The good news for America’s new crop of college students is that their eventual employment prospects likely will be better than what their older brothers and sisters experienced during the Great Recession. The bad news is that many of those students and their parents will still struggle mightily to repay the tens of thousands in debt they accumulated to earn their degrees.
The root problem for millions of students and parents goes back a decade or more before the first day of college. Too many American families fail to accumulate sufficient savings to pay for college and make matters worse by not having a clear understanding of the often crushing debt they take on to do so over time.
Consider these facts:
▪ Student loan debt is now a bigger burden for Americans than credit card debt.
▪ A recent Gallup poll shows American parents worry about paying for their kids’ college more than any other financial concern.
▪ A recent Sallie Mae study shows that under half of parents are actively contributing to their children’s college funds. Parental involvement in paying for college peaked at 62 percent in 2009, dropped to 50 percent in 2013, and is now at just 48 percent.
▪ According to 2014 data from the Institute for College Access and Success, the average debt levels for graduating college seniors with student loans rose to $29,400 in 2012, a 25 percent increase from $23,450 in 2008. Unfortunately, there is no end in sight for this costly trend.
The double-barreled problem of rising college costs and student loan debt is not a phenomenon limited to the nation’s priciest higher-education institutions. While colleges with higher costs tend to result in higher average debt at graduation, not all high-debt colleges are expensive colleges. In fact, 14 of the nation’s 40 high-debt colleges have tuition and fees below the national average, according to the Institute for College Access and Success. In other words, student loan debt often has more to do with the financial unreadiness of families than it does with the actual cost of a particular college.
A big part of the problem is the financial difficulties faced by Generation X, those born between 1965 and 1980. While these parents of college-bound children tend to make more than their parents did at the same age, they don’t have as much wealth to tap to foot college costs.
As a group, Gen Xers took a bigger hit than other generations in the Great Recession in the first decade of this century. On average, a Gen Xer holds about $13,100 in wealth, compared with $18,350 for their parents at the same age. And Gen Xers lost nearly half of their wealth between 2007 and 2010, a bigger hit than any other generation during that extended economic downturn.
One of the big obstacles to accumulating wealth for Gen Xers is the fact that 97 percent report holding student loan, medical, credit card or other debt. The most disturbing statistic here is that Gen Xers owe almost six times as much as their parents did at the same age: $7,232 versus only $1,237. Nearly 4 in 10 Gen Xers with college degrees and more income than their parents are burdened with student loan debt, with a median amount owed of $25,000.
This is not good news for the current crop of high school seniors heading off to college. Many Gen Xers may still be years away from paying off their own student loans even as they find themselves co-signing to take on the burden of even more debt for their college-bound children.
Not only will such heavy debt limit the options of college-educated children (assuming they can afford to complete school) and their parents, but there are wider economic implications as well for the United States, including reduced home sales and lower levels of the purchases of autos and other big-ticket items that are necessary to keep our economy humming.
The simple truth here is that it is time for parents with young children who may head off to college one day to get serious about finding a way to pay for it when those would-be college graduates are 8 – and not when they are 18.
James A. Boyle is executive director of the nonprofit Americans for Affordable College Costs.