12 Facts about Student Loan Debt that will make Your Hair Stand on End
Today I have a guest post from Kevin and it’s all about student loans. Don’t forget to read my My $38,000 Student Loan Payoff Plan if you haven’t yet.
Getting a college education in the US today appears to be a double-edged sword. On the one hand, graduates are in a better position than those without a college degree when it comes to getting jobs. Yet with the cost of education rising, tens of thousands of students are graduating with piles of debts they spend years paying off.
Sometimes they are not able to pay, with unemployment rates remaining high and stagnant. Dogged by debt collectors, they resort to public protests and hiding. To add more props to the terrifying reality show of student debt, here are 12 facts about student loan debt that will make your hair stand on end.
1. High debt and fear of loans
Two thirds of college graduates from universities across the country in 2011 had debts from student loans, an early 2012 study by The Institute for College Access & Success revealed. There is a total of $1 trillion in outstanding student loan debt and the average debt is estimated at $26,600 per student. Fear of such high loans can keep students from receiving the education that they deserve.
2. Increase in loan averages
What is worrying is that the loan average for the country has risen by 5 percent from $25,350 in 2010 to $26,600 in 2011. This reveals the significant rise in the cost of education. In fact since the 1980-1981 academic year, the average tuition rate for 2-year and 4-year colleges has gone up by a whopping 144.6 percent.
3. High unemployment leading to loan default
As if the high cost of education isn’t bad enough, unemployment remained high through 2011 at 8.8 percent. This means that many students leaving college end up with no jobs and a high burden of debt. They enter into a life of debt slavery on leaving college and many quickly fall into default with no means of refinancing. In terms of statistical figures, one of every six student borrowers is a defaulter.
4. Total private loan debt at $150 billion
According to reports, outstanding private loan debt among American students stands at a whopping $150 billion. These private loans are issued by banks, schools, non-profit institutions and agencies sponsored by the state, as well as other financial bodies. They are also the least desirable types of loans with the highest costs.
While federal student loans offer the lowest interest rates and borrower-friendly repayment programs, many of these federal loans cannot be accessed by those that need them the most. For instance, students with fewer resources in low-income groups who have defaulted with federal loans in the past are not eligible for federal student loans.
5. $8 billion of loan default
The Consumer Financial Protection Bureau (CFPB) estimated in a report published in October 2012 that of the private borrowers, there are more than 850,000 individual private loan defaulters, with a total default amount of a staggering $8 billion.
6. Poor loan servicing
The state-run and non-profit financial institutions that offer private loans send third-party collectors to recover the debt amounts. These debt collectors cash in on the plight of students who are strapped for cash. The New York Times reported in September 2012 that students dogged by collectors are often forced to change their phone numbers multiple times to avoid them. The CFPB reports that student complaints against private student loan companies include complaints of being unable to contact them at times of need, too much paperwork and delay in correcting errors among others.
There are 7 major companies that hold a monopoly in the area of state and federal student loan services. These include Sallie Mae, American Education Services (PHEAA), Citibank, Wells Fargo, JPMorgan Chase, ACS Education Services and KeyBank. Of these, Sallie Mae has received the highest number of complaints at 46 percent (of 2900 cases it handled in less than 7 months in 2011) followed by PHEAA at 12 percent. KeyBank has the least number of complaints against it.
7. Bigger costs than credit card debt
The government usually recovers 80 cents for every dollar on defaulted loans. This is much higher than credit card default rates – lenders for defaulted credit cards are lucky if they can recover 20 cents to a dollar. This is a problem because the government doesn’t have any incentive to prevent the defaults in the first place.
8. A problem for all ages
It’s terrifying for many how long the burdens of debt can be carried forward or how often parents are taking out loans for their kids. A New York Federal Reserve Bank (FRBNY) report published in early 2012 showed that 5 percent of all borrowers are over 60 and 11.8 percent are aged between 50 and 59.
9. Bigger than most other consumer debt
Total student loan debts stand only second to mortgage loans in the US. Delinquency rates on in the case of student loan debt is almost double that of any other consumer debts. According to the FRBNY report, 21 percent of all student loan debt is delinquent.
10. 10 % of borrowers owe over $54,000
According to the FRBNY report, in the first quarter of 2012, 10 percent of borrowers owe more than $54,000. A fourth of all borrowers owe over $28,000 and 3 percent owe over $100,000. The most unfortunate of these is the 1 percent that owes over $200,000.
11. Highest loan debts for students of for-profit institutions
This doesn’t come as a surprise, but the for-profit institutions and universities are the ones whose bachelor’s degree students have the highest loan debts. While public 4-year college graduates have median debts of around $7,960 (according to College Board reports) and around $17,000 for private colleges, the private for-profit college students have the highest loan debts at $31,190.
