The Project on Student Debt just released its third annual report on student debt trends, this one looking at the Class of 2007. Not surprisingly, student debt loads continue to rise—the report found that debt levels rose 6 percent from 2006 to 2007 to an average debt load of $21,900. This report, though, includes a data point that should worry students more than just the cost of college or their total student loan bill: while debt levels rose 6 percent for recent graduates, salaries only rose by 3 percent.
It hasn’t always been this way—in the past, salaries helped to mitigate the impact of increases in student debt. According to this report by NCES, while debt levels rose substantially between 1993 and 2000, the monthly payments students were making didn’t take up a significantly higher percent of their salaries, mostly because salary increases were able to keep pace with debt levels. But that’s old data, and it’s likely that students’ debt burdens have increased recently and will only get worse as the economy slows down.
According to FinAid.org’s loan repayment calculator you need a minimum salary of $30,243.60 to afford to repay the average $21,900 loan of a student graduating in 2007. Considering that the average starting salary of a liberal arts graduate in 2007 was $30,502, a lot of graduates will need to consider alternative repayment options to afford their monthly payments. Fortunately federal loans provide those options—income based repayment schedules, extended repayment terms, and graduated repayment. Unfortunately, private student loans don’t, and as students continue to rely on private loan debt, a larger share of their monthly income will be going to pay for their college education.
And alternative repayment plans aren't intended for the average student. According to this NCES report, only 11 percent of 1993 graduates repaid their loans with an alternative repayment plan. The remaining students were on the typical, 10-year schedule. Longer repayment schedules are a great option for students entering low-paying careers, but they also have their downsides—for one, students are repaying loans for up to 30 years of their working lives, they end up paying more in interest, and longer repayment schedules have the potential to make the federal loan program more expensive by extending the amount of time the federal government is subsidizing student interest rates.
As the credit crunch worries higher education administrators, parents, and students about access to loans to attend college, the larger economic woes we’re facing should worry the country about students’ abilities to meeting their growing debt obligations. College graduates are supposed to be one of the biggest economic engines in this country—excessive student loan debt hinders graduates’ abilities to fulfill that role.
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2 comments:
Maybe there's an upside to the current financial crisis: tightening credit markets tend to force down the price of goods. The inverse is also true: cheap credit helped drive up home values over the past few years, resulting in over valuation. Perhaps the same is true of education.
If private money is harder to come by or costs more to borrow, the price of tuition should drop to balance the equation. Unfortunately, it seems hard to equate traditional goods and services markets to education markets. It would be nice to see some research on that topic.
Maybe you need to tighten your argument ?
The average starting salary for liberal arts degrees is higher than needed to repay the average student loan.
Given that liberal arts graduates salaries are about the lowest for college graduates, this doesn't seem too bad.
Am I missing something ?
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