The financial realities of attending college are not only harsh for those trying to get accepted to their choice school. But in many cases now, the problems linger long after the student has finished school and started a career and family.
For the first time ever, student loan debt outweighed credit card debt nationally, signaling an alarming trend in the types of debt. According to The New York Times, two-thirds of those receiving bachelor’s degrees in 2008 left school with debt. That figure was twice as high as the debt amassed by all graduates 15 years earlier.
Educational debt can translate into real issues when graduates face life after school. An increased debt burden can have a negative impact on the debt to equity ratio, the percentage of debt held against positive cash flow (i.e., annual salary). The higher the payments on student loan debt, the more difficult financing becomes for a house, car, or small business loan.
Additionally, some students face entry-level salaries that are too low to adequately pay off debt. The recent economic climate can also be a hindrance because of persistent and high unemployment in some areas.
For President Obama, as an example, student loan debt is not something that only the American people face. He and Mrs. Obama both incurred large amounts of debt, a rumored $60,000 each, when they finished at Harvard Law School. It was not until the president received his major book deal years later that he was able to pay off the family’s student loan debt. So, the issue is personal for him.
In 2010, the Obama Administration took its most direct swipe at the educational loan system. It used the reconciliation legislation that accompanied the health care reform package to make some needed changes to the process. Banks are, for the most part, now cut out of the middle of the deal between borrowers (students) and lenders (the government). For years they raked in major fees off originating student loans. The Administration claims that $68 million will be saved over the next 11 years and put toward expanding Pell Grants for students, and reinvesting in community and Historically Black Colleges and Universities (HBCUs).
There is also hope for students who will accrue educational debt in the future. As a result of legislation passed last year, repayments on loans originated after July 2014 can only be 10 percent of discretionary income, instead of the current 15 percent. If payments are maintained the loans will be forgiven after 20 years instead of 25 years. Students who choose a path of public service after graduation will be rewarded with forgiveness after only 10 years.
In the short term, today’s college graduates are shouldering a record amount of debt just to achieve a basic college education. The financial impacts of the costs of college, debt of students, and tight job market will be felt for years to come.