Report: Consider Return on Investment Before Taking on Student Loan Debt
The debate over student loan often revolves around how much students owe and how it affects their prospects. But recent reports and analyses are focusing on being proactive. These reports advise students to consider the return on investment in their education and to be proactive in improving their ability