Paying a farmer in advance to get a share of the crops is a great way to get the freshest produce, but there are risks.
The cost of rising student loan debt
College graduation is a huge milestone. It also starts a countdown -- six months until the first student loan payment is due.
Americans owe close to $1 trillion in student loans right now. Last fall, student loan debt surpassed consumer credit like credit cards and car loans to become the country’s largest pool of debt. Add to that an anemic labor market, and some recent college grads wondering if it is really worth it.
Angel Hernandez got his bachelor's degree in video game design from Collins College five years ago.
“My big plan was to actually get this degree so that then I get my PhD in theoretical physics,” Hernandez said. “So that I can eventually make simulations of worlds for, let's say, Jet Propulsion Laboratories for NASA.”
That degree left Hernandez with about $20,000 in student loan debt, and since graduating his NASA ambitions have kind of stalled.
Hernandez works in a call center. He makes decent money and his loan payments are manageable, but he’s loath to apply to grad school.
That PhD just sounds like more debt to him. He said he puts off a lot of financial decisions.
“Student loans are in the back of my head all the time,” Hernandez said. “Since I come from a low-income family I never took out credit cards, never spent over what I needed, and yet there’s always this big student loan debt that's always there."
Mike Sullivan from the credit counseling non-profit Take Charge America said that is pretty common. The average borrower owes $28,000 in student loans, which creates some economic drag.
“It’s a nagging thing,” Sullivan said. “It is $218.74 a month, forever, and that $200 isn’t a lot, but it can impact your life for 20 years easily.”
Average loan debt among 25-year-olds has doubled over the last decade, and loan debt has become more common for 20-somethings. Thirty-year-olds with student loan debt are now less likely to buy houses or cars than those without student loans, reversing a long-term trend.
Sullivan says it is too easy to get student loans, given the consequences.
“When you ask an 18-year-old, ‘How much are you going to earn relative to what you’re going to borrow? What is your debt payment going to be and how long is it going to take you to pay it off? and 'What are you going to do without because you don’t have that money?' Relatively few 18-year-olds can even conceive of what the question is let alone answer it," Sullivan said.
But student loans are more necessary than ever for many who want to go to college. The cost of college has gone up dramatically. Then the recession happened, and universities shifted even more of the costs to students.
Mary Corrigan was about halfway through college in 2007. She never planned on loans because her mother was paying for school out of pocket. But mom was a realtor in Phoenix, and the housing market collapsed.
“The money just wasn’t coming in as it was before, and we made the decision to take out loans,” Corrigan said.
Corrigan took about $16,000 for the last few semesters. She knows she could be worse off, but the 26-year-old is still not thrilled to be saddled down with that much debt so early in her career.
When I talked to her, Corrigan was about to start a new job as a receptionist. She said she was not sure what a dream job would look like, but she was pretty sure this is not it. It makes her wonder if college is even worth it.
“When I went to college I thought that by going to college I would be setting myself apart from those who didn’t,” Corrigan said. “Now that I graduated, no job that I worked has been because I have a degree."
Dennis Hoffman, who studies the value of higher education at Arizona State University’s W.P. Carey School of Business, said there are almost no opportunities to earn a good living without some post-secondary education.
“The alternative is, 'Would I have been better off had I not pursued college?' and there the data are really pretty dismal,” Hoffman said.
He says study after study shows that college is still worth it, even with today’s higher rates of student loan borrowing.
“The rate of return to investment in higher education remains as high, or higher than it’s ever been,” Hoffman said.
Just don’t expect an art history degree to get you a huge salary right out the gates.