Living life “in the red”
Only 25 years ago, a college student could avoid debt by working part-time during the school year and full-time during the summer. Since then, tuition rates have soared at rates far exceeding inflation. Student jobs are no longer sufficient to pay for tuition in most cases. Government grants, which at one time covered the majority of a student’s costs, now pale in comparison to the average tuition rate. Today’s students are forced to borrow large sums of money in order to get a post-secondary education, and this has caused many to sink into serious debt.
In the past decade alone, debt among college graduates has risen by an astounding 50 percent. The average college graduate today owes nearly $20,000, and it’s not uncommon for students to graduate with debt nearing $50,000. The two main contributors to student debt are student loans and credit cards.
Student Loan Debt
The majority of student debt comes in the form of student loans. Since loan payments aren’t usually required until after graduation, many students go through college without thinking about the debt they’re amassing. Only when they finish school does the reality of their financial situation hit home. At that point, the burden of student loan debt can be so severe that it can take decades to escape. Even debt reduction strategies like student loan consolidation can have little impact.
Credit Card Debt
In the past decade, there has been a dramatic increase in the number of undergraduate students carrying huge credit card balances. Over 20 percent of students owe between $3,000 and $7,000 on their credit card. Even scarier, these students are unlikely to have any means of paying off such a debt until after graduation, so things will only get worse.
One of the most common ways students amass such high balances is by using their credit cards to pay for large, one-time expenses like traveling abroad. Assuming a student makes only minimum payments at standard credit card interest rates, it will take him or her over 15 years to pay off a $1,000 vacation.
The Effects of Debt
The burden of debt is causing a change in the way college graduates live their lives compared to previous generations. Today’s graduates are putting off getting married, having children, buying homes and saving for retirement. They are also much less likely to start their own businesses because they simply can’t afford to do so.