Student Loan Debt Causes Problems for Students and Their Parents

by Scott Sery on September 4, 2013

Student Loan DebtEach time another stimulus, or quantitative easing, has been proposed, there are quite a few people that say that instead of tax rebates, or other incentives, the money should go toward wiping out student loan debt.  In fact, since 2008 there has been an estimated $2.5 trillion pumped into the economy through the various stimulus packages.  This is enough to pay off all of the student loan debt that Americans face at least twice over.  Student loan debt has now climbed to over $1 trillion and unfortunately, many people are struggling to pay it off.

Student loan debt is supposed to be an investment in your future.  Most people have not saved up enough of their own money by the age of 18 to pay outright for college, and many parents have not had the chance to accumulate enough by the time their kids reach college age in order to help pay for their education.  Subsequently, the average debt per borrower in the US has climbed to over $20,000.  This is a huge burden on not only the students themselves, but also their parents.

Although the recession ended back in 2009, there is still a shortage of jobs.  According to the Bureau of Labor Statistics, the unemployment rate remains at 7.4%.  This means that those who have graduated from college in the past few years are still struggling to find jobs that will provide enough to pay the bills.  When graduates are not earning to their full capacity, they often will move home, or rely on their parents more, until they get their feet on the ground.  Most parents will bend over backward for their children, and will often help their children pay off their student loans; all while still paying on their own.

There is nothing wrong with helping out your children, but there needs to be a balance.  One can always put off saving and investing for retirement; but one cannot put off paying on their debts.  Every budget, regardless of the amount of debt, should incorporate some savings into a retirement fund, but when student debt, and children’s student debt, is eating up the majority of the paycheck, retirement saving is hard to do.  Many parents that are into their 40’s and 50’s have saved very little for their own golden years.  As they are approaching the end of their loans, their children are just beginning theirs.  And often they start to pay on their children’s loans rather than save for their own retirement.

For years financial planners have said that you should fully fund your retirement before saving for college.  The reason is that you can get loans for college but not for retirement.  What these parents are doing is great for their children; however they are seriously undercutting their own retirement.  Many people have not done a retirement analysis, and they will be shocked to see that because they have spent so much on their children’s debt, they will be stuck working into their 70’s just to afford their desired lifestyle after they are done working.

The alternative to paying for rapidly rising college costs is to step back and realize that there are hundreds of different jobs out there that pay well, and do not require a degree.  There are also colleges that will offer a much better return on investment than others will (if you are spending $30,000 per year on a degree that will allow you to earn $30,000 per year, you might want to reconsider).  Besides all that, there are literally billions of dollars in scholarship monies out there.  Is it not worth your time to spend 100 hours working on a scholarship that could be worth $10,000 or more?

Student loan debt has been touted as the next financial crisis.  There will come a point when people are not able to pay off their loans.  And as the law is written, you only have to pay 10% of your salary toward your loans; if they are substantial this could end up taking the rest of your life.  If you die and still owe on them, it is written off as a loss.  As those who owe a lot start defaulting (due to death or otherwise), there is a chance that we could go over another financial cliff.  Of course if everyone buckled down like Joe Mihalic did, loan debt wouldn’t even be an issue.

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Scott Sery

Scott Sery is a native to Billings, Montana. Within an hour in nearly any direction he can be found fishing, hunting, backpacking, caving, and rock or ice climbing. With an extensive knowledge of the finance and insurance world, Scott loves to write personal finance articles. When not talking money, he enjoys passing on his knowledge of the back country, or how to live sustainably. You can learn more about Scott on his website Sery Content Development

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