Student loans are a big deal. Colleges have done a phenomenal job of convincing everyone that the only way to survive in life is by getting a degree. Unfortunately, they’ve succeeded for the most part.
Subsequently, obtaining a degree is most likely required in order to get a decent paying position. While it is not entirely necessary, it has become the new normal.
But don’t be fooled, you can still succeed without one… look at these people.
Nonetheless, an educated workforce is a good thing…
However, the side effect of creating such massive educational demand has landed our country’s educated people in $1.48 trillion in debt. Yes, that’s with a ‘T’.
While yes, the student debt is high, so are all other types of debt:
This exorbitant amount of debt adds significant pressure to the economy, making it more fragile and vulnerable to collapse. Student debt is particularly risky because there is no guarantee of the student landing a good enough job to service the debt. Students make the assumption there will be something for them upon graduation, but that is not always the case.
Boiled down in a basic sense, here are just a few of the effects of student debt:
– Graduates are buried in debt to start their career
– Added pressure on global job markets to create sustainable jobs that can meet debt obligations
– Debt risk for US government/banks that dish out loans
– Lessened value of a degree due to oversupply (Master’s degree is the new Bachelor’s degree).
– A measure of risk on the part of the cosigners
– Less young people starting businesses
– Young people delaying buying homes, getting married, or having children due to their overwhelming debt.
These implications might seem small at first glance, but everyone is afraid of the thin ice we’re walking on…
Student loan impacts the way people spend, save, invest and ultimately live. Thus, the tentacles of this debt have an effect on just about everything.
This is the scenario everyone is terrified of:
1 – If the US/global economy cannot sustain job growth that meets the needs of the growing, indebted workforce then
2 – Students will struggle to find jobs that can pay for their debt which will either
3 – Force them to either default or force cosigners to assume payments which will
4 – Deteriorate the middle class as they will spend less, save less or get in more debt to stay afloat which will
5 – Hurt businesses as customers struggle to afford products and services which will
6 – Hurt company’s financial performance which will
6.1 – Lower return to investors
6.2 – Lower company’s value (stock prices)
6.3 – Cause more job cuts
6.4 – Lower corporate spending
7 – Hurt investors and retirees as their retirement money gets pummeled and ultimately
8 – Everyone has less money and the cycle repeats!
Here’s a little diagram for you:
In a very basic sense, that is what most people are afraid of… but how can this be avoided?
Well, truth is, this is not the only scenario that can cause things to go down the tube. There are many other factors that can influence the progression of an economy: currency crisis, regulations, war, taxes, consumption, wages, investment, the list goes on and on…
The reason why student debt is at the top of the list is because it’s among the top factors that can significantly impact the economy (and it already is impacting the economy).
So, what has the government/industry done to try to mitigate these risks?
1) Revamped loan repayment plans (you can pay loans back on your terms based on your situation)
2) Loan forgiveness
3) As of late, the new tax plan has brought billions back into the U.S. as companies set up shop here or invest internally (job growth) … See Amazon, Apple, Comcast etc.
4) Lower taxes to put more money in people’s pockets so they can survive
5) Infrastructure spending not only creates jobs but ultimately will aid in transportation needs, business needs etc. (hopefully).
There are other things that are being done to try and deal with the raging debt our economy has accrued, but it is unclear what the long-term effects will be.
At the end of the day, the situation we are going through as a country is frustrating. The fact the debt is corroding the social fabric of our society is very concerning. Graduates face financial struggle as soon as they graduate, the families that pay for their children’s debt are getting beaten up, entrepreneurship among young people is dying, marriages are delayed along with having children and now everyone is a slave to their payments.
What will happen? No one really knows… Everyone wants to say that all debt-ridden students will get jobs and be able to afford the debt, but there is no guarantee of that. So what advice can be given to students?
1) Get your money right and exercise diligent financial discipline
2) Work hard and create value wherever you go – if you do this you will succeed (P.S. Here are some tips for Job Seeking Millennials)
3) Get ahead – try to eliminate debt as fast as possible
Cheers & God Bless
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