How to Solve the Student Debt Crisis

As the Senate nears a vote on the proposed extension of the current federal loan interest rate (set to double in July), I must ask: Is this really going to solve anything? Or does it just sound good?

It is estimated that the average college graduate carries over $25,000 in student loans. In addition, 84% of undergraduates have at least one credit card and carry an average balance of about $3,000 on top of their student loans! These numbers increase significantly with each additional degree obtained thereafter.

I’m sure any current college student would be ecstatic to keep their interest rates as low as possible. But how much would the proposed rate freeze actually save?

Based on an average student loan debt of $25,000, the extension of the current interest rate would save graduates about $20 per month. It’s definitely something, but hardly a breakthrough compared to the total amount owed. Additionally, it’s only a one-year extension – and only for those who have subsidized federal loans. (Those with unsubsidized loans have had 6.8% interest rates for years.)

Why are we so hopeful that this extension will pass, if it’s only a small discount on the massive amount of student debt that our generation carries? Shouldn’t we be focusing on getting more people back to work so they can pay their loans? Or educating prospective college students to prevent them from blindly taking on tens of thousands of dollars in student debt before they even have a job?

Furthermore, hasn’t the notion of keeping interest rates low encouraged students to borrow more money than they need? If the rates were to jump back up to 6.8%, wouldn’t it make people think more carefully about how much they borrow?

If you’re already in repayment, this legislation doesn’t affect you. However, there are many college graduates who are buried in debt and need help. Here are a few ways that you can reduce your long-term college debt or have it forgiven:

Find a higher-paying job and prioritize your student loan payments. Obviously this isn’t easy when the national unemployment rate is still just above 8%. Add in those who have never worked (recent college grads) or have exhausted their unemployment benefits, and the actual rate is considerably higher. Still, if you’re waiting around for “the perfect job,” you might need to consider doing something else to pay off your loans.

Become a public service employee such as a teacher, firefighter, EMT, police officer, etc. Under the Public Service Loan Forgiveness Program, the remainder of their student loans will be forgiven after 120 income-based payments (10 years).

Enlist in the military. We all know that the military has good pay, great benefits and will contribute towards your college tuition after service, but did you know that the Army and Navy will also repay up to $65,000 in student loans? While you will have to go through basic training, keep in mind that not all positions involve combat. You can be an engineer, psychologist, doctor/nurse, cook, band musician, or a million other things.

Aside from the above suggestions, the best thing you can do is take on fewer student loans, or none at all. While college graduates can’t go back in time and change the amount of money they borrowed, they CAN help prevent younger siblings, friends, and their own children from ending up in the same situation. Here’s how:

Start a college fund for each of your children as they are born. Even if you can’t sock away a lot of money right away, every little bit helps. Contributions to a 529 plan are tax deductible, and will not affect the student’s eligibility for financial aid.

Research professions that don’t require college education. Not everyone has to go to college. Period. There is a lot of demand for workers in agriculture, skilled trades (such as plumbers or electricians), cosmetology, retail, food service, customer service, real estate, manufacturing, and other professions – none of which require a college degree, and many of which can provide a very good salary. Since these professions are not going away any time soon, we really need to get past the assumption that anyone with half a brain must go to college or be doomed to failure.

Research college degrees that lead to a profession. While programs in Medieval & Renaissance Studies, Women’s Studies, English Literature, Fine Arts, Liberal Arts, etc. are fun and interesting… the chances of them getting you a job are almost zero. Look at college as an investment, and only make that investment if you think the return will be significantly larger than the debt. Consider the following: What kinds of jobs require this degree? What are the average salaries? What is the unemployment rate for graduates? How does the college assist with job placement?

Go to a community college or state school. We all know that the first year or two of a bachelor’s degree is comprised mostly of general education requirements (“gen eds”). Why should you pay $40,000+ to take them at a private school when you could get the same credits at a local community college for about $3,000 per year?

Take AP classes in high school. I left high school with 22 college credits from AP classes. Each class (3-6 credits) only cost about $85, which is the cost of the national AP exam. This allowed me to finish my bachelor’s degree a semester early. If my degree didn’t require student teaching, I could have easily gotten out a year early… giving me the exact same degree at 75% of the cost.

Buy used textbooks. Don’t let a college convince you that you need borrow $1,000+ per year to buy brand new textbooks from the campus bookstore. You could save hundreds (even thousands) by shopping on Amazon instead. College students are also eligible for free 2-day shipping with Amazon Prime. Another low-cost option is to share books or borrow them from another student.

Research work study and other part-time jobs for college students. While working definitely will not pay for an entire college education, every dollar you earn is one less that you need to borrow. Becoming an RA even gets you free on-campus housing.

Consider joining AmeriCorps or the Peace Corps. In addition to gaining valuable work skills, participating in these programs makes you eligible for tuition assistance and/or reimbursement.

Research every possible grant or scholarship that is available. I have yet to find an article on student loans that makes mention of any of these opportunities. I know colleges are more competitive nowadays, but everyone seems to assume that your parents will either pay for your education, or you have to take out massive loans. We need to stop assuming that college preparation begins junior year. Teach your kids that, if they want to go to college, they need to earn it by consistently demonstrating that they will be an asset to the college they attend and not just another number.

What other advice might you offer to the next generation of college students?

2 comments on “How to Solve the Student Debt Crisis

  1. Excellent post. I love your suggestions to go to community college and get used textbooks. Community college is probably THE best way to reduce your college expenses significantly. And used textbooks can save hundreds of dollars each semester. They even have textbook rental websites now.

    I think the real problem we are facing is that colleges have no incentive to keep costs down. They know students will just borrow the maximum they can to pay for tuition. These massive loans are going to people who often have no credit history, no jobs, and are normally uneducated about the impact of student loans on their futures.

    • Absolutely. I could go on for days about how absurd the cost of tuition is at private schools, but there’s not a whole lot we can do about that individually. I wanted to emphasize the fact that, while it’s easy to play victim when times are tough, we really do have a lot more options and control over our futures than we are led to believe.

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