BUSINESS

Debt, Choices, Responsibility: Examining The Modern Student Loan Crisis

“A large amount of the debt is self-inflicted…”

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by DAN REIDER

The issue of continued governmental assistance for students with college loan debt has not yet been decided and continues to be a controversial topic battered about by political adversaries. In an article written by a college professor, he makes the argument something needs to be done to alleviate the financial struggles faced by many college graduates with large college tuition debt. The example he uses is that of a young couple under the age of 30. The couple has $50,000 in college debt, a $275,000 mortgage, and $50,000 in credit card debt.

In addition, the couple has car payments on two vehicles which would not be paid off until the cars were almost nine years old.  The couple explained that all this debt, along with a newborn child, was putting a lot of stress on them. They had a joint income of over $130,000 per year. 

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The position of a lot of younger adults – and possibly the majority of younger adults – is that there has to be a way the government can help with these types of debt and particularly the college tuition debt.  The most common approach being discussed is to reduce or eliminate any tuition cost for college. There almost never seems to ever be a discussion focused around trying to educate the young adult on how to live in a more fiscally responsible manner.

There are undoubtedly some expenses for which the student might have little control over. Sometimes the expense is for unexpected medical bills, sometime it takes the student longer to complete a college education due to a change in major or other circumstances, in many areas student housing has gotten extremely expensive, and sometimes the student ended up with a lot of tuition debt and a degree in a career which either pays very little or there is no market for that degree. 

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HOW DOES DEBT STACK UP?

First, let’s look at college debt relative to income upon graduation from college. In the early 1980’s, the average college debt was in the $10,000 to $12,000 range. I was among those with that level of debt.

Upon graduating with a mechanical engineering degree, my first job paid $12,000. After six years (and upon becoming a registered professional engineer), my salary was bumped up to $16,000. As it was in my case, it was not unusual to have a college debt approximately equal to one’s yearly salary. According to recent data presented by Forbes and others, the current average student federal loan debt is around $35,000. This also happens to be a good bit lower than many college graduates’ starting salaries – making their college debt 10% to 30% lower than average starting salaries for a large number of professions.

If the average current college debt by a student is around the same as their starting salary, it seems like paying off their college loan would take an effort similar to what I and many of my friends had to do in the 80’s. Relative to income, we had the same level of college debt as the current student but just don’t remember a whole lot of complaining about the level of debt and there certainly were not any political discussions involving college debt. We do not know what the couple in the college professor’s article were making when they finished school and got their first job or what their debt was at graduation but if their current debt was $25,000 each after say 4 or 5 years and they are now making $65,000 apiece, their college tuition debt to yearly salary ratio could not be much different than what the average student in the 1980’s faced or what an average current student now faces.

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HOME COSTS ACROSS GENERATIONS

The largest debt the couple in the article face is with their home mortgage. When I and some of our friends started buying our first homes in the early to mid 1980s – when we were in our mid to late 20’s as were the couple in the article – the average priced home throughout much of the US was in the $80,000s.

In South Carolina, where we were living at the time, housing costs were probably at 80% to 85% of the national average for the median price of a home which would put the average South Carolina house at maybe $70,000. As we had only been out of school 6 or 7 years, been paying off the student tuition loans, and had limited funds, we each bought small homes which might have been described by some as fixer uppers. Some needed minor work, and some needed a lot of work. Regardless, none of us paid more than $40,000 for the home or less than 60% of the average home price.

The couple in the article bought a home which after a few years had a $275,000 mortgage to pay off.  According to Zillow, the average home price for many states around the country is somewhat less than $300,000. If that couple had purchased their home at 60% to 70% of the average home price, the cost of that home would be in the $200,000 range with a substantially reduced mortgage payment than what the couple was now paying (assuming they had to put down maybe 10% to 20%). One other point to consider – interest rates being paid by the majority of current homeowners is under 6%. When we bought our homes in the early 80’s, we all paid around a 14% mortgage rate. Try buying a house today with a 14% mortgage rate. 

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IMPACT OF MODERN SPENDING HABITS

Some of the couple’s debt were their car payments. They were lamenting that by the time the cars were paid off they would be nine-year-old vehicles. We were faced in the 1980’s with similar budget challenges. Our solution was to buy vehicles which were already nine years old, and which saved us a tremendous amount of money.  We had to change the oil once in a while and do other maintenance on the vehicles, but it was all we could afford at the time.

The other debt listed for the couple in the article was $50,000 credit card debt. With all the college loan debt, mortgage debt and car payments, why would the couple add another $50,000 in credit card debt on top of the debt that they already had? That makes no sense whatsoever and, unless there was a very good reason for this, incurring another $50,000 of debt would appear to be extremely irresponsible. 

While the couple in the article could have much better control of their finances, in my opinion, I do not believe all the college debt incurred by students is completely the fault of the student. One used to be able to stay on a college campus for four years and never need a vehicle. Since many colleges no longer have on-campus housing available for students after even their first year, a vehicle has now become almost a necessity for living off campus. Also, student housing – on- or off-campus – has gotten comparatively more expensive now than back in the 1980’s. But there is a reason for that. The colleges say students will no longer accept dormitory-style living. We are being told students are now insisting upon apartment style living for campus housing. And off-campus housing is following suit.

This apartment-style living is costing a student far more than dormitory-style living. 

Thirty years ago, a college dormitory generally meant two persons to a room and a group toilet down the hall. The group toilet had a number of sinks and a number of toilets all in the same room. Off of this room was the shower room. The male shower was one large open space with maybe 8 or 10 shower heads. The female shower room was similar except the girls’ showers had partitions for individual privacy. To wash clothes, there were washers and dryers located in a central location within the building for all occupants to use. Now, most of the on-campus and off-campus housing is apartment style meaning individual bedrooms and individual bathroom facilities or sometimes two people to a bathroom, but the bathroom is within the apartment and not down the hall. Each apartment has a kitchenette with stove, refrigerator, sink and dishwasher along with a laundry room with washer and dryer. That doesn’t come cheap.

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“I do not believe all the college debt incurred by students is completely the fault of the student…”

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Debt is a problem for many young adults, and it needs to be addressed. However, it seems like a large amount of the debt is self-inflicted by the desire to purchase nice things before they have made any real effort to resolve any debt that they already have. It is difficult for someone who grew up in my era to have a lot of sympathy for a young person complaining about debt who is driving a new car, having the latest phones, living in a very nice house, able to eat many meals out every week and take nice vacations.

Maybe if the students backed off some of their purchases, worked really hard and lived within their means, they – and the couple in the college professor’s article – would not have the level of stress that seems to be so prevalent with young people in today’s society and would not be constantly complaining about needing someone to help them with the debt which they were mostly responsible for incurring.

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ABOUT THE AUTHOR …

Dan Reider was a consulting mechanical engineer for more than 30 years designing primarily educational and healthcare facilities. He is currently working as a Project Manager for the Construction and Planning Department at the University of South Carolina.

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