The volume of US student loans has hit fresh highs at $1.4tn.
That number caught my attention: how is it possible to get to this point? Is it the government’s fault for setting the wrong incentives? or people just aren’t keen on other cheaper options such as public universities or online courses? Why?
All this debt: good or bad?
Homeownership among Americans (in their 20s and 30s) is now on a three-decade low. With the student loan level on $1.4tn, it’s obvious why the homeownership is so low. The money is all going to pay this astronomical level of loans.
This means that with all this student debt (it’s already the second biggest source of debt), young people are less independent to pursue other goals such as buying a house.
How do you focus on starting a family if you have to pay student loans?
Some people would argue that if you’re talking about consumer debt…well that’s the real “bad” debt. Because university degrees, in theory, can be monetized. But it’s growing gamble. You don’t know if in the long term your “skill” will be substitute by robots or software algorithms. Or if you choose the right degree (paycheck vs investment with debt).
In theory, taking a loan to buy (invest) on something that you can later monetize: college degrees, machines to produce something, and so on is a good thing. It will have a return. Thus contributing to your financial independence.
The trick here is execution. And selecting the right investment. Otherwise, you’ll be left with a ton of debt and a worthless asset.
The Orthodontist and the + 1 Million Federal-Student debt
I decided to write about student loans, after reading this article from Wall Street Journal. Terrifying it must be to reach a point where you owe + 1 million dollars. Even with monthly payments of $1,589.97 that debt could expand to $2 million over time.
Worst part? Like Mike Meru, 101 people are in the same situation.
Also and according to the Department of Education, the number owing at least $100,000 is nearing 2.5 million.
Come on people, this is madness.
You have to be absolutely sure that the return on your investment will cover all the costs. Debt can be a good leverage but also a curse if you don’t know what you’re doing.
I don’t know a lot of degrees that can yield a return so big that can cover millions of dollars of debt. Do you know any? This is a tremendous risk and something that I would not recommend to anyone.
If you thought about it every single day, you’d have a mental breakdown.
– Melissa Meru
Suggestions to Have Less Debt (or zero debt)
Below I’ll try to show you some suggestions to minimize costs with having a degree / learning some skill.
- Online Courses. With some much options out there, you have to at least consider learning online. You have free and paid options where you can learn at your own pace and acquire more skills. If you like programming, here are some alternatives.
- Free Programs. Great way of not paying tuition costs is applying for colleges that do not charge OR do have some free programs. Read this and this. Want to study abroad? Read this.
- Apply for FAFSA. The U.S. Department of Education gives over $120 billion in federal grants, loans, and work-study funds to more than 13 million college students. FAFSA.
And you reader do you have more options and alternatives we can add to the list? I’m all ears.
“We don’t have a trillion-dollar debt because we haven’t taxed enough; we have a trillion-dollar debt because we spend too much.”
― Ronald Reagan