Student Loans

Student loans are a great place to start when looking at how America got to nearly $4 trillion in private debt. Unlike almost all other types of debt that give you an immediate tangible benefit, a degree is largely as useful as the person who owned it. Even then, in a down market, it may not matter how talented you are or where your degree is from, you may not get the chance to leverage it to help you earn more money.

In America, nearly 50% of student loan holders out of school – about 20 million people – are not paying back their loans on a standard basis. This is more than the number of people seriously behind on their credit cards, mortgages and car loans combined.

The real default rate through October 2016 is 11% which puts a little over 2 million people into financial purgatory every year. Defaulted student loans cannot usually be discharged through bankruptcy and they often result in a 100+ point drop in an individual’s credit score. Almost every other type of debt can be erased with a bankruptcy, foreclosure, or repossession.

When prospective students start looking at how much a degree will cost compared to how much they can expect to make over their lifetime, someone with a college degree will usually come out on top. The catch here is that much of the earnings increase over a non-degree holder comes far later in life. An apprentice plumber might start out making $20/hour right out of high school, while someone wanting a Bachelor’s degree won’t start working in their chosen field for a minimum of four years, if they can find a job. On top of that, they get to deal with the burden of student debt.

Degrees that are in demand now and for the foreseeable future are absolutely worth investing in when it comes to student loans, such as a mechanical engineering degree. Spending $100,000 on an art history major in order to work a call center job is not worth it. Though there is plenty of middle ground between those two examples, the point remains – it pays to plan your education before stepping foot on campus.