Did you know the average student loan debt for a 2016 graduate was $37,172? That is more student loan debt than has ever been seen before, an increase of 6% from 2015. So why is this such an important topic? What can we do about it and how do we avoid it in the future? Let’s find out.
The Value of a College Education
Can you really put a price tag on on a college education? Although universities do have a price tag, there are so many other factors to a college degree that go further than what you learn inside a classroom. So what is the real value of a college education?
The most obvious benefit of having a college degree are the employment opportunities that accompany it. On average, an individual with a college degree earns twice as much as someone with a high school degree. An advanced degree generally earns four times as much as those with a high school diploma.
In addition to the increase in personal income, a college degree has many other benefits as well. A college degree offers so many opportunities it would be a shame to pass it up, therefore, we must find a way to reduce the amount of debt that is accumulating in the process of obtaining such a valuable asset.
Student Loan Debt Is Hurting Graduates
Just like any burden, debt weighs you down and has many negative implications on your life. From 2008-2016, many graduates with large-balance student loans found themselves working jobs outside of their field (and their degree they paid so much for) just to manage their debt.
This is an immediate setback for graduates. Instead of working in their field of study they find themselves working longer hours at a job, or two, they’re not passionate about. Not only is their career not satisfying, student loan debt is a hindrance to other goals as well such as purchasing a car or home, making those second priority to paying off the cost of education. (For related reading, see: Tips to Afford a Mortgage With Student Loan Debt.)
Other lifelong effects of overwhelming student loan debt are delayed family formation, miniscule retirement savings and hindered wealth accumulation to name a few. A college education is a valuable asset, too valuable to disregard, so how do you get one without shouldering the burden of student loans and setting yourself back?
Tactics to Avoid Student Debt
There are multiple strategies that you can use to cut down on the cost of college and avoid borrowing a fortune just to attend. These strategies are applicable to parents and students alike.
- Save. Save. Save. Parents, this starts with you. If you have a timeline to work with, setting up a college savings plan should be a top priority. Even small contributions will add up over an 18-year period and that savings will be that much more you don’t have to borrow from another source. As your children reach an appropriate age with the means to do so, encourage them to save for their future education as well. It is something they will thank you for later! (For related reading, see: 4 Smart 529 Plan Alternatives to Consider.)
- Know your budget. When you’re looking at colleges, weigh the options of attending a college that exceeds your budget and will force you to borrow money versus attending a more affordable college. Take into consideration factors such as in-state tuition costs as well as the amount of financial aid the school provides. Another option that many students are taking is to transfer. Starting off at a lower cost community college with intentions of transferring to a four-year university in the future can save you money in the long run and help you avoid having to take out large sums in loans.
- Have a spending strategy. Whether you have saved or not, do you have a strategy as to how you are going to pay for your four years? When trying to tackle paying for college you should have a four-year strategy and not take it a year at a time. When it comes time to pay for tuition, see if you can pay in installments instead of forking over large sums all at once.
- Choose a sought-after degree. Choose a degree with a healthy starting salary, one that justifies the amount of money you’re spending on your education. Degrees in engineering, for example, tend to have a higher starting salary than many degrees. (For related reading, see: Top 8 Most Profitable Majors of 2016.)
- Borrow wisely. Shy away from using private loans as they typically carry higher interest rates and aren’t as lenient when it comes to forgiveness and deferment. When at all possible, use federal student loans if you must borrow.
- Graduate early. Another option is to accelerate your graduation by taking more classes than just the bare minimum as well as taking classes during the summer when classes are usually less expensive.
- Get a job. Students, this one is for you. Many universities offer on-campus work-study positions that can be used to replace or reduce student loans. (For related reading, see: Best Part-Time Jobs for College Students.)
- Pay ahead. You can start paying off your student loans at any point. If you find yourself with the opportunity to do so, you should start as soon as possible.
A college education is too valuable to toss to the side. Start today to plan for ways to reduce the amount you will need to borrow for you or your children to attend college in the future and eliminate the stress debt brings for years to come.
(For more from this author, see: Your 40s Is Not Too Late to Save for Retirement.)