Most young people aspire to a higher education. It is considered to be the ticket to a fulfilling and prosperous life. This was their dream since they were little. The schools religiously prepare them for this moment for years. The social pressure is enormous. In their mind, a college degree is the only way forward – they want it at any cost.
As tuition fees soar, student debt accumulates. In order to pursue a bachelor’s degree almost everybody is getting a loan.
The average amount of student debt in 2010-11 was $27,200. 10% of borrowers have more than $45,000 in loans. Unfortunately, most students don’t understand what they sign up for and they regret it later.
Should we warn the youth?
Yes. They need to realize that college education is not an entitlement. It is not free. In fact, it is a choice that comes at a significant cost. Even if students are offered some financial aid (grant or scholarship), the need to understand how much they will have to pay in the end and what the return on their investment will be before they make their final decision.
The easy-to-secure loans blur the picture as well. Remember, it is not free money. Some don’t even read the conditions. They simply sign the documents like approving the new software update from Apple.
Since everybody is doing it, it should be ok. NO, IT IS NOT. This is why nearly 1 in 10 who started repayment in 2009 defaulted within two years.
Are colleges to blame? Yes.
Although their job is attracting students, they should not urge them NOT to worry about the costs. This is irresponsible. Could they do a better job in advising about the financial realities of attending a college? Yes, they could and they should.
Are parents to blame? Yes.
No parent would like to say to their children that they cannot follow their dreams because of the price tag of the degree. They do have an obligation though to empower them to make informed decisions and help them understand their implications.
Parents need to encourage students to become financially savvy and think long-term.
Before making their final decision, applicants need to understand
- how much they will owe and to whom
- what the interest rate will be
- what is the expected salary upon graduation
- what their monthly repayment will be
- how long it will take them to repay the loan
- what happens if they cannot find a job
Parents and students should sit down and figure out if the price of education is affordable. While getting a college degree from a prestigious university is important to compete in today’s job market, American families need to understand the implications of not being able to repay loans. They may have to consider more cost-effective options.
We want higher education to be a ticket to a successful life – not to default.