The Student Loan Debt Bubble and How to Avoid It

Millions of students receive the gift of a student loan every year. Money that they need, to go to school, get an education and hopefully land a high-paying job. But what some people don’t realize is that you can actually be putting yourself in debt for another two decades if your loans aren’t given to you properly. And many times, even with money in the bank, it’s easy for someone to find themselves applying for different types of loans just so they can make ends meet. Whether you believe that the student loan debt bubble will burst or not doesn’t matter because there are some simple steps that everyone can take to make sure that they don’t fall into this situation.

The Student Loan Debt Bubble

Student loan debt is one of the biggest threats facing young people today. A little over a decade ago, student loans were nothing to worry about. In fact, for the most part, they didn’t even exist. But in a short time frame, we’ve gone from no student loans to $1 trillion worth of them. The bubble is already beginning to burst, with the delinquency rate rising very quickly over the past year.

This is going to create a lot of issues for millions of young people that are just starting their careers. The effects will be devastating, with many young people still stuck with thousands of dollars worth of debt after they’ve paid off their student loans and are ready to move on with their lives and careers.

The student loan debt bubble is a much bigger problem than most people want to admit.

The facts are these: in the decade between 2004 and 2014, college tuition at American universities increased by an average of 41 percent, while wages remained largely stagnant. The result has been that a substantial number of recent graduates are leaving school with a diploma and a crushing burden of debt.

Today, total student loan debt in the United States stands at $1.2 trillion dollars – more than what we owe on credit cards – and it’s growing by $2,853 every second. This fact isn’t lost on students and parents who have seen their college tuition costs rise far more quickly than the rate of inflation. Student loans have become a common phenomenon in European life, but is this debt bubble about to burst?

Picking the Right School

For many students, picking a school is the first major financial decision they’re forced to make. And it can be an important one.

If you pick the right school, it could be a springboard to bigger and better things. But if you pick the wrong school or leave without a degree, you could be saddled with thousands of dollars in debt with few chances of getting any significant return on your investment.

The best way to avoid this nightmare is to pick a school that’s right for you — one that offers a degree program that interests you and where you think you will thrive academically and socially.

You also need to know what kind of career you want so that you can find a program that will train you for it. If there's no clear career path for your chosen field, think about going into something else that does have one, like physical therapy or nursing.

For-profit universities

The Department of Education has its share of critics, but the fact remains that it’s one of the only sources of information about for-profit universities that prospective students can use to make an informed decision. The DOE provides data on student loan default rates and job market placement rates, which are important metrics for evaluating any college or university.

The DOE also has a College Scorecard, a website that allows students to compare schools based on the type of degree they offer and their total cost of attendance. In addition to providing more transparency over how some colleges spend taxpayer dollars, there is another important reason why Congress needs to reform the DOE: To protect students from predatory schools that exploit their financial desperation for profit. Public universities are heavily subsidized by state and local governments, so their tuition is considerably lower than for-profit schools which rely on federal student aid.

For-profits spend heavily on advertising that falsely portrays these schools as being just as good as public colleges and universities. They also have extremely high dropout rates and very low graduation rates. In fact, according to a report issued in 2013 by Sen. Tom Harkin (D-IA), “the average annual tuition at a four-year, degree-granting institution is $28,500” while “the average tuition.

Since these institutions are privately funded, their job market placement data is not always accurate. In fact, it is impossible to track due to the nature of their funding and the lack of transparency. Some graduates have found jobs that do not require a degree or a certificate and don’t pay as well as expected.

The benefit of attending a for-profit university is the financial aid they offer. However, most students do not realize that if they drop out of a program and did not receive their degree, they will still be on the hook for the student loans they received while enrolled in those programs.

Look for low tuition costs with high quality

I am currently paying a staggering amount of money to pay off my student loans. The total amounts to over $70,000 and it’s all because I went to an affordable college that didn’t offer a very good education.

Arguably, the most important factor in getting a quality education is the caliber of the professors you have, but this one factor is also the biggest reason why I got ripped off.

My university offered me thousands of dollars of financial aid because I was a poor white girl from a middle-class family. They knew that I wouldn’t be able to turn down their offers no matter how much it would cost me in the long run. Unbeknownst to me at the time, there was another school that offered twice as many courses for only about $4,000 per year. If I could go back in time I would have jumped at that offer without hesitation!

The problem is that many students don’t realize how much money they’re wasting by not getting the best education possible. Even worse, many students choose schools with low tuition costs just because they can afford it instead of choosing the school that will help them earn more money in the future.

Use help from the school first

Many college graduates are facing a tough job market and student loan debt. The class of 2009 was the most indebted graduating class ever, with an average of about $25,000 in student loans. Tapping your school for help can make your financial situation more manageable.

You may be eligible for scholarships and grants, which pay all or part of your tuition. But first, you need to apply to schools that are right for you and have resources to help you afford school. This can be an overwhelming task, so start by getting organized.

Make a list of colleges where you’d like to study and use these tips to find the best fit:

1. Determine the schools you want to attend first.

2. Research the financial aid packages offered by each school before applying. Many schools provide free online access to their financial aid information, including scholarship database listings.

3. Set up a meeting with a financial aid officer at each school before you apply to discuss your options and determine whether you’re eligible for any scholarships or grants.

4. Forgo private loans in favor of federal loans, which come with more generous repayment plans and loan forgiveness options if you choose public service jobs like teaching or working for a nonprofit organization).

Takeaway

This isn’t just a problem for the younger generation — this is an issue that affects everyone. The average age of a new college graduate who takes out loans is now 22 years old; it’s not just high school students anymore. With more people taking longer to get through school and incurring greater levels of debt in the process, there’s an increasing number of older adults with outstanding student loans. Everyone should be concerned about this trend because we all need these young adults to be successful and productive members of society and the economy—not burdened with excessive levels of debt that prevent them from being successful or even getting started on their careers at all!

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