By: United States Senator Jack Reed (D-RI)
April is an exciting time for high school seniors. Graduation is just around the corner and college acceptance letters are rolling in, and with them an overwhelming sense of possibility and anticipation for students, along with a measure of joy and worry for parents.
Getting into college is an admirable achievement, but paying for college is a long-term commitment.
Indeed, according to the Project on Student Debt, 71% of college seniors who graduated last year had some form of student loans to pay back, with an average of $29,400 per borrower.
The amount of debt students are taking on reflects the ever-skyrocketing price of a college education, but it is also illustrates the need to increase financial literacy among students entering college, and that’s something we should address head-on.
The State of Student Loan Debt in America
The Consumer Financial Protection Bureau has estimated that the total outstanding student loan balance in the United States amounts to $1.2 trillion.
According to analytics firm FICO, the average U.S. student loan in 2005 was $17,233. By 2012, a mere seven years later, that average climbed 58% to $27,253.
These are sobering numbers on their own, but there is one more statistic that merits special attention for parents, policymakers, and students alike: 11.5% of all student debt in the United States is 90 or more days delinquent or in default. That is the highest delinquency rate across all forms of debt in the United States, and it’s the only type of debt that has been steadily on the rise in the past decade.
The 11.5% delinquency rate is indicative of the state of student debt in this country, and it speaks to the need to drastically improve financial literacy in the United States before students start signing loan paperwork.
A recent article by U.S. News & World Report described our student loan debt crisis: students don’t know what they’re getting into when they take out loans, and they don’t know what their options are when they have to pay them back.
The first sign of trouble usually comes shortly after graduation, when the student loan grace (or forbearance) period ends. That’s when the newly graduated begin to receive notices from their loan servicers that they have a significant monthly payment to start making. For many recent graduates, the total amount of their loans may actually exceed the size of their starting salary, and that’s for those students lucky enough to have landed a job by graduation.
For those who cannot make their payments, the bad news, and added interest, starts to pile up quickly. Delinquent or defaulted loans can negatively affect everything from credit scores to background checks, and lead to garnished wages.
Even those students who are able to make their minimum monthly payments will soon find that their loan repayment terms stretch 20 years or more – so long that they’ll likely still be paying off their college years when their own children start to think about post-graduate plans.
The result of all this is a nation of college graduates who are drowning in debt, which is threatening to hold back a whole generation of young Americans when they could be buying a car, or starting a business. Indeed, recent college graduates are now more likely to live with their parents and delay starting a family, and less likely to buy a house.
The bottom line: Student loan debt has become a serious threat to our ladder of opportunity for this generation, and for our economy. Increasing financial literary can help reverse that trend.
How Congress Can Help
I meet with students and parents often, and that’s why I am committed to increasing financial literacy and reinvigorating our higher education policy in an efficient and cost-effective way. Future generation of students should not be so burdened with college loan debt that they cannot rise up, buy a home, start a family, and do the things that my generation took for granted because there was strong support for higher education at every level of government.
Senator Mike Enzi (R-WY) and I are working on a bipartisan basis with our colleagues and the financial literacy community to address these issues broadly. April is financial literacy month, which gives us all an opportunity to emphasize the need for financial literacy from the earliest ages through retirement, in the Senate and the states.
We need a special focus on young adults as they grapple with student loan debt while working to launch their careers.
Last year, I joined my colleagues Dick Durbin (D-IL) and Elizabeth Warren (D-MA) in introducing the Student Loan Borrowers Bill of Rights. The bill seeks to increase financial literacy by ensuring struggling student loan borrowers are treated fairly and fully understand the range of repayment options and resources available to them.
I have also introduced legislation to ensure colleges and universities have every incentive — real skin in the game, if you will — to carefully review their students’ loan burdens and direct students to the most affordable loans possible. It is time we make colleges and universities more conscious of the debt being accumulated by their students.
Financial Literacy 101: Paying back Student Loans
Despite the expense of higher education and the heavy burden loans can place on a recent graduate, going to college remains a significant part of the American Dream for many people, and it can open many windows of opportunity that otherwise might not exist, including significantly higher lifetime earnings. Becoming financially literate about your student loan repayment options can ensure that you make sound loan decisions before you even get to campus:
- Set your own limits: Don’t borrow more than you need. Only you and your parents can best gauge your ability to repay the amount of loans you take out. Exhaust federal grant and loan options before pursuing private loans that are higher cost and offer fewer protections.
- Explore an income-based repayment plan: Upon graduation, consider enrolling in a Department of Education income-based repayment plan. There are millions of federal loan borrowers currently eligible and in repayment, but just about 10% have signed up for one of these plans.
- Understand your repayment options: Many lenders offer flexible repayment options. However, under some options, a lower monthly payment may mean you pay more in the long run.
- Look into loan consolidation: It may be possible to combine your federal loans into a single loan with one monthly payment.
- Consider public service: Some loans may be canceled in full or in part, in exchange for public service.
Visit my website for additional student loan repayment resources. It is never too early to begin planning how you’ll pay for college; financial literacy month is a great time to start.