Student Loan Debt Destroying Quality of Life
| May 7, 2012 | Posted by Roshawn Watson under Uncategorized |
By: Roshawn Watson
Many people go into debt trying to look rich, thinking that the debt affords them a better quality of life. Such sentiments are overly simplistic and somewhat shortsighted. I have made the case several times before: debt actually decreases quality of life. That’s because those who are indebted have less money to spend as they desire than those who earn comparable incomes and are debt-free. However, we often set up an arbitrary hierarchy for different types of debt. While I am encouraged about the increased awareness of the the good debt myth, still many label some debts as “good” or “okay” to make them more socially acceptable.
Perhaps no debt is so reverenced as the ubiquitous student loan. Don’t dare suggest student loans are bad. You’ll be classified as out of touch. After all, school tuition has increased outrageously, and education is your passport to the future. Unfortunately, lately the future of borrowers have been plagued with turmoil, delayed dreams, and multiple disappointments. Recently, I came across an article that only strengthened my belief: even student loan debt can decrease quality of life.
Student Loan Debt and Marriage
The hallmark of healthy marriages is teamwork. There shouldn’t be “his” or “her” debt. It should “their” debt, regardless of what the loan agreement says, assuming that both spouses are working together. Despite knowing this on a conscious level, student loan debt sometimes strains some marriages. For example, the borrower may feel like he is burdening his partner with debt unfairly and thereby feel a guilt about working through the debt together. This guilt may be confounded by his wife’s resenting the additional financial hardship the student loan debt represents. Ideally, both spouses would approach this as adults and work together to improve their situation. However, even in the best case scenario, deep-seated emotions regarding debt, obligation, partnership, and contributions can rear their ugly heads and create marital discord.
In addition to the emotional challenges, there is also a financial reality to bringing a lot of debt into a marriage. Quite simply, there is less money for the couple to pursue their dreams, and the stress of dealing with a mountain of debt can take its toll even on very sound relationships. It is unsurprising that financial problems are among the top cited causes of divorce. Such concerns provide the context for why graduates with student loans appear to be increasingly delaying marriage.
Student Loan Debt and Children
As we discussed last week, it costs an estimated $250,000 to raise a child from birth to age 18 according to the Census Bureau. The financial implications of an expanding family are clearly significant. Accordingly, graduates appear to be delaying having kids as well. Part of this stems from concerns that the added expense of additional mouths to feed may make paying off the student loans more difficult. With finite resources and a lot of debt, having an additional person to care for may not be trivial. Having children is also life changing in other ways. For example, since Generation Y is more likely to have an entrepreneurial bent, there may be additional concern that having children could mean that they’ll be stuck in the rat race forever.
Another consideration plaguing graduates regarding having children is that their student loan debt diminishes their ability to care for children. After all, we’re talking about the boomerang generation: if you are having difficulty caring for yourself, you are not in a prime position to care for others. Of course, on an intellectual level we know that love is what’s necessary to raise kids and that many people grow up with less and still become productive members of society. Still, such concerns are possible deterrents nevertheless. Additionally, some delay having children because they feel that fastest way to climb out of their financial holes is using their ambition to increase their income. Sometimes this may entail working extra hours, extra shifts, having another job, or starting a business. Regardless, the goal is to either increase income immediately or to position themselves to quickly advance their career (which will also increase income); either option may be at odds with simultaneously raising a family right out of school.
Student Loan Debt and Bankruptcy
Many are familiar with the old story of physicians, lawyers, and other high income-earning professionals who racked up ridiculous amounts of student loans and other debt, only to file bankruptcy to wipe clean their respective financial slates, so that they can keep their high income and not pay their creditors. Well those days for the most part are long gone.
Debt is one of the top 5 causes of bankruptcy; however, after the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, student loan debt survives even bankruptcy unless the debtor can prove repaying the loan would create “undue hardship,” which is a legal standard that is particularly difficult to meet. You may think that this fact alone would prompt families to steer clear of ridiculous amounts of debt to pay for school, in favor of creative solutions, but that’s unfortunately not the case. Student loan debt is still very socially acceptable and is growing.
During times of financial hardship, borrowers have some options for repaying federal loans, such as Income-Based Repayment and Loan-Forgiveness programs; however, most private loans only allow repayment on their timetable, or else. Borrowers who default on private loans are subject to collection calls for the life of the loans, where they will likely be threatened, insulted, and embarrassed. Additionally, these lenders punish those who become delinquent and eventually sue them. The sometimes illegal and downright nasty tactics that collection agencies use to intimidate debtors into repayment are well documented. Moreover, borrowers who default also have to deal with penalties and interest. For private companies, the collection fees can be up to 25% of the original loan balance. A recent WSJ article profiled Danielle Jokela who owed $100,000 upon graduation, paid for most of 5 years (deferred paying the loan a couple of times for a few months), and still owes $98,000 due to the fees associated with the deferment. It is absolutely disheartening.
