Diplomas and Debts

by Chris Telfer / DPR Interviews Editor Along with the cap and gown, diploma, and the bliss of finally graduating, there’s something else that recent college graduates might be taking home upon graduating: more than $26,000 in student loan debt.

According to a new report released by the Project on Student Debt, two-thirds of students who graduated in 2011 did so with an average of $26,600 in student loan debt – a 5% increase from the previous year. Credit bureau TransUnion reported that in the past 5 years, average debt that students carry has risen more than 30%.

In 2010, student loan debt surpassed credit card debt for the first time ever, totaling $826 billion. Now, that total stands at more than $1 trillion.

Debt has always been an issue that students have faced, but with college tuition rates perpetually increasing and a job market that shows little promise of improving – especially for young people looking to start their careers – student debt has turned into the elephant in the room in the minds of minds of students and now the general populace.

A piece published in 2012 by the Associated Press provided some insight into the poor labor market for recent college graduates. This report showed that in 2012, 53% of bachelor degree-holding college graduates under the age of 25 were unemployed or underemployed. Being unemployed obviously presents some obstacles to paying off your loans, but many of these graduates are working in part-time jobs and are unable to find full-time work.

The implications of this growing debt bubble are far-reaching. Fair, Isaac and Company released a report in January that showed that there are many implications to this student debt bubble that seems to be growing.

This study showed that more recent student loans are riskier than earlier vintages and the default rates for student loans have been increasing as of late. This can cause some serious problems in the future. The report highlighted the similarities between the student loan bubble,

and the mortgage bubble that burst in 2008, causing the subsequent “Great Recession.”

Another caveat of this debt issues is that, unlike many other sources of debt, it is nearly impossible to discharge a student loan in bankruptcy. With 80% of these loans being made by the federal government, there is a potential for tax refunds to be withheld, and even the garnishment of your paychecks.

The severity of the problem varies in different regions and different states. Fortunately for students in California, our state has the 3rd lowest average debt per student upon graduation, with a little under $19,000.

Only Utah and Hawai’i have lower averages with $17, 227 and $17,447, respectively. Students in New Hampshire total the highest student average with more than $32,000; Pennsylvania and Minnesota round out the top 3.

While this debt crunch is greatly affecting students who have already graduated, they’re not the only ones. UC Berkeley student Jerry Lopez says that, “Graduation is still roughly two years away, but I’m already beginning to worry about the prospects of paying off my loans. It’s stressful.” This is a common sentiment among current students.

Sixty-five percent of high-debt student loan borrowers claim to have been surprised or completely misunderstood the terms of their student loan or the loan process upon graduation. This could be very telling of the underlying cause of this debt issue. Reading that pesky fine-print is key to avoiding this confusion when you reach that time to actually begin paying down your loans.

Students must ensure that they are fully aware of the dangers of relying on student loans to completely fund their college education. Federal and state grants, as well as private scholarships are other options that should be considered prior taking out massive loans.

State Assemblyman Dan Logue recently proposed an innovative approach to this problem in California.

His two bills, collectively titled the “Affordable College Act of 2013,” aim to cut the cost of UC and CSU bachelor’s degrees. If approved, the the total cost of a degree would be capped at $20,000 for a UC degree, and $10,000 from any CSU.

The tuition caps would be implemented through an integrated high school-community college-university program.

While Logue’s proposal is still undergoing review, it proves that this issue extends to lawmakers in Sacramento and across the nation.

The prospect of graduating with a load of debt seems very daunting; however, other options don’t seem any more palatable. One can choose against obtaining a college degree, but the prospects of finding a good job are not very good, at best. The unemployment rate for young people without a college degree is nearly 20%. It is drastically lower for people with a college degree.

Deciding to attain an education past high school is a decision with great implications. The prospective debt load upon graduating is only one thing among many to consider when making this decision.