In this edition of our “Ask the Experts” series, we discuss the growing problem of student loan debt with experts across the realms of higher education, personal finance, economics, and politics.
It’s no secret that we’re obsessed with using plastic to buy things we really can’t afford. In fact, the problem is so bad that even the Great Recession couldn’t scare us straight for long. After addressing some of the widespread credit card overleveraging that helped bring about the downturn by paying down just over $1 billion of amounts owed during 2009, we’ve added $7.5 billion, $46.7 billion, and $36.3 billion to our credit card tab in the three years since. The result: We actually owe nearly $90 billion more now than we did in 2008.
You know what, though? We unfortunately have a far bigger personal debt problem on our hands, and it’s looming larger and larger with each passing day. U.S. consumers collectively owe more than $1 trillion on student loans, according to the Consumer Financial Protection Bureau (CFPB). Yes, you read that right – Trillion with a “T.”
Debt from student loans surpassed that originating from credit cards in 2010 and auto loans the year after. It now ranks as the single biggest source of non-mortgage consumer debt in the United States, accounting for around 40% of the total amount that we owe. According to a triennial report from Pew, a record 19% of all U.S. households had a student loan balance as of 2010 (the most recent year for which data is available), and that figure surges to 40% for households headed by an individual who is 35 or under. The average household with student loan debt owed $26,682 in 2010 – over 243% more than the average indebted household’s $7,768 credit card balance at that time.
Fears therefore abound that student loans are poised to become the next sub-prime mortgages, swelling until we reach a crisis point and find ourselves getting pulled back into the cold grasp of international economic despair. The hope is that we figure out a solution before the problem gets too far out of hand. But how?
To help answer that question we turned to the following experts in the worlds of higher education, economics, and public policy:
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Ultimately, it seems that a number of different factors have conspired to make student loan debt the gigantic problem that it is today. Students clearly don’t know enough to make the best possible financial decisions, but it’s also much easier to get away with that when a job and a growing economy are waiting for you upon graduation. As our cyclical economy has shown in recent decades, we certainly can’t take such things for granted.
As a result, it’s important that we not only focus on improving financial literacy, but also that we come to think of education more as an investment for the future than anything else. In other words, when it comes time to decide where you want to go to college and what you want to major in, consider how the market for your chosen profession stands to change over the next five, 10, or even 15 years. Obviously, it’s important that you enjoy your job and are good at it, but you should also set yourself up to be increasingly in demand, rather than one of many applicants in a shrinking sector. After all, the fact that overall unemployment was 7.8% in September 2012 yet only 3.3% in the technology sector just goes to show that the right career can be almost recession-proof.