Closing Thoughts
I admonish students to think very carefully before taking on debt for school, particularly a significant debt load. In the US, two-thirds of college seniors graduated with loans in 2010, and the average loan exceeded $25,000 (Project on Student Debt); of course, that amount can vary widely. Additionally, think very carefully about your income-earning potential after graduation. For example, does it really make sense for the typical family to spend $200,000 educating a child for social work, where the median income of US national averages is $47,005 (salary starts around $30,000)? Also, consider the likelihood of graduation (nothing sucks more than having the debt without the degree or job); unfortunately, I know too many people in this position too. I apologize if this is offensive. I just find the situations that many of us willingly place ourselves in tragic. Think about the life you want to lead BEFORE you attach your John Hancock.
From someone’s who’s views on debt are more liberal than many, let me leave you with an admonishment from Robert Kiyosaki: “debt is a two-edged source.” In other words, improper usage can bring you to the brink of financial disaster. Don’t sign yourself up for a trip that you are not prepared to take.
There are two ways to conquer and enslave a nation. One is by the sword. The other is by DEBT. John Adams
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Many pay dearly for the prestige of attending a name school and participating in the fraternity life. Sadly, they never really learn to think for themselves and start off life deep in a financial hole.
Agreed. It ends up shaping a lot of theirs lives in a very bad way!
An education is like anything else in life that you purchase. There are good deals and bad deals, and the good deals might not always be the prestigious choice. Eighteen year olds don't think like this, but a degree from Harvard in Renaissance Poetry is an expensive way to get a lesson in how capitalism works, and the laws of supply and demand.
Agreed. I guess that's my bias too. Sure it is nice to give yourself the best shot possible, but that's not necessarily going to an Ivy League status (or similar) school unless that school possesses something that you need that you would be unable to get elsewhere. Then, you also have to look at what you can realistically afford. That's kind of where things break down. People have totally unrealistic expectations about how their choice will benefit them and consequently place themselves in very difficult situations where things must work better than perfect for it to work out financially.
With 25k as the average, some are spending that much per year, and I'm not sure what they are really getting in return except a guarantee that they must find a high paying job.
John,
That's the story though. I should disclose that both my wife and myself went to private school and had debt, but we were fortunate that we were able to pay off all of our debts years before finishing graduate school. I think many people are not in this situation, and even though it worked out for us, I definitely see so much more risk in retrospect.
Higher education costs have skyrocketed so much that you have to look at it like any other 'business venture'. Look at the return on investment. If it is not worth it, don't go for it.
I think this type of sophisticated analysis assumes that the person conducting it is emotionally mature. I don't have teenagers, but I know I wasn't entirely rationale at that age either hence why we have so many problems!
You wrote: "The hallmark of healthy marriages is teamwork. There shouldn’t be “his” or “her” debt. It should “their” debt, regardless of what the loan agreement says, assuming that both spouses are working together. " however, there are number of anecdotes (yes, I know the plural of anecdote *isn't* data) about a particular spouse (frequently the wife) working job/s so that the other gets the degree/s and then is divorced for a newer model without any "repayment" of the educational acquisition cost/s.
RW,
I agree that this is a horrible situation. I guest if someone doesn't trust their spouse, then he or she needs to work hard so that he or she can trust the spouse. Otherwise, I don't know what he or she is doing married. Note, I am not advocating divorce, as much as I am attacking the notion that not trusting your spouse is healthy marriage.
RW,
My wife happened to read your comment and my response and told me she completely agrees with you! Go figure 🙂
I had it simpler in that my parents couldn't afford to send both my brother and I to university. So being first born, I learned to make decisions I could handle with respect to debt and career choices that actually paid enough for me to live well. This has served me well even today. Yes, I would have loved to be able to just pick a program and a school with only the idea of the experience I wanted but it is what it is. I learned to balance work with school and paid my own way through graduate school while helping my family pay for a replacement car. Times have changed. Amongst my own circle of friends, it is rare to find a parent who encourages or expects their kids to have a job while in school.
I completely get this. Essentially, you do what's necessary to get your degree, and then since you are making the decisions as an adult, rather than a "college kid," you make choices that you decide you can live with, such as taking out less in student loans, choosing a career where you have a good likelihood of finding employment, or working simultaneously. I think there is much value in behaving like a grown up through the process, and parents may do their children a disservice by prolonging their adolescence.
When I was in college I thought it was ridiculous. It's a shame that they make it so hard and expensive for certain people to go to school. You can be broke before you even graduate at the rate we are going.
I agree Jai. What's worst is some people don't graduate. Many people change majors too, and sometimes to something much less lucrative, which is fine, except when you factor in that they might have borrowed with the expectation of making doctor salary not a philosopher's salary. YIKES!
How much is the government exacerbating the situation with cheap loans? Some of those tuition rates are downright insane.
I'm sure the intentions are in the right place, but the situation is absolutely insane. Increasingly, students are opting for private loans, which have much less favorable terms. Because there is always a great-sized population of students and eager parents/society encouraging them to get their chosen education regardless of price, schools continue to increase tuition. It's supply and demand I guess. What annoys me though is the fact that students are mislead or uninformed about their prospects of obtaining gainful employment, their likelihood of switching majors, and the quality of life issues associated with being in a ridiculous amount of debt that generally will survive even a bankruptcy. I think "kids" are largely uninformed of the TRUE implications of this decision; I also think we should do a better job highlighting alternatives, such as the ones Robert always suggests.
