A recent TransUnion study found that a decade ago, student loans accounted for only 12.9% of the total debt load carried by people ages 20 to 29. It now stands at 36.8%. Moreover, the average student loan balance for those with loans jumped to $29,575 from only $17,442 in 2005.
Student loan and credit card debt is killing Millennials. If a young person is constantly focused on debt, they are not in a position to save and invest for financial goals such as buying a home or saving for retirement.
The scourge of debt has led many to question the value of attaining a college education. While I believe there are some valid criticisms of the costs associated with attending college, I believe it is worth understanding there is a high correlation between education and income, and income is a significant factor in attaining wealth.
I don’t believe the right questions are “should I attend college and will it be a worthwhile return on my investment?” The questions should be, “What should I be studying at college and what is the best way to finance it and avoid taking on significant debt?” To the latter question, I offer three considerations.
- Military Service. Individuals can learn a skill/trade while earning decent salary/benefits, use programs like Tuition Assistance (government pays 75% of costs) while on active duty, and the GI Bill once separated from service, all with the added bonus of serving your country. Individuals can earn a college degree (multiple degrees in fact) to pair with their training and real world experience at no expense…other than the service.
- College Savings Plans. Forward looking parents should start a college savings plan (e.g. 529) as soon as possible. Unfortunately, too many parents are financially illiterate which negatively impacts their children with regards to matters such as determining how to finance an education.
- Community College. There is no requirement, or need, to attend a university all four years. A better option is to spend the first two years at a local community college; staying at home and working at least part-time. Overall it is a great way to spend less money and be more prepared. The first two years are primarily spent just taking core courses (e.g. English) and lower level specialty courses anyway.
The infographic below nicely illustrates the exponential growth of student loan debt, suggestions for what the future might hold and options for paying for college.
Image created by Credit Sesame
Sources: newyorkfed.org | ed.gov | census.gov | federalreserve.gov | libertystreeteconomics.newyorkfed.gov | money.cnn.com | statistics.gr