Going to college is a fundamental part of the American dream. But with college costs increasing dramatically, planning to graduate from a prestigious 4 -year college or university debt free is one of the most significant financial challenges many families face.
To realize the dream of receiving a prestigious college degree, students are relying more heavily on college loans than ever before. This debt can create a financial burden that takes decades to shed, forcing many young people to defer cherished goals like buying a home, starting a family or even saving for retirement.
To better understand and demonstrate the profound effect college debt can have on graduates’ well-being, financial security, and career and lifestyle choices for years after college, we have made available research that AllianceBernstein has conducted among recent college graduates. This research powerfully demonstrates the significant challenges faced by those graduating from college with debt-and underscores the critical importance of proper college planning.
At Lerner and Esposito College Consultants Inc, we believe it is vitally important for those planning for college to understand the long-term effects of college debt and to incorporate college loans reasonably and responsibly into a comprehensive educational planning strategy.
We are committed to helping college bound families put in place strategies that minimize reliance on college loans and give young college graduates the best chance possible to realize their life goals. The High Cost of Higher Education / College Costs: Get the Facts
If you are like most parents, you would do anything to help your children succeed. Because a college degree is an essential credential for many young adults entering the workforce, planning for college is a top priority for most parents.
From 1994 through 2006, college costs increased at more than twice the rate of overall inflation
· In the past year alone, average tuition and fees rose 7.1% at public four-year colleges and 5.9% at private four-year colleges.
· In 2005-2006, tuition, fees, and room and board averaged $12,127 per year at public four-year colleges and $29,026 at private four-year colleges.Student Debt: The Rising Tide
Students are relying on college loans now more than ever before. In 2004, nearly two-thirds of graduates at public and private four-year colleges had student loans, up from less than half of graduates in 1993.
Despite many parents’ best efforts, college students are taking on education-related debt at alarming rates. In 2004, one-fourth of graduates with college debt carried more than $25,000 in student loans, not including parent borrowing. Trends show that many students are paying more to borrow for college. A growing number of students are taking out private loans, which typically have higher interest rates than federal subsidized loans. From just 2004-2005, the number of undergraduates and graduate students who took out private student loans grew by approximately 30%.
Another trend is that college graduates with student loans are taking on higher levels of debt in general. From 1993 to 2004, debt levels for graduating seniors with student loans more than doubled, from $9,250 to $19,200-an average annual increase of 10.8%. If this trend continues at 5%, the average debt level for college graduates in 2004 with student loans will be over $50,000.Debt levels trending upward
The chart below illustrates the hypothetical level for graduating seniors if they continue to increase their reliance on student loans over the next 20 years at 9%.
2004 2009 2014 2019 2024The Impact of College Debt on Graduates
With the number of students relying on loans to finance their college education at an all-time high, many college graduates enter the workforce with debt loads that put them in a hole for years, or even decades, after graduation.
In order to better understand the long-term impact of education debt on college graduates, AllianceBernstein surveyed 1,508 college graduates ages 21 to 35 to examine their college finances and experiences, as well as their current circumstances, attitudes and lifestyle. This research confirms that college debt has a long-term impact on graduates’ and their children’s financial well-being and outlook on the future.The Real World: College Debt Edition
While the first decade out of college is financially challenging for most people, the research shows that it is particularly so for those with college debt. In fact, better than nine in ten (91%) of all respondents agree that “people who graduate without any college debt have a big advantage in life.” Graduates with college debt are more likely than graduates without debt to live paycheck–to-paycheck. Moreover, 34% of those with college debt (versus 17% of those without debt) have sold personal possessions to make ends meet. Life Events Delayed, Career Dreams Deferred
Taking out loans to pay for college can be an expensive strategy-and not just financially. College debt impacts well-being, career, and lifestyle choices for years after graduation day. Thirty-two percent of graduates with college debt are forced to live at home longer than expected or move back in with a parent or guardian. Forty-three percent of the indebted have postponed graduate school. And 39% of college graduates with debt said they have left a job they liked because they didn’t make enough money.
