I was reading this article that hit close to home regarding student debt, and it was discussing the fact that senior citizens are making up a portion of the overall American student loan debt. It described a story of a lady that took out student loans twenty years ago, TWENTY, and due to the economy going south, laid off, a divorce, etc… she had put it into deferral, or couldn’t pay it and it was now almost $100k. That’s serious coin at any age, but trying to become retired and pay off a $100k debt, how the hell does that happen?
This got me to thinking, “If the student loan debt for senior citizens is $18 billion, yes BILLION, and it represents just a small percent of the overall student loan debt, how much money do Americans carry in student loan debt?” A quick Google search revealed that the overall student loan debt load is $1.2 TRILLION! What the hell?! The average is $26,000 in student loans, however, they then note that 1 in 10 have over $40,000 in student debt. That is a lot of debt!
It reminded me of my situation, since I was the 1 in 10 with over $40,000 in debt. I know many people who got through school with no loans, or minimal loans, as they used them to cover tuition and books only and not their living expenses. And most of those folks were diligent and mindful and quickly paid back the student loans. This makes me wonder if the current high loan average is reflective of actual cost to go to school or the poor financial mindset of most Americans? Thinking about my friends, the ones who had minimal loans have always been debt averse, and very prudent with their finances. But those people who had huge student loans, like me have tended to be more debt heavy, and make bad financial decisions.
For instance, Kate (totally made up name, but real friend) would go through a cycle of enrolling in classes, being super pumped about them, taking out loans to cover the cost, then 75% of the way through the semester, just stop attending classes, turning in assignments, and ultimately having to jump through loads of hoops just to get a failing grade at the end of the semester. Loan debt is acquired, and no payoff is seen from it. I had many an argument with Kate regarding this as I was full-time school and work and didn’t get what she was doing every semester. I mean seriously… wtf? This cycle happened so often, she wasn’t allowed to get loans anymore. Needless to say, she has accrued even larger loans now due to interest racking up from non-payments while the loans are in deferral or penalties associated with late payments. Another person that comes to mind was a former co-worker who had almost $65,000 in student loan debt, let’s call him John. John’s original loan amount was closer to $24,000. How did it get that high you ask? Well, I met John when he was in his 40’s and he had been carrying that debt around for almost 20 years, like the woman featured in the article. He would make payments, but then be too broke to afford it, so they would go into deferral due to economic situation, or something similar, but he never attacked the principal, and now is in his 50’s with a lot of debt. He also made poor financial choices though, like purchasing a brand new $60,000 SUV with loan payments of ~$700/month for the next 7 years, and that was with a vehicle to trade in. He didn’t seem to mind and enjoyed the new car because it “could fit all of the kids in it comfortably.”
My point is that maybe the fact it is SO easy to get student loans isn’t the issue, and maybe even the outrageous cost of college nowadays isn’t the issue, but rather the mindset of the people taking out the loans. People with a poor understanding of what it is they are actually doing to themselves, like Mr. SSC, just take, take, take and don’t worry about interest rates or loan amounts, because “it will get worked out and paid off eventually.” I wasn’t very debt averse and had no problem carrying around debt, because I didn’t truly understand what it meant. Hell, I’m still not very debt averse, I just have seen how negative it is and how bad it can mess up your planning for any retirement, much less early retirement. A friend of mine, Alex, was asking about student loans back in the day, and I said, “it’s easy, just go fill out the paperwork and “Ta-da!!” Free money.” I literally said free money… Oh, Mr. SSC, what a poor grasp of finances you had back then. Alex looked into it and said, “Dude, I can’t get a loan rate below 6%, what did you get?” Mr. SSC, “I don’t know, I didn’t pay attention.” Alex, “That’s like a car loan, why not just get a private loan from the bank then and haggle for a better rate?” Mr. SSC, “Sure if you want to go through the hassle, but we’ll be getting good paying jobs in less than a year, so why not just get this loan and pay it back then? You should be able to pay it off in a year or less after you start.” Alex, “Nah, I don’t need the extra money that badly.” Another example of how a good vs. bad financial mindset can save you money in the long run.
If only I had that mindset back when I was racking up the student loan debt, I could have saved myself a lot of money, stress, and gained more time towards early retirement. For your amusement or maybe it will turn your stomach, I’ve also found this link to a student loan debt clock from Financial Aid.org. It’s truly amazing…. In a very, very bad way.