Pursuing a college education is going to change in a big way this year. With student loan debt at an all-time high, parents and students are reconsidering their path to a college degree. Currently, 13% of student loans are not being paid. The cause? Student loans, both private and federal are not bunched together, leading to several payments, each ranging between $25-325. And it isn't just the students going into large amounts of debt, either.
The fastest growing group of student debtors is not young scholars in their mid-twenties. Parents and family members are finding themselves in financial ruin due to PLUS loans taken out to cover student expenses. The average parent is paying back $27,000 for every university graduate. It may seem like another car payment, but many of these parents are nearing or entering retirement. Sadly, social security is far below a livable income and folks are finding their current wages being garnished by financial lenders.
The daunting overhead of student debt is forcing students and parents to reevaluate college education. Student enrollment at four-year universities fell two percent last year. However, over 8 million students enrolled at a local community college. Students who choose to complete their lower division requirements at a two-year program save thousands or tuition, room and board, and other living expenses. Most community colleges offer tuition waivers for low-income students. By attending a community college prior to transferring to a university, a student can cut loan debt in half (or more).
This trend was exposed last year as universities such as Loyola and St. Mary's notoriously contacted students at the end of the acceptance deadline in a dire attempt to recruit students. The rising cost of tuition and room/board must be addressed by four-year universities if they want to see enrollment levels rise again.
Rentals and Home Purchasing at War, Again
According to Forbes, it is still cheaper to buy a home than rent one. But does that mean young parents and singles are going to race out to buy a home? Definitely not. Buying a home is 44% cheaper than renting, but most individuals and families cannot afford the 20% down payment (or even the HUD 3%) that lenders want to see before considering an offer.
Rather than taking out an enormous mortgage in an economy that cannot promise job security, young folks are choosing to rent out smaller apartments and homes within 60 miles of their workplace.
Renting can save hundreds per month, as with most apartments, many of the utilities are covered (water, sewer, trash, and sometimes gas) in the rent. If you reside near a university, you may be able to secure all utilities in the rent, including internet. Homebuyers do not have this option.
Where Will the Money Go?
This year marks an important year in American financial history. Young individuals and families will change the education and housing market to save money and avoid debt. What are people doing with the extra income? Several things, in fact.
Many people are choosing to put away extra income into a savings account that cannot be accessed by a debit card. Wisely, there is an increase in consumer choosing to "pay" themselves on the first and fifteenth of each month. Setting up an automatic transfer of $50 twice per month can add up over five years.
Americans are choosing to pay off their current debts prior to taking on a home mortgage or other large purchases. Paying off creditors will set these individual up for a financially stable future without the worries that current baby boomers are facing.
Ultimately, young parents and singletons who are setting these trends will be critical to teaching the next generation the importance of debt management. In a country where our finances are consistently off balance, a smart personal finance ethic will be the redeeming feature.