loans) to pay for college. Most parents are busy and end up defaulting to paying the maximum out of pocket which includes increasing the amount borrowed by their students and themselves. Careful planning and understanding how to position assets and income can have a significant impact on the cost of college. Also how to position your students in the eyes of the universities can also impact and reduce the average student loan debt.