A report published today says ⅔ of last year’s college graduates had student loans, and among them the average student loan debt was a whopping $25,250! (And that’s not even including students at for-profit universities, who are likely to have hefty loans)
Which means a whole cohort of young people — who pushed themselves to get ahead by obtaining a degree — are dealing with the reality of having to start paying their monthly loan payments while trying to get a decent job at a time when the unemployment rate for college graduates stands at around 9 percent.
And when you consider that the unemployment number above doesn’t include the number of graduates who are working in part-time or minimum wage jobs, you begin to understand how discouraging the outlook is for many recent grads.
Feeling the squeeze
Imagine if you had $25,000 in student loans. According to FinAid.org, you’d need to pay about $290 per month (assuming a 10-year repayment plan), which would require you to have a salary of $34,000 and to pay 10% of your income toward your student loan.
For many recent graduates, that is difficult if not impossible to do right now. If your target industry doesn’t have entry-level openings right now (and not many do), it will be hard to reach that salary threshold as someone without a year or two of work experience.
Even for those who are able to get good jobs in the field of their choice, monthly loan payments are not easy to handle. Many of the higher-paying jobs are in big cities, where the high cost of living undermines one’s ability to pay 10% of monthly income toward student loans. It can be 30-40% more expensive to live in a large city, so even graduates who get good jobs in places like San Francisco or New York often have a hard time avoiding further debt — let alone paying off the debt they already have.
Looking at these numbers, it becomes obvious why the rate of student loan default has been increasing lately.
If these trends continue, the outcome won’t be good for this generation of college students or for the country as a whole. Especially if the cost of higher education continues to rise as predicted in this graph:
We need to find ways to alleviate the financial pressures on recent grads and — more importantly — create new jobs so they won’t be crushed between the weight of student loan repayment and the maddening lack of opportunity that exists right now.
Last week, President Obama announced a new plan to help students struggling with loan debt, but its impact won’t be felt immediately.
What we’re doing to help
All of us who work at ReadyForZero have experience with student loans. Some of us are still paying off student loans, and each of us has friends with student loan debt. Which is why we’re excited that as of last week, you can now use ReadyForZero to make a plan to pay off student loans (in addition to other types of debt).
- 4 Differences between Private and Federal Student Loans
- 10 Things I Wish I’d Known About Student Loans
- Student Loan Default is De-angerous
- Is Student Loan Forgiveness for All Students a Good Idea?
Image credit: UC Davis College of Engineering