Debt. We all have it. And we all dream of a day when interest rates and fees are far from us. But what if your debt was so high and so overwhelming that there was no end in sight? Well, unfortunately, that is exactly where student loan debt is heading.
In June 2012, student loan debt reached about $870 billion, exceeding credit cards and auto loans and balances are expected to continue climbing, according to the Federal Reserve Bank of New York. This leaves each student with an average debt of $27,000 by the time he or she graduates.
On top of that, the non-profit Project on Student Debt reports that America's student loan debt is growing at a rate of $2,853.88 per second. At this pace, it will surpass $1 trillion in 2012. College costs are rising even faster than the costs of medical coverage.
So, instead of young adults graduating with hopes and dreams of a better future, they are graduating with the pending doom of creditors. And with unemployment at record highs, graduates are finding a harder time paying back those loans.
With so many young adults facing burdens from unbearable debt, limited career prospects and, therefore, long-term financial insecurity, it is inevitable that the national economy will be significantly and negatively impacted.
But it's not just the corporate jobs that are hard to find. I have major concerns about debt stifling entrepreneurship. Many graduates may no longer be willing to take the entrepreneurial "plunge" with a large monthly student loan bill that needs to be paid. And, as we all know, small business creates jobs; so, a lack of entrepreneurship would only further hinder economic progress.
I just attended a major college savings conference where there were obvious concerns about the availability of loans 15 years from now, given the current student debt crisis. So just think what happened in the mortgage space when borrowers just couldn't get any more loans, housing came to a halt. Similarly, there would be no student loans and, accordingly, only a small percentage of the population would be able to attend traditional college programs.
But the good news is there is a solution and tools to minimize massive student debt. Of course this, as with many good things in life, requires just a little bit of forward thinking and planning.
As individuals, in particular parents, we need to exercise financial responsibility at as early an age as possible to limit the amount of student loans needed to pay for college. With 529 savings plans (named after the IRS Section 529), parents can save for higher education with significant tax advantages -- contributions are state tax-deductible in many states and savings always grow tax-free. Early savings is what we live and breathe at GradSave, working with thousands of families nationwide helping "crowdfund" college tuition by making it easy for friends and family to give the gift of education.
The student loan crisis and the rising cost of college tuition are complex problems that will require a coordinated effort and preparation. We are already seeing innovation happening on the education front with alternative options, such as online or virtual classrooms, vocational studies, and students studying internationally, to name a few, but there also needs to be change in how to pay for college. Student loans are an unsustainable solution not only because it hampers economic growth, but also because there may simply be none of it left for the next generation to pay for college. With more savings accumulated and less loans withdrawn, graduating students will be free from heavy financial burdens, allowing them to focus on their career goals. This is particularly crucial for entrepreneurs who need more financial flexibility to start their own business.
In short, the student loan crisis needs to be addressed immediately in order to maintain the status quo of students attending college and, thus, to fuel our economy.