News You Can Use: How is your college student doing financially?

It’s August, and the school year is rolling around again. Incoming freshmen new to the college scene, seniors getting ready for their final year, graduate students taking their education a step further – across the country, students are getting ready. And many of them are going into debt (or further into debt) in the process.

The total student loan debt passed $1 trillion for the first time in 2012, and continues to climb. As of April 13, total student debt had tripled in the previous 8 years; student debt ranked second only to mortgages among all types of consumer debt.(1)

In 2012, Graduate degree students borrowed an average of $57,600, a 43% increase from 2004’s figure of $40,209.(2)

40 million Americans have at least one outstanding student loan, with an average balance of $29,000. According to a recent survey conducted by Citizens Financial, nearly half of current students said that they might drop out due to worries over debt. About the same number said that they might not have gone to college at all if they had known how hard it would be to handle their student loans. (3)

A 2014 article on the New York Times website noted that in 2013 fewer consumer loans became delinquent than in any recent year, with one exception: student loans. Student loan delinquencies continue to rise, and – unlike other types of loans, which have become harder to obtain – these loans continue to be made without regard to ability to repay.

According to the New York Fed, up until 2009, young adults with college debt tended to be better off than their counterparts without college debt. They were more likely to own homes and more likely to have car loans, due to their established credit and ability to earn money, and they generally had better credit scores than people of the same age without college loans.

Today, however, the opposite is true. Young adults with student loans have worse credit scores, are less likely to have car loans and are more likely to be living with their parents than their counterparts without student loans.(4)

What does all this mean for those who are going off to college and for parents of college students? A job market that’s a long way from fully restored, combined with loan practices that are not based on ability to repay, should make students and parents cautious about student loans. These loans will come due when careers are just beginning and income is at its lowest. College debt can put significant financial pressure on young marriages and families.

Some students are ready for a 4-year college program immediately after high school. But there are many alternatives, some of which carry a much smaller financial burden. Here are a few:

  • Consider beginning with a 2-year Associates Degree, then working for a couple of years to save up to study for a Bachelor’s Degree.
  • Community colleges can be a much less expensive way to accomplish the first couple of years of a 4-year degree; in these years, classes tend to be more general and less specialized toward majors.
  • Some students will benefit from working a couple of years after high school before attending college; not only does this help students to save up for college, it also tends to increase a student’s appreciation for college.

Whatever route parents and students opt for, being realistic about the implications of repaying college debt can make a significant long-term difference in the financial freedom of graduating students.

(1), accessed on 08/15/2015.

(2), accessed on 08/17/2015.

(3), accessed on 08/17/2015.

(4), accessed on 08/17/2015.