Student Loan Debt Now Outweighs Credit and Auto Debt

13 Mar 2012

The Author

Henry Butman is a rising senior at Bates College in Lewiston, Maine, where he majors in English and psychology. After graduation, Henry plans on returning to Copenhagen, Denmark, where he studied in the Fall of 2010, to conduct research in the field of Positive Psychology. He hopes someday to combine his affinity for writing and traveling to expand the intercultural appreciation necessary for continued, successful global integration.

Henry Butman 9 Comments

If you’re trying to avoid being in debt, you have probably made some not-so-easy decisions: cutting your credit cards, selling your car, making sacrifices in your budget. But according to a recent report from the Federal Reserve Bank of New York (FRBNY), student loan debt outweighs both credit and auto debt, which prompts the question: Is staying out of debt worth sacrificing your education?

Student Loan Debt, Now

The outstanding student loan balance, which now stands at $870 billion, is more than the total auto loan balance ($730 billion) and credit card balance ($693 billion). Of those in debt, almost 40% are under the age of 30. The average student loan balance per borrower stands at $23,000.

While an education and a college degree oftentimes serve as a gateway into a successful professional career, at the very least providing training and skills that will be of use in making a living, it is also, now, a gateway into debt. The first financial lesson college-aged kids are given about money isn’t just to borrow it. It is that they have to borrow it. And while this doesn’t have to be the case, the rising cost of tuition makes affordable education hard to find.

Will this Change?

Thankfully, people and institutions are paying attention to the growing concern. In an address in January, President Obama said he wants colleges to lower tuition; the President has also announced various policy changes to make managing student debt easier, mainly by allowing students to cap their (federal) loan payments at 10% of their discretionary income. Unfortunately these changes do not protect borrowers from private loans – ones distributed by the less sympathetic financial institutions throughout the country.

While changes may be coming, potentially aided by the Consumer Financial Protection Bureau’s student loan complaint forum, it’s hard to imagine a Utopian scenario in which everyone can afford to attend college and leave it debt-free. So, what’s worse: trying to make a living and a career without a college education, or graduating into a job market with an unemployment rate of 8.3% already $23,000 in debt?

The decision, of course, isn’t easy, and it’s one that teenagers and parents must make every year, every semester, every day. If you’re trying to decide how to pay for college – or whether to pay for it at all – there are many ways to approach the issue. Honestly consider your options and their consequences and decide what’s best for you and your family. And if you do take out a private student loan, make sure you pay your balance on time every month.

PerkStreeters, what do you think: Is it better to have both debt and a degree, or to have neither at all? Share why in our comments section below.

Henry Butman 9 Comments

Philip Taylor

Definitely worth a little debt to get a degree in a rewarding career. Govt involvement is not the solution. It’s the problem here. An un-ending push by the Govt to let everyone go to college for less (w grants and subsidized loans) allowed the colleges to put any price tag they wanted on an education. Housing bubble and education bubble have many similarities.
Haleybethhill

It’s completely possible to go to college and stay out of debt and so many people are convinced debt is the only option. I went to a great in-state school and lived on my own but I worked hard to get scholarships and I worked part time for the first 2 years and full time for the last two years. I graduated without any debt. My husband has done the same and is now in an MBA program but he has found a full time job that will pay for his schooling. We have been able to buy a house and be completely out of debt and pay cash for our schooling. It IS possible and people need to change how they look at student loans and stop thinking of it as an option to take out loans. Be creative and sacrifice and leave the government out of it!
Bryan

I would say no, because we live in a world today that thinks that a traditional method of going to school getting a good edumacation, a good job, and getting the white picket fence with the house is the way to go. We went from the biggest creditor nation to the MOST ENDEBTED nation. And now I see ppl with student loans and ZERO Results. Im not bashing school, you have to look at the long term, most millionaires and billionaires, never went to school, im just sayin
http://Twitter.com/KylePs80 Kyle Psaty

Strong points, Phil. And thanks for stopping by. I definitely agree with you that my student loan debt was worth the career it’s helped me get, but I also think too many students get the wrong idea — assuming that college education = great career when in truth the formula is more like college education + continued hard work + dynamism + luck = great career. That said, it’s hard to argue we need less education in this country. As for government involvement, I think the demand associated with college is a very different kind of demand than we see impacting most other commodities. I’m certainly not one to call for regulation in most cases, but I cannot imagine the disruption we’d face by letting education drop for a generation in an effort to force price reductions through the free market. The supply side of the equation simply isn’t catching up. Just my personal opinions, of course. Hope all is well with you and the PTMoney.com blog! ~Kyle

Kyle Psaty
PerkStreet Financial
http://Twitter.com/KylePs80 Kyle Psaty

Totally inspiring, Haley. We’ve linked to some similar stories here in this article, but if you’d ever like to share with the community how you and your husband have accomplished this, I’m sure plenty could learn from your strategy. Have a great day and thanks for commenting.

-Kyle

Kyle Psaty
PerkStreet Financial
http://www.daviscoachingsolutions.com Clint Davis

Check out this infographic about student loan debt. it definitely makes you think twice about whether or not the student loan debt is worth the degree. But I do agree, you can absolutely get a great college education without going into debt for it. But that definitely won’t happen by accident. You have to plan and work for it.

http://www.daviscoachingsolutions.com/blog/student-loans-gateway-drug-to-debt-slavery
Josh L

Haley, I agree in theory. Remember though, that if you don’t have a good role model/parents when it comes to finances, you can VERY easily put yourself in a situation that’s very difficult to escape. Remember, that most kids have to make these decisions at the age of 17. Where the numbers don’t mean anything, interest and credit don’t mean much of anything either.

With an average tuition of 20k, multiplied out by 4 years, it’s extremely difficult to graduate without debt. And depending on your profession, it’s downright impossible.
Haleybethhill

I completely agree that most 17 year old kids are not financially savvy and that is why it needs to be taught to them in schools! I grew up watching my parents struggle with money and worry about it constantly. This made me want to work hard not to have debt myself. My religion also encourages living below your means and staying out of debt.

I’m not sure about the stat of average tuition being 20k, this article (http://abcnews.go.com/blogs/business/2011/10/public-college-costs-surge-8-3-percent/) shows the average in state tuition and fees nationally is only $8200 and I know it’s much less than that where I live in Utah.

I love the blog Money Saving Mom who proves that not only can you get a law degree without debt, you can pay even cash for your house! They sacrificed and worked hard, but they made it happen. Check it out here: http://moneysavingmom.com/about.

It’s extremely rare, but by no means impossible to graduate college with a smart degree in business, education, or even law or medicine WITHOUT debt. It just has to be a priority and it can happen! And it is such a comfort to be debt free!
T. Poole

I don’t believe those are the only two options…degree and $23,000 in debt or no degree. Many colleges accept community college general courses. Our local community college is about $5,000 less than the popular 4-year colleges (Duke, Carolina, NC State, etc). Two years at a community college before finishing your degree at a 4-year college would chop $10,000 off that debt number without doing anything else. With some serious work, creativity, and tenacity, it is possible to get that degree without so much debt…if any.

The Author

Student Loan Debt, Now

Will this Change?

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