Student Loans Can Wreck You: The Next Financial Crisis

Think student loans will lead you to a better job, better income, and therefore (based on what our society makes you believe) a better life?  Think again.

Student loan debt has for the last couple decades risen higher than inflation.  It is an area that is little mentioned in the media, but is surely one of the next big bubbles in our economy.

The problems with having large student loan debt are:

1. There are fewer jobs

2. Most people don’t work in the same field as their major (atleast this was the case in the past)

3. School’s lag the real world and by the time 4 years goes by…the world is totally different.

4. The biggest problem of all: the only asset to pay off that debt is YOU.  They lent money to you, expecting you to work your tail off for the rest of your life to pay off your loans.  How’s that plan sound to you?  Hence why buying assets is so important.

I read an article in the LA Times about student loans.  The last story sums up the problem that many college students and grads face…and shows how many of us will see a standard of living below what we grew up with.

Marja Lopees of Burbank, CA went to college to become a lawyer and makes about $70,000.  Her total cost for college: $196,253.  Yikes!  Her payments are 40% of her earnings.

She was having trouble paying for school with just federal loans (no surprise) and so had to turn to private loans.  The $88,303 of private debt is currently at an interest rate of 8.84%.  Ms. Lopees has been quoted as saying: “I’m making interest-only payments on one of the loans, and still the payments keep going up.  It’s just overwhelming.”

After paying for rent and student loans, she has just 40% of her after-tax income left for food, clothes, utilities, gas, maintenance, insurance, etc.  There won’t be any vacations, home buying, or anything else for a long time with that amount of debt.

Her last statement rings so true because this was the mentality of most people as they went to college.  As quoted in the LA Times :

“No one tells you to be careful of taking on too much debt when you’re in school.  It’s just the opposite. They just keep giving you loans and saying, ‘Don’t worry about it. You’re going to be a lawyer. It’s no big deal.’ “

Re-think how much debt you take on, and what interest rate you’re paying.  Compound interest scared Einstein…does it scare you?

Tags: loansstudent loans

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