In an increasingly competitive global job market, post-secondary education is believed to offer individuals an opportunity for increased prosperity amongst other benefits. Therefore, it comes as no surprise that more students are interested in pursuing a university education, even when many are forced to depend on loans.
The cost of university education varies wildly – it’s free in about 40 countries like Germany and Brazil and costs thousands of dollars in the United Kingdom and the United States.
This is reflected accordingly in the debt burden. Statistics show that the United States and the United Kingdom have the highest average student’s debts at $37,000 and $55,000 respectively. Even in Sweden where tuition is free, the average student debt is about $20,000
There’s growing fear that the growing debt burden could slow economies since many young adults put off marrying, purchasing a home or starting a family. They cannot even afford to spend money on consumer products, housing, cars, and entertainment. Some choose not to go to college altogether.
So why is adult education debt on the rise?
Unfortunately, the many factors which contribute to rising education debt are beyond the control of the students.
Factors Contributing to the Rising Student Loan Debt Statistics.
Rising Cost of Education
Over the past decade, the cost of tuition at public, private, and community colleges has grown faster than the inflation rate.
Data from the College Board, a US not-for-profit organization which follows trends in college pricing, shows that the average public university college student paid $9,410 for tuition in the 2015-2016 school year, against $4,400 paid by students in 1995.
When you factor in other costs for a student living on campus, which includes books, travel, room, board, and other expenses the cost climbs to an average of $19,550 from $10,550 in 1995.
More privileged students at private universities paid $43,920 for a year of study on campus from $27,200 that the average private college student paid per year back in 1995.
Community colleges are the least expensive option, but their costs are also rising. For the average full-time community college student, the annual tuition and fees were $3,440 for this school year, according to the College Board Research, whereas 20 years ago it was $2,080.
From there, it’s evident that more expensive university education equals more student debt. But why are the costs of college education on the rise?
Reduced State Spending
There is a theory making the rounds that increased federal students aid makes higher education more expensive rather than affordable. Known as the “Bennett hypothesis,” this theory, was propounded by Mr. Williams J. Bennet a former US secretary of education and a long-standing critic of the US education policy. It suggests that more affordable college education increases the demand for education, which leads to increased education costs.
Universities have been under fire for spending large amounts on sports programs and administrative salaries. This increased budget must be contained by increasing tuition and other fees which are borne by students.
But this theory has since been debunked. Several government studies showed no link between increased government aid and rising tuition fees. Again, while large budget items at Universities may raise a lot of eyebrows, they are only responsible for a small portion of the increased tuition at their school.
Eventually, the real cause of the steadily rising tuition fees is a reduction in states spending for education. This became starkly obvious during the recession of 2007-2008 when many states had to cut their spending on education to manage their budget.
Statistics from the Center on Budget and Policy Priorities indicates that 47 states spent less per student for the 2014-2015 school year than they spent for the 2007-2008 school year. The average state is currently spending 20 percent less on both public and private universities (with reduced subsidies).
Some Students do not Understand How the Loans Work
To a lesser degree, students are to be blamed for the rising debt profile. A study has found that while 50 percent of students don’t take advantage of all the student loans they are offered, one in five who take student loans go to private lenders who are more expensive.
This is partly the fault of students who merely skimp through their loan terms online and do not bother with the fine prints. Colleges too, do not help matters: financial aid offices are typically understaffed, and there are no attempts to propagate financial literacy training. Some universities have five financial staff attending to 4,000 students.
Many students took on private loans without exhausting their federal Stanford loan limits, according to a joint 2012 study by the Consumer Financial Protection Bureau and the U.S. Department of Education. And some of the borrowers didn’t know they had less option while repaying their private loan products that they had with the Federal student loan.
Federal student loans have more flexible repayment options than private loans. Accessing private loan products without exhausting your federal loan limits can be more expensive for you.
Wages have Remained Stagnant in America
Low-income workers have even seen their pay fall slightly according to the Economic Policy Institute. While Americans have less income to pay for college, a university degree has become more essential for entry into the workforce.
The gap between the earnings of college graduates and high school graduates has steadily grown over time, hitting a record high in 2013 partly because high school graduate grades have been dropping sharply over the past few decades.
There’s the real dilemma of decreasing wages causing a rising demand for a college education.
And consequently, more young people are applying every day for higher education with fewer families able to afford the costs. Individuals and their families are then compelled to borrow to cover the deficit.