Those numbers make me sick. If you come out of college making $35,000 per year and have $25,000 in debt, you're screwed before you even start.
I find it disgusting too. You start off severely handicapped, which is a sad reality for too many former students.
This is a serious problem. One of the reasons why US is less competitive to the rest of the world is due to the cost of education. Debt indeed is causing lots of stress in our society, so it's wise not to take debt in order to get education. It's better to attend in-state college or community college to complete 2 years degree first instead of racking up too much debt just for the sake of attending a well-known university.
Fabulous advice. I hope more will listen. Also, if you have to go private, then students should learn which schools don't carry horrendous price tags. Overall, state schools are such a great deals overall: world class education without the world-class price. They're bargains in many cases.
I'm surprised that debt isn't THE #1 cause of bankruptcy in America, actually. My husband and I came into our marriage with totally different levels of college debt – he had none (he was a fully-scholarshipped D-1 football player) and I had a ton (thanks to 4 years at Duke and another 14 months getting my Master's at Syracuse). He assumed my debt as his own from day one – he's a keeper, for sure!
Hi Elizabeth,
With the way consumer debt is focused on, you would think it would be number 1. Unfortunately, that dubious distinction belongs to medical bills.
He's a keeper and a team player (excuse the gratuitous football reference) indeed!
What an eye-opener. It's really true. Some people have a tendency to treat loan money as an ordinary part of assets and use it for regular purpose or even luxurious expense.
Hi Amy,
The way you framed the issue precisely highlights one of the biggest challenges: if one is going to take out loans for school, he or she must not do so lightly. Without restraint, it easy to forget that one just signed up for a liability.
When we married there was $400 in student loan debt between us…from my wife's last semester of seminary. It did take a year or two to pay off (we really didn't make much money in those days). But everything was "ours" to bear. I wouldn't have had it any other way.
I am amazed how clean "big education" comes out in most discussions of the student loan debt bubble. Banks get blamed, as does the government (both deserve the blame). But "big education", by which I mean major universities and not simply for profit colleges, are the main culprit in high levels of student debt.
Some months ago Gov. Rick Perry suggested the University of Texas system should work toward a $10,000 college degree. You should have heard the howls — from alumni and from the faculty and staff.
If education is such an important commodity, why is it that Harvard, Stanford doesn't just let students go for free?
Thad,
$400!!!! It's amazing just how much times have changed. I think the reason Big Education comes across clean is because people have so many options, so no one forces anyone to pay the highest amount for education. Also, many people don't act rationally when it comes to their educations or educating their kids. Hence, it is an issue of supply and demand. I am not suggesting that schools don't have a responsibility to keep tuition in check; I just don't think the market places incentives on it.Why don't Harvard and Stanford let ALL students go for free? I suspect it is because they are businesses that fail or thrive based on a sustainable economic model.
Student loan debt will be our next economic bubble. I am astonished (and disgusted) by how quickly tuition has increased. Yet, a degree continues to be a necessity for an incredible amount of professional jobs. The amount of debt we’re taking on is just another way of squeezing the life out of the Middle Class.
"Squeezing the life out of the Middle Class." That's a particularly gripping illustration. In 2008, around the time when student loan debt began to become harder to get, I was hoping that it would slow things down. Instead, the debt went up to exceed $1 trillion and credit card debt. I find the tuition increases disgusting too. While I am not suggesting that the education is not valuable, but it is absolutely becoming more and more difficult to afford. I am particularly concerned about those who don't qualify for much assistance by just a slim margin, meaning they are no where near rich either. I am also concerned for those who have so little that they are completely overwhelmed by the staggering costs, despite the help available.
This is a very sad truth. Student loans take a hard blow for those who are still starting with their own families. From the report of Federal Reserve Bank of New York, Americans have about almost $900 billion in student loan during the third quarter of last year. This is the result of not having financial related courses in high school.
But have you heard of Student Loan Forgiveness Act 2012? It is proposed by Rep. Hansen Clarke and company. If this becomes a bill, a majority of the working Americans will be eased with their student loan burden.
Yeah, with student loan debt around $1 trillion, it places an unbelievable burden on students. I think too many have been misled to think that student loan debt is trivial, when in actuality they are trading so much of their lives for a promise that degrees will change their lives. I hope it does in a positive, but when you look at the numbers, it can be quite depressing!
I would say, student loan is something that as much helps them to have a prosperous academic future, simultaneously worsens the normal peaceful livelihood by dipping them into a large amount of debt once they complete their schooling or graduation. It somehow hampers the normal life to that extent that Students get puzzled to have a way out. So its better to have a track of the total amount of debt while being in college, so that once its over, they can pay it off on time.
Tom, that is quite a predicament! That's what some people miss: the downside of the debt, particularly for degrees that give you very limited earning potential. Some people would be much better going slower and working while in school (or at least considering community college). If it means that they don't have to assume crazy amounts of debts, then it may be just the thing that spares their future self from unrelenting obligations and pain.
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