As the Salisbury University seniors prepare for their upcoming graduation, they have much to celebrate and be proud of. This watershed event in a young person’s life can determine where they will go and what they’ll achieve from there.
After the Party Comes the Cleanup
They also will soon realize the burden of paying off the student loans that were taken out to fund their college education. A recent study by the Federal Reserve Bank of New York reveals a total outstanding student loan at the end of the first quarter of 2014 of a whopping $1.11 trillion.
This is an increase of $31 billion during the most recent quarter, or around 2.8 percent. The year over year increase in student loan debt has been $125 billion, or about 12 percent. The cost to service this debt would be over $55 billion per year, assuming an annual rate of just 5 percent.
Being an Adult is Hard
Many of these young people have lofty goals of landing that dream job and one day buying their first home. One major obstacle to this plan (aside from the job part), is the effect of student loan debt on qualifying for a mortgage.
I was recently interviewed by WMDT Channel 47 News on the impact of student loan debt on the Salisbury Maryland real estate market. For those would be home buyers already caught in the student loan trap, the piece shows ways they can mitigate the effects of student loan on their home purchase plans.
The $60,000 Question
It’s been estimated each home purchase in the U.S. generates up to $60,000 in economic activity. How much of the $55 billion that goes into servicing student loans could go towards home purchases? Does anyone doubt how that would benefit the economy in a big way?
Avoiding the Landmines of Student Loans
The subject of student loan debt is also an important one for those planning to start college this fall or already in college and seeking ways to obtain their degree without coming out of school many thousands of dollars in the hole. Personal finance expert Dave Ramsey gives excellent insight on this-
Fail to Plan- Plan to Fail
Millennials either in college now or about to graduate have some tough challenges ahead. The employment picture remains soft at best. Competition for jobs is stiff and often comes in the form of other workers with much more experience.
The great advantage these young folks have is in time and perspective. Those wise enough to learn from other’s mistakes will prosper. Those who have made mistakes already and learn from them have time to recover.
A major part of this is in the area of personal finance. Avoiding student loan debt entirely or paying it off as early as possible can set them on the course to financial independence that they can teach to the next generation. In the end, that’s good for all of us.