12. Highest debt in the Northeast and Midwest
In 2011, the state averages for student loan debt lay roughly between $17,000 and $32,000. The Northeast and the Midwest states had the highest average debts, with New Hampshire topping the list and Pennsylvania following close behind.
After having shared with you 12 facts about student loan debt that will make your hair stand on end, you can hardly expect me to say that it may not be entirely hopeless for you to get a college education despite the issues. But it’s true, it’s not so bad.
Over the last five fiscal years, the Education Department has made $101.8 billion from student loans with fixed interest rates. With the job market looking grim and the rising costs of education, there have been several protests staged across the country over 2011 and 2012. The government has taken note, and the White House plans to propose and implement a plan to benefit borrowers, by making interest rates on federal student loans proportionate to market rates.
In the meantime, students looking for loans should avoid private borrowing and look to federal student loans for help. There are some (rare) colleges and charities that will give you low or zero interest rate loans. But most of all, even if you have to spend some time shopping around for the best and reasonable loan rates offered, be sure not to give up on the education you deserve!
My name is Kevin Watts and I am the creator of Graduating from Debt. I was like millions of recent college graduates in heavy debt with very little hope. With the right attitude and discipline I took control of my financial picture and now I can say proudly that I am debt free.
How much do you have or expect to have in student loans?
What are you doing to eliminate them?
My $38,000 Student Loan Payoff Plan
$40,000.
That’s the total amount of student loans that I accumulated while I was getting my undergraduate and graduate degrees. The amount that is left is still at $38,000 now, mainly because I haven’t paid a lot on them and interest has stupidly been building up. I would have taken out more in student loans but the last couple of semesters I paid for in cash.
It is a lot of student loan debt, but I don’t feel completely horrible about it, I did get 2 undergraduate degrees and a Finance MBA all for that amount. If I wouldn’t have earned scholarships or paid some of it, it would have easily been 3 or 4 times that amount.
I’ve been talking a lot about my plan to payoff my student loans as fast as possible. Back in February of 2012, I started my action plan for them to be gone. For me, it’s almost to the point where I am obsessing a little too much about my plan. I am constantly trying to figure out my cash flow and budget to see if I can get there any more quickly. I’m really focused on my extra income efforts and it’s an obsession now.
Luckily I was able to graduate and find a great job back in 2012. So many people told me that I wouldn’t find one. They were probably just trying to help me out by telling me what most kids my age didn’t know back then, but I wasn’t listening.
Now that I am done with graduate school (which I am extremely happy about being done with), I really need to start focusing and finally starting to aggressively paying off my debt. I’ve been paying a little bit here and there but not enough where you can actually notice it.
My Goal
My goal is to have my student loans completely gone by April of 2013, or even possibly March of 2013. I know any sooner is most likely not possible since my plan is already pretty strict.
In order to complete my goal, I need to pay around $7,000 per month on my student loans for around 6 months (which would make the payoff date April of 2013). This most likely sounds insane, but I know it’s possible. No, I will not be living off of Ramen noodles (as I said before, I’ll Never Be a Frugal Blogger). I will still have the same quality of life and be doing nearly everything the same.
My main thing is that we have really ramped up our income in the past couple of months. W is currently making more than three times what he used to make at his old job, and I’m making more as well. This extra money definitely helps make this goal more attainable.
So, as long as our income continues to remain the same, then my plan should work perfectly. And if we start to make anymore money, then hopefully I will be able to fully pay off my student loans in March, however, a one month difference will not kill me.
Here’s what I have done so far and what you should start with:
1. Add up your total student loan debt.
This may sound stupid, but have you ever truly added up your total, down to the exact cent? Enter reality and figure out how much you actually owe. I have a couple of friends who still can’t really say how much they owe, because they aren’t sure. I can understand this because some of the loans that you’ve taken out might have been from 4 or more years ago.
When I added up my total loans, I wasn’t completely sure of the exact dollar amount. YES I REALLY JUST SAID THAT, I’m a bad personal finance blogger. I did know of the general area, but I was off by around $2,000. When I finally sat down and realized the exact dollar amount that I owed, reality really set in.
Once you know that exact number, it’ll help you realize that you need an action plan to pay it off.
2. Decide which loans you’ll attack first.
It’s really up to you personally. Different people prefer to attack their debt in different ways. With me, I’m trying to get rid of my student loans which have the highest interest rates. A large amount of my loans are at 6.8%.
I prefer to pay the highest so that I am gaining the LEAST amount of interest on my loans that I possibly can. If I stared by knocking out a loan than gets 0% (which none of mine do, just hypothetically), then I would still be gaining interest on my other loans and that, in the end, would not be worth it to me at all.