Among graduates with college debt, many were forced to delay:
Buying a house 44%
Having children 28%
Getting a medical /dental procedure 27%
Car repairs 25%
Home repairs 22%
Getting married 18%Here Today, Here Tomorrow
Those who graduated from college with debt don’t see their situation improving anytime soon. 74% of households with education debt say it has been difficult to pay it off, and of those still paying off college debt, 39% say it will take them at least another 10 years to finish.
For many, education debt has contributed to accumulation of even more household debt. Nearly two in five of those who graduated with debt have accumulated $50,000 or more in household debt (vs. 15% of those who graduated from college without debt).
Graduates in households still paying off education debt said it has contributed to:
Compulsive shopping or spending 24%
Arguments with spouse 34%
Feelings of anxiety or sleeplessness 48%Today’s College Debt Affects Future Generations
The following chart shows how much a hypothetical portfolio could grow if monthly loan payments were invested in a hypothetical portfolio instead.
Student Loan* Investment**
Total Loan Amount
Total Principal & Interest
Monthly Payment for 10 Years
Total if this loan payment were invested monthly for 10 years
*Assumes a 10-year subsidized loan at 6% interest which does not accrue until repayment begins with equal payments amounts compounded monthly.
**Assumes 6% average annual return with earnings tax-deferred and compounded monthly
A 4-Step Plan for Avoiding the College Debt CRUNCH
It has been said that the only thing more expensive than paying for college is not going in the first place. But to earn a college degree, most students today must incur debt. The key is to do so in a way that is manageable and doesn’t result in unfortunate career and life choices after graduation.
Here are some action-oriented suggestions to help you plan for college.
Step 1 Determine Your Child’s Profile
Understand that your child was born with uniquely individual traits and attributes. Identify their interests and academic strengths as well.
In order to determine your child’s profile, use world class assessment tools such as Myers Briggs personality profiles, and standardized tests such as the PSAT, SAT and ACT effectively. Employ career assessment tools, creative writing and technical assessments to help discover what is Easy, Lucrative and Fun for your child (ELF).
Step 2 Take Action
Create a spending plan or strategy. Do not save for college, prepare to spend for college. Reduce or eliminate debt, maximize tax deferred and retirement savings, and improve your cash flow. Prepare to Maximize Tuition Discounts, Scholarships, and Financial Aid by carefully matching your child’s profile to the profiles of 6 to 12 potential colleges.
Step 3 Be careful of free advice.
Stop listening to people who want to offer free advice, but who themselves have incurred tremendous debt in graduating their own sons or daughters from prestigious colleges. Attending a community college or state university is an accomplishment, but we do not feel it is the higher education Holy Grail. Also gaining acceptance to a college you cannot afford or must bankrupt your family in order to attend is not the answer. This is not about getting in; it is about graduating from the most prestigious college with the least amount of debt and having an extraordinary life.
Step 4 Seek the Help of an Educational Planner and Financial Professional.
Avoid the trap of learning the college admissions and financial aid system by using your first born as a test case.
This approach could cost you thousands of extra dollars and, as demonstrated in the research, negatively affect your child’s future. The money you spend getting professional help will make you look and feel like the smartest person in the world. Lastly this is a 4, 5, 6, 7, or 8 year endeavor per child. A professional education planner and financial advisor can help you navigate the road to higher education, and avoid the College Debt Dilemma.
Jan and Tony Esposito have provided this FREE report in order to help you plan to graduate your child from the most prestigious college with the least amount of debt. Most families have individual needs that should be carefully considered and addressed. If you have any questions or concerns, or just feel like you want to talk with us, please do not hesitate to call our office and ask for Jan or Tony at (631) 864-3688. You may also email Jan at Jan@collegechannel.net or Tony at Tony@collegechannel.net
Jan and Tony Esposito