School loans become major debt source for students
Student loans have leapfrogged credit cards to become the number one source of debt for Americans. Total outstanding loan debt is expected to pass $1 trillion this year. Although many people are opting for loans at upsave and repaying them within the time period being provided, the number of people and banks which are being affected by this could soon lead to a massive financial crisis.
The fast growing debt means students will be paying off larger sums of money for longer periods of time. Some experts predict that current graduates will still be paying off loans when their children are going to college.
“My biggest concern is that when students graduate they are excited because they are going to be making a better income, but it’s not always happening,” said Alena Johnson, who teaches the family finance class here on campus. “That’s the basis that students get loans on, but sometimes they don’t get the jobs that they want, and sometimes they don’t get jobs at all.”
Johnson said climbing student debts can make it difficult for graduates to purchase necessities that they have been holding off on such as a new apartment or car. While students don’t necessarily need to be more concerned about student loans than credit card debt, she said, it is something that needs to be considered.
“Student loans come with power that other loans don’t have,” Johnson said. “They are backed by the government so they will seize tax refunds, and you can’t get other student loans. There are just more consequences with student loans than other loans.”
The reasons as to why student loans have outpaced credit card debt have been a matter of national speculation. Johnson’s best guess is that it all goes back to the current state of the economy.
“When the economy is down people tend to reduce their debt,” she said. “People probably started paying off credit card debts more, but people also tend to go back to school.” Johnson also said she wouldn’t be surprised if this is just a temporary trend that reverts once the economy has recovered.
Kristilyn Jensen, a senior majoring in family finance who teaches in Brigham City, said students need to start looking at how they can manage their debt now.
“An employer can pull your credit report and see that debt load,” she said. “It won’t directly affect getting a job, but when students have that debt and are not paying it off an employer can see that and will think they can’t manage their money.”
Jensen emphasized a need for students to go back to the basics of having a budget, and then looking at income and expenses then deciding what are needs and what are wants.
“Students need to look at the overall picture and think what kind of job they will get and how they will pay back this debt,” she said. “If I’m going to be an elementary school teacher, I don’t want to graduate with $80,000 worth of debt.”
Johnson agreed, saying students need to think more about paying back loans than qualifying for them. Rather than asking whether or not they qualify for loans, she said students need to be asking whether or not they can pay them back.
Steve Sharp, director of USU’s financial aid department, said that USU students tend to do well compared to their peers nationwide. Students who do take out loans graduate with an average debt of $15,200, well below the national average of over $23,000. While USU may be doing better than the national average, Sharp said that finances are still a real concern for many students.
“Only 46 percent of USU students graduate with debt; but that number increases every year,” Sharp said. “Forty percent (of USU students) report difficulty meeting expenses. Over 80 percent of aid recipients work; half of those work more than 20 hours per week.”
One of the concerns with rising student debts is that it may increase university drop out rates. Sharp said that while finances can certainly be a factor, there hasn’t been a very tight correlation between the two.
“Students who drop out commonly report that finances were the reason,” he said. “But when you look more closely, there are usually other factors that may be more significant, like poor academic performance, ability to ‘find an academic home’ or otherwise adjust to college life.”
For students that want help managing their budget and reducing debt, the Family Life Center holds workshops and counseling that are open to the community. The program can be reached at 797-7224.
– mike.burnham@gmail.com