However, some choose to pay off the loans that have the highest or lowest amounts. This way you can really feel like you are accomplishing something when you knock out loans one by one. If you knocked out the student loans with the lowest amounts first, then you will probably feel like you’re accomplishing more and be more motivated with each student loan that you eliminate.
3. Find extra money to apply towards student loans.
I’ve really been working hard on finding ways to earn extra income. I’ve been doing great with this, but it hasn’t always been this easy. In September I made $3,275 and in October I made $3,700 (both after fees but before taxes) in extra income. Before September, I wasn’t making nearly these amounts, and I am still very surprised.
EDIT (February 8, 2013): In the month of January, I made over $6,000 in extra income. I do many things in order to reach this level, read further on my extra income page. I’m a freelance writer, a virtual assistant (read further on how to become a virtual assistant and what exactly a virtual assistant does), and blog owner in my spare time.
My goal right now is to throw nearly all of my extra income towards my student loans. Now, why am I not saying “ALL” instead of “nearly?” It’s because I am being realistic. I know for a fact that I will not put all of it towards student loans, in fact, I’ve already spent some of it (not a lot though).
4. If you can or want to, then ELIMINATE expenses!
There are probably a couple of things out there that you do not absolutely need. Or maybe there are things in your life that you can get for cheaper. Try calling any of the companies that you do business with and see if they can lower their prices at all. This can be your gym, cell phone, internet and so on.
There are also many other things that you can do. Lowering your auto expenses, lowering your utility bills, eating at home more often, cooking from scratch and so on are all great things you can do to lower your expenses.
We are really working on eating at home as much as we can. We used to go out to eat way too much. What’s the point of eating out at a restaurant every single day? We were being stupid, it’s that plain and simple.
What are you doing to pay off your student loans quicker?
Answer these questions:
1. How much do you owe?
2. How much have you paid off?
3. How long do you think it will take you to pay your student loans off completely?
4. What are you doing to pay them off more quickly?
Biggest Financial Mistake
Hope everyone’s having a good week! It’s gone by pretty quick. I still don’t have my voice back so I guess I need to go to the doctor soon because I haven’t had my voice since around last Wednesday.
I’m sure you all have noticed the tagging game that’s going on. I’ve been tagged by a lot of people (yes I’m bragging) but I just wanted to answer 2 questions right now from Live Simply-Live Well, because I feel like they directly relate to my blog and well, it’s just what I feel like typing about right now.
The biggest financial mistake that I made:
There are definitely some things that I would’ve done differently. My 3 mistakes below all kind of tie in together and mainly relate to how much money I would’ve saved if my money situation was different.
- If I could have, I would have lived at home after high school and during college. I would’ve saved so much money, but instead I moved out less than one month after my high school graduation and rented a house. Our bills weren’t too high, but of course I could’ve saved money and applied house bills towards debt instead if I would’ve lived at home.
- Waited to buy my house. We bought our house at the age of 20. YOUNG? Yes. We could’ve saved for a bigger down payment, but we got a really good deal on our house. We bought at the end of 2009, and yes while the housing market is still continually going down, we were able to take advantage of the $8,000 tax credit (which we got to keep unlike those who bought houses after this expired). Our house still appraises for more than we bought it for, which is great as well.
- However, if we would’ve bought our house now, we could have a bigger down payment, lower mortgage interest rate, and houses are SO CHEAP right now that we could’ve gotten a decent house for probably $20,000 to $30,000 less than what we bought our house for.
- Not have so much student loan debt. This goes hand in hand with the two mistakes above. If I would’ve lived at home (which wasn’t really an option though) then I could’ve saved thousands of dollars and put it all towards debt. I would’ve graduated without ANY debt.
I’m sure there are a ton of other mistakes that I have committed, but I can’t think off the top of my head of any others that really stick out besides the one’s above.
However, I very much love my life. I definitely don’t dwell on these “mistakes” that I made. I still feel like I’ve definitely come very far in my life, especially for my age. I try not to live in regret and just make the best of everything that I have in my life. I love my life, my house, my friends, and my pups.
If someone gave you $1,000 and you had to spend it on something OTHER than paying down debt or investing it, what would you do?
I would probably go on a clothing spending spree. I would of course stop at JCrew first and I’ve really been wanting a nice watch. Then of course I need swimsuits, new work clothes and everything else. I really want new clothes obviously.
I know that I’m not the best when it comes to saving and paying down debt (instead of shopping), but I do think I’m getting better. I would really love to have a spending spree though. Who wouldn’t?
What’s the biggest financial mistake that you’ve made? Loans, credit cards, cars? Tell us now!
