Today’s doubling of the government student loan interest rate led to some interesting conversations for me this weekend. A good friend likened those government and private loans to the whole sub-prime mortgage predatory lending scheme: encouraging the loading up of debt by financially unsophisticated people. I think he might be right.
According to a Fidelity Cost-Conscious College Graduates Study, a whopping 70% of graduates have college debt. The average graduate of the class of 2013 will have an education-related debt load of over $35,000. However the number that concerns me the most is that 39% reported that they would have made different choices related to college planning if they had better understood the debt consequences they are now facing. It should be unacceptable to everyone that a group of graduates just shy of 40% are expressing some degree of regret about their education financial decisions.
College loans, by their very nature, are targeting a young and uneducated group of people. Those who require the most financial assistance may not have investment-savvy parents to help guide them through this important decision. Colleges have fueled this education loan debacle by encouraging students to pursue their dreams at any cost, without regard to the job market graduates face.
I’ve heard stories about how relentless banks are at pursuing those student loan payments from friends and here on Crasstalk. Given that student loan debt cannot be discharged in bankruptcy, I think it is time we start demanding financial education from both government and private banks to students taking out these loans. This education should take the form of job market expectations after four years of education; expected initial and long-term salary for your major and career choice; expected job opportunities upon graduation for your major and career choice; and a long-term return on investment on both your total education costs and loan amounts. This education should be tailored to the job market geographical area as well as the educational facility chosen by the student.
I believe that college debt is probably the best kind of debt you can put yourself in as you are investing in yourself. Our society has focused mostly on the pursuing your dreams part of a college education. However, we are long over-due at insisting that students who take out these loans be given the proper information and tools to help them figure out the best way to fund those dreams.
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