Student Loans &
Here’s a break from our usual blogs – which are built on recent articles or research reports. The reason:
A senior who’s worked part-time on our sustainable community site, and just graduated, was an emotional wreck and in turmoil due to student loan repayments he’s now facing. As we inquired, we learned his loan rate is an astounding 8.75% … while home mortgages are now around 2% !
As we asked how he got into this fix, he simply said that as a freshman he was sent – online and coordinated by the university – forms to complete. (Many assume Sallie Mae is a government agency; it’s not.) He completed the forms and his loans were approved. Looking now at the debt he accumulated over four years of undergraduate school, he owes over $80,000!
The problem: 18-19 year olds are naïve and inexperienced in the world of loans. They have no idea of how to shop a loan or what conditions to ask about. And the university evidently provided no help in that regard.
Another problem: When we buy things using cash, we tend to spend less than when we use credit cards, because we feel our money leaving us. With a credit card, there’s no pain, so we keep spending – which the banks like, and which is why they’re so anxious to issue those cards to us. The pain comes at month’s end, when our statement arrives. And if we don’t have to pay our entire monthly bill, which we do with AmEx, we might accumulate credit card debt – usually at a higher interest rate – which banks love.
So … once a student has a loan, spending is painless, like a credit card. Many take (overpriced) overseas classes, and simply pay by using their loan like a credit card. Then, upon graduation, that bill – with principal and interest accumulated over years – arrives, as a “Day of Reckoning.” And their initial job salaries are usually far lower than those of veterans.
How high are some of these student loan interest rates?
Interest rates for private loans (as
monitored by Student Loan Hero) ran
as a high as 12.45% in September 2020.
This entire system is assumed to be monitored by the university and our government. But the rates and conditions almost feel like illegal usury.
And how widespread is this problem?
The #1 source of debt in the U.S. is home mortgages. The #2 source of debt is student loans! The following figures were updated Jan. 27, 2021 …
It’s 2021, and Americans are more
burdened by student loan debt than ever.
Americans owe over $1.71 trillion in
student loan debt, spread out among
about 44.7 million borrowers.
That’s about $739 billion more than
(Data provided by Mark Kantrowitz, publisher and vice president of research with SavingforCollege.com, as well as by the U.S. Federal Reserve and the Federal Reserve Bank of New York, unless otherwise specified.)
First, let’s start with a general picture of the student loan landscape. The most recent data indicate there is:
- $1.71 trillion in total U.S. student loan debt;
- 44.7 million Americans with student loan debt;
- 11.1% of student loans were 90 days or more are delinquent or are in default.
If those numbers weren’t stunning enough, here’s a closer look at how students accumulate debt based on the type of school they attend:
- 56% of seniors graduating from public and non-profit colleges in 2019 had student loan debt.
- The average debt at graduation from public and nonprofit colleges was $28,800 in 2019.
“Average debt” means adding all debt, with some being over $90,000, and – dividing by the number of loans – still averaging almost $30,000.
Finally, how does all this relate to “Sustainable Living”?
I’ve defined “Sustainable Living” as living in total harmony with Earth – which, with our technology, isn’t really all that difficult – and maximizing our quality-of-life experience. Graduating from college is a joyful moment for people who’ve invested almost their entire life in education. Just look at their faces as they don their caps & gowns!
It’s a defining moment: Young adults charging off to pursue their dreams.
Then … the “awakening to reality,” as they’re slammed with an amount of debt they can barely fathom … and no clear path for overcoming that debt. In a weak economy, they might not find a suitable job for months. And as their job searching becomes more and more frustrating, they might accept their first job offer – even though it’s not at all what they want to do, career wise. And even if they’ve found their initial job, their low starting pay is going to make their loan repayment difficult.
Some people needed decades to pay off their student loans!
How does that affect their quality-of-life experience?
Like a damp rag!
What’s a better path to follow?
We’ve learned that the higher the level of education people achieve, the more they’ll make decisions today to improve their lives “tomorrow.” They’ll eat healthier today to reduce their chances of getting diabetes in their 70s. They’ll quit smoking today to reduce their chances of getting lung cancer in their 70s. And – based on who actually invests in living more sustainably – they’ll live in ways that enhance the quality of their environment and enhance their quality-of-life experience. So …
The more we can support educational opportunities, the better it turns out to be for both us and our planet. And while some students come from families that can pay for their education, student loans enable many, many more students to further their level of education.
Mortgage loans enable most of us to buy our home. Then, over time, we become more judicious in determining the best mortgages loans to have.
- A 30-year loan costs less each month than a 15-year loan, so if our income is less now than it might be in years to come, getting a longer-term loan may be more helpful.
- Some lenders have “young professional” loans, created for recent graduates who have lower starting incomes and less existing equity now than they’ll likely have in the future. They might allow the borrower to have a smaller down payment, or an even longer term mortgage, further reducing their monthly payment amounts.
- Some lenders allow the borrower to re-finance their home during a time when interest rates may be lower – or prepay some of the remaining principle – without penalty – if their income jumps.
- And some lenders simply charge less than others. It costs nothing to ask different lenders for a proposal. We often think that lenders are doing us a huge favor when they approve our loan request. In fact, we’re doing them the favor! Making loans is how they make a living. We’re actually buying from them. Lending is simply another form of retail business.
And for students: To reduce your higher education cost, you might attend a local community college in your freshman year – which is usually a fraction of the cost of a university. (“Freshman English” is the same at both institutions.) As you begin your college career, ask someone experienced in dealing with loans for their advice. It could be a parent, a relative, or a relative of a friend. But find someone knowledgeable with the “world of loans” who has no “axe to grind” except to be helpful to you. Everyone helps a “student in need.”
When you graduate, your quality-of-life experience will be a lot brighter!
And that’s a big first step in “Sustainable Living.”