Borrowing incidentally has become much easier. This is one often neglected cause of the high student debt profile
For-profit Colleges Luring Students with Promises of Job Opportunities
A recent study by Brookings Institution has found that the growth in the number of students struggling with their debt repayments was due to an increase in students borrowing to enroll in for-profit college – and 2-year community colleges to a lesser degree. This is compounded by aggressive marketing by the colleges to lure students in.
Many federal government agencies and state law-enforcement officials have accused for-profit college companies of using heavy advertising and exaggerated graduation and job placement statistics to entice students into taking on loans.
The researchers found that students attending for-profit colleges account for 20 percent of new student borrowers in 2000. By 2010 the number has grown to 30 percent of the new borrowers. At the same time, the number of student borrowers attending two-year colleges jumped by 71% between 2006 and 2012.
The borrowers struggling to meet up with their obligations consists largely of these students. About 70 percent of borrowers who started repayment in 2011 and were already defaulting in 2013 were for-profit students or community college students.
That is to say that about 21 percent of these non-traditional borrowers defaulted on their loans within two years, while only 8 percent of traditional student borrowers faced the same challenge.
This is mostly because students at for-profit schools and two-year community colleges were less likely to make a good return on investment in their time in school, either because they couldn’t complete their studies or their degrees couldn’t fetch them good paying jobs as expected.
These non-traditional borrowers saw their median income dip slightly between 2002 and 2013, while the median income for student borrowers who studied in selective four-year colleges increased somewhat during the same period.
The government is making efforts to clamp down on culpable for-profit schools. They have implemented the gainful employment rule which demands the colleges to prove they are preparing their graduates to get a good job for them to continue receiving federal financial aid.
University Education: To go or not to go?
With the problems of rising college cost and the rising debt profile, a simple solution would be no to get a higher degree. Or maybe not.
While this solution has been advocated by some parties, it creates its own problems: a college degree gives you enormous financial advantages.
A New York Times report states that in 2014, Americans with a college degree made 98% more per hour than their contemporary without a degree. This figure has been on the rise. It was 64 percent in the early 1980s, 85 percent after a decade and 89 percent five years after.
The situation is a catch-22 of sorts; you need money to get a higher education degree, without which you can’t get a good job to make money.
If you try to avoid university altogether because of the cost, just know that you may find it impossible to secure even an entry-level job.
This is known as “credentialism,” and it creates what the economist call “inelastic demand.” Inelastic demand is those goods, and services people will still buy regardless of how expensive they come because of their assumed value.
Thus, if graduating high school students believe that they must have a university education to be financially successful, they will be willing to pay dearly for it.
Avoid Becoming Burdened with Education Loan
The average student may not be able to fix their state’s funding issues or stop credentialism, but the can know all they can learn about federal student loans and other financial aid options to avoid graduating with a heavy debt burden. As a college student, you are likely going to end up with student debt. The debt may seem overwhelming after your graduation.
Fortunately, there are ways you can relieve some of the debt and the stress that comes with it:
- Cultivate savings as a habit as early as possible: By learning to save as much cash as possible before and during college, you can have extra cash that will help pay off the loans faster after you graduate. Additionally, once formed, the savings habit will make it easier for you to pay down on the debt.
- Don’t be in a hurry to leave school: While it may make sense to graduate and start your career as quickly as possible, bear in mind that the longer you stay in school, the longer you can hold off repaying the loans. You can try part-time schooling and work part-time while at it. This can ease some stress of being a full-time student while giving you the opportunity to earn money to jumpstart your debt repayment.
- Explore all the scholarships possible for you: Before you start the search for a suitable Education Loan, check out all the possible scholarship options. You are better off looking for opportunities to help you save lot’s of money in the future. The more scholarship you get, the less money you will dish out to student loans. No matter how small the scholarship is, it will help you pay down your student loan amount faster.
- Find an internship: While many of them are unpaid, there are internship positions that do pay. It helps to give you valuable experience while you earn some money.
- Look out for grants: Many students are not aware of all the grant options available to them from the federal government and their schools. Qualifying for and getting study grants allows you to pay for school without having to pay it back.
The best way to avoid becoming one of the student loan debt statistics is to learn all about the cost of earning the degree of your choice, from the university you plan to attend and the types of grants and loans you can have access to. Do your research and come up with a game plan. Education is very important but the cost should not be too much of a burden after graduation.