An easy thing to do these days is shake your head in amazement at the $1.7 trillion owed for repayment of student loans. It’s a mind-boggling amount of borrowed money for education.
A recent press release from State Treasurer David McRae takes this a step further by explaining how this debt prevents people from paying for many other things.
“According to a recent TD Bank survey, one-fifth of take-home pay is used to repay student loan debt, often surpassing car payments and even rent,” McRae wrote. “Here’s where the trickle-down impacts begin.
“With such a significant portion of one’s paycheck going to student debt repayment, many borrowers have less to spend, and more importantly, less to save. In fact, the vast majority of borrowers (61%) are putting away less than one-tenth of their income each month. Many are saving nothing at all.
“This lack of savings shows up in a multitude of ways. Nearly half (41%) of the TD Bank survey respondents reported delaying 401(k) contributions, and about the same portion said they lack a rainy-day fund, leaving many to max out credit cards for emergency expenses.
“How this translates from finances to lifestyle is easy to see. The TD Bank survey found that 60% of student loan borrowers don’t take vacations. 36% delayed becoming a homeowner. 35% rarely dined out. 26% delayed having kids. 21% put off their wedding.
“The list could go on, but I think the bottom line has already become obvious: Major life milestones are getting postponed — or skipped altogether — because of student loan debt.”
McRae said Mississippi residents tend to graduate from college with $30,000 in debt. When it’s time to start paying, people should make the minimum monthly payment and, if possible, look at refinancing the loans.
But this point cannot be repeated often enough: Something’s wrong when student-loan debt starts affecting weddings, childbearing and homeownership. The only way this problem gets better is if future college students figure out how to reduce greatly the amount of money they borrow. (It is horrible policy to expect debt forgiveness, since all that does is penalize those who have repaid their loans.)
There are ways to reduce or eliminate this debt. Students can attend a less expensive school (community colleges are a great way to start), pick a major whose salaries provide enough money to afford loan payments, and even delay college for a couple of years in order to build up some money for tuition.
McRae’s main motivation is to promote college tuition savings vehicles to the families of future college students. His office supervises two college education programs — one that prepays for college and another that involves a tax-advantaged college savings account.
He also noted that this month, many parents will start getting a monthly child tax credit from the federal government. Those who can afford it should consider putting that money toward future college expenses.
There are ways to get an affordable college education, and families must explore them.