Even though more and more college graduates are discovering that their degrees are not offering the return on investment that they originally anticipated, that’s not stopping today’s aspiring college grads from signing up for student loans.
In fact, the average student today graduates from college with $37,000 of student debt. But what’s really disturbing is how these student loans are being utilized.
According to Student Loan Hero:
Student loan debt is quickly reaching crisis proportions in the United States. But how is that money being spent? You might be surprised to learn student loans aren’t just financing tuition and textbooks. In fact, according to our recent study, college students are using their student loans to fund everything from cell phone bills to new clothes to beer.
Nearly 60% of student borrowers have no idea when their student loans will be paid off and more than half of all borrowers have no idea what their monthly payments will be when they graduate. When you combine these facts with declining wages and rising housing rates, many people will find they just can’t make ends meet.
The good news is there are ways to keep student loan costs to a minimum; being disciplined and budgeting only necessary expenses can prevent overpaying for seemingly innocent purchases. For example, financing a pizza every Friday night for four years turns an $1800 expense into $2291 after including the accompanying interest payments over time. Students can also defray a portion of their college expenses by working part time.
Unlike many other debts, student loans can never be discharged through bankruptcy — so it’s important to pay them off as quickly as possible. One of the best ways to do this is to make payments while you’re still in school. Then, once you graduate, make additional principal payments. Also take advantage of automatic payments to avoid late payment penalties.
For more on the rising rate of frivolous loan spending, check out the following infographic:
Photo Credit: Zero Hedge; Infographic: https://studentloanhero.com
I don’t really see why the “student loan crisis” is a crisis. A bunch of people took out loans and are now having trouble paying them back. That’s sounds like their problem, not a crisis.
If it is a crisis, then there’s a mortgage payment crisis too. And a credit card debt crisis. And let’s not forget the car loan crisis.
As you can tell, I’m not very sympathetic towards people who borrow way more than they should to buy something that has a value less than what they paid for it (because they didn’t consider cost/benefit of a degree in advance).
So I wasn’t sympathetic and then I read this:
“According to our recent study, college students are using their student loans to fund everything from cell phone bills to new clothes to beer.”
Ugh. Now I’m even less sympathetic.
As am I, ESI.
If most potential college students looking for something other than a STEM degree took the time to analyze their expected return on investment for their chosen major, I’m sure many would choose to forgo higher education altogether and go into business for themselves … or learn a vocational trade.
I know several students who used loan money to help pay for a place to live. I’m not sure I disagree with that. Not everyone lives within commuting distance of a college, and if they can only work a part time job — if they can find one — how are they to pay their rent, utilities, tuition, books and food? A family member of mine lived in a dorm to save paying rent — it cost her family $300 a month for her to share a single room with two other girls. That didn’t include all her food, and she couldn’t cook in her dorm room, so they didn’t save much.
However, I’ve known kids living in student-oriented luxury apartments with pools, weight rooms, internet, cable and tennis courts, driving nice cars and yes, living on loans while slowly earning their liberal arts degrees. It’s a recipe for disaster.
Yes, JD, it makes you wonder if they are aware that student loans cannot be discharged via bankruptcy. Anyway … the decision to live large while attending college with borrowed money is very short-sighted.
Two things struck me with this article.
1. Students use their loans for other than actual college costs. Student loans, IMO, should be paid directly to the college for tuition, fees, and room and board ON CAMPUS. If paid to the student, there is way too much temptation to spend the funds on cell phones, late night pizza runs or a pub crawl on Friday night.
2. Students choose irrelevant degrees because they are often told to pursue their passion without regard to projected income for that endeavor. A degree in gender studies or minority studies is not going to provide the post graduation income that a degree in engineering, accounting or even education will provide. And regarding the education degree….you don’t have to go to Harvard to become an elementary education teacher. College counselors AND PARENTS need to provide guidance and advice to the students to teach them to be realistic toward the end goal.
BTW, great graphics.
Good comments, Kathy. On each of your two points, all I will add is:
1. Agree!
2. The only people who make money on gender-studies, minority-studies, and other liberal arts degrees are the colleges.
I agree with the info-graphic in that “financial ignorance might be the biggest problem facing students.” Yes, it’s stupid to spend student loans on pizza, beer and designer clothes. But why do these students think that’s okay? Probably because they don’t know any better. They haven’t had to face financial reality. They haven’t been constrained to a real-life budget and prioritized needs and wants and managed debt.
I do feel bad for a lot (not all) of students graduating with debt. Not because they had no choice or because “the system” is against them. I feel sorry that they weren’t taught money and life management skills that will be crucial to surviving as adults. Now they will learn the hard way.