Student loans are a roadblock to this generation.
Current college graduates are leaving school with an average student loan debt of $27,000—and obviously more for private, prestigious, or graduate schools. Altogether, there is roughly $1 trillion in total outstanding student loan debt in the United States today, and student loans have recently surpassed credit cards in total debt owed.
Graduates will carry those loans around with them for years or even decades; they can’t even escape them through bankruptcy because federally backed student loans are not eliminated in a bankruptcy. The short-term gain of student loans doesn’t even compare to the long-term pain your student could end up with.
There’s no doubt: This is a generational crisis, and, as a parent, you need to be ready.
Student Loans Limit Options
Proverbs 22:7 says, “The borrower is slave to the lender.” I thought about that verse after meeting the graduating senior who had a passion for missions. He and his future wife will start their lives together with $160,000 in student loan debt. Before they do anything else—before they even get jobs, pay for the wedding, and find a place to live—they will start $160,000 in the hole. If you want to know what their lives will probably look like, all you have to do is look at the math.
Let’s say that when this couple graduates, they each get a job paying $31,000 a year. After taxes, that’s a take-home pay of around $2,000 a month each. Want to guess what the payment on $160,000 in student loans is? It’s right at $1,800 a month—a little less than one spouse’s total take-home pay. That means this guy and his wife will both have to work full time, forgetting their dream to serve as missionaries—and one of them will work forty hours a week just to make the student loan payments. That’s it. They won’t be able to save that money for a house. They won’t be able to use it for vacation. They can’t use it for new clothes or a night at the movies. One of them will basically work all day every day only to send almost their entire paycheck directly to the lender.
That means the other spouse will have to cover all the household expenses solo on a take-home pay of $2,000 a month. If you figure $900 rent on a one-bedroom apartment, $250 for utilities, and $550 for food, that leaves this couple with $300 a month for anything else they want or need to do like buying gas, maintaining a car, replacing old clothes, or even getting a haircut, not to mention things like saving, giving, or having a little fun now and then.
This couple will be stuck for years and years of their lives, and it is all because of student loans that not only didn’t help them achieve their dreams and passions but also actively prevented them from doing so. Even though $160,000 in combined student loans is a lot higher than average (but $80,000 isn’t that uncommon), the problem isn’t much better for graduates with less debt.
In a survey of recent graduates with school debt, 47 percent say they are putting off buying a house or car, 76 percent are putting off saving for the future, and 35 percent are putting off starting a family. They are finally ready to graduate, but all the financial mistakes of the past four years have snuck up on them and robbed them of the joy of getting out of school and starting their lives as working adults. This situation breaks my heart.
Busting the College Debt Myth
As a culture, we have thrown up our hands and surrendered to a lie. College advisors, financial aid officers, high school counselors, students, and even parents have bought into the lie that you can’t be a student without student loans. We hear that signing up for tens of thousands of dollars in debt is the only way to get through school.
But the great news is that there’s hope. There is a way for your child to get an excellent education without going into debt. It doesn’t matter if your kid is heading to college next fall and you have nothing saved or if he’s still in diapers and you have eighteen years to save. There are ways to get this done, but it’s going to take some hard work—for both you and your student.
The debt-free college plan isn’t always easy, but it is definitely the best way in the long run. It all comes down to five things: parent planning, school choice, financial aid, working while in school, and your student living a reasonable lifestyle.
Excerpted with permission from Smart Money, Smart Kids by Dave Ramsey and Rachel Cruze, copyright Thomas Nelson, 2014.
Have student loans become a roadblock in your life or the life of your students?