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Financial Literacy

The Student Debt Crisis and What It Means for You

There is currently a student debt crisis in America. Of course, education is important. But at what cost? An onerous amount of student debt can hold you back in your financial life. So tackling this crisis is incredibly important.

There are many costs incurred when going to college. Of course, there is tuition and fees. But if you live on campus, there is also room and board. Or you may have to pay rent if you live off campus. There’s also the matter of books, which are very expensive. And even your social life.

As the costs of attending college keep increasing, the student debt crisis keeps getting worse. Let’s dive in and look at some numbers and statistics that tell the story of how bad it truly is.

A former student looking at her bank statements. She is a part of the student debt crisis.

Why Is There a Student Debt Crisis?

College should be among the best times of your life. You get to study almost anything you want. You live away from home for maybe the first time. And you make all kinds of new friends and have new experiences.

But unfortunately, college is becoming more expensive than ever. Over the past twenty years, for example, the costs of attending college have increased at three times the rate of inflation. That is staggering.

Do students realize what they are getting into? After all, when you apply to college, you are still just a kid. You are often not thinking about money. Or how student debt could affect you for the rest of your life.

Kids often have pressure to get into the best school they can. As a result, they may not be thinking about the consequences of an expensive school. It’s a decision that could literally cost them for their whole life.

Plus, your college major and whether or not you graduate affect the job you will ultimately have. And your job will affect your wages or salary. If you pick the wrong major or fail to graduate, it will be that much harder to pay back your loans.

Let’s do a deeper dive into the numbers behind the student debt crisis.

About the Student Debt Crisis

One of the biggest drivers of the student debt crisis is the increase in the cost of tuition. The costs of going to college are higher than ever. In the 2017-18 academic year, the average cost of tuition, fees and room and board at a public four-year university was $25,620 for out-of-state students.

It was a bit less expensive for in-state tuition at public colleges and universities. At private four-year universities, the cost was even higher. The average combined cost was as high as $34,740 for private universities.

Costs are still going up in 2019-20. The average price for in-state students for tuition and fees at ranked public colleges and universities went up by 4%. The same increase was present for out-of-state students as well. For private colleges, the average increased by 3%.

As more Americans attend college, student loans have grown by almost 160%. There’s currently $1.56 trillion in federal student loans out there. 44.7 million Americans are currently carrying this debt.

The average student loan borrower is $32,731 in debt. Many owe more than that, as late fees and defaults often drive the debt up to six figures. It’s gotten so bad that almost 40% of borrowers from the class of 2004 are expected to default on their loans by 2023, according to the Brookings Institution.

The average monthly payment on a student loan is $393. But some people pay as much as $3,000. Combine that with sky-high rent payments in many major cities and it’s easy to see the dire straits many young people are in.

This student debt crisis is a ticking financial time bomb.

How the Crisis Affects Retirement

The student debt crisis has made it much more difficult for young people to save for retirement. Similar to many boomers today, many won’t have much (if anything) to draw on when they reach an age where they simply can’t work anymore.

This feeds into the retirement crisis. Many of the people who have less than $10,000 saved for retirement are millennials. They’re the youngest and largest demographic in the workforce. It’s not that they don’t want to save. They simply can’t.

When they finally have to pay the piper, it’ll be ugly. So there will be two crises feeding off one another.

The only thing to do (before they ask you for money) is to help your millennial children or grandchildren get their financial house in order.

This means helping them have good financial habits when they are young so that you aren’t paying for it too much when they are older. It’s never too late to start practicing good money habits.

What to Do About Student Debt

If you have a lot of student loans outstanding and are affected by the student debt crisis, there are things you can do. Here is a small sampling of the steps you can take.

  • Pay Down as Much Debt as You Can Fast – There is no time like the present to begin paying down debt. My colleague Ben Broadwater outlines strategies that can help you pay down your debt fast. These can include using the snowball method. The snowball method is when you sort out all of your various loans from smallest to largest. You start by paying off the lowest balance first. This helps you psychologically by giving you an easier win. It then inspires you to tackle your higher outstanding debt balances, such as your student loans.
  • Stop Living on Your Credit Cards – There are various pros and cons to credit card debt. On the one hand, it helps you build a credit history and can improve your credit score. This is excellent. On the other hand, it can land you in major financial trouble. You may wind up living way outside your means. The solution to this is to only charge to your cards what you can afford to pay off at the end of the month. This way you won’t have any interest accruing, which can add up quickly. As a result, you will have more cash to use to pay down your student loans rather than putting that money toward high-interest credit card debt.
  • Boost Your Income to Pay Debt Faster – Sometimes your current wages or salary just aren’t enough to tackle student loan debt the way you’d want to. If you’re struggling because of the student debt crisis, you may want to find ways to boost your income. This could include simply asking for a raise or for extra shifts. But that may not pan out, and there are other options. Passive income streams like renting out an apartment, investing in dividend-paying stocks or even starting a blog with paid advertising can help boost your monthly earnings. Many passive income streams can be earned right from home.
  • Invest in the Stock Market – The best and fastest way to grow your money is to invest in the stock market, even if you are a beginner. If you have any money to spare after starting an emergency fund and while paying some debt down, investing in stocks is the smartest thing you can do for your financial life. You will want to make sure to put your money in a well-diversified portfolio to protect yourself from downside risk.

If you follow these and other wise financial practices, you will be well on your way to tackling your own personal student debt crisis.

Concluding Thoughts on Student Loans

No one is suggesting that people shouldn’t go to college – although trade school or gaining real-world work experience without a degree can be great alternatives for some.

But taking on student loans is a major decision that has the power to affect you for your entire life. As a result, you need to think hard about everything from where to go to school to minimize costs to what to major in to maximize your earnings potential.

The student debt crisis is probably not going away anytime soon. But if you have student debt, putting into practice healthy financial habits can help you pay down your debt much quicker. And it may even put you on the path to building wealth and a future of financial freedom.

To learn more about how to tackle loans resulting from the student debt crisis, how to improve your financial health and even how to invest in the stock market, make sure to sign up for the free Investment U e-letter in the sign-up box below.


Brian M. Reiser has a Bachelor of Science degree in Management with a concentration in finance from the School of Management at Binghamton University.

He also holds a B.A. in philosophy from Columbia University and an M.A. in philosophy from the University of South Florida.

His primary interests at Investment U include personal finance, debt, tech stocks and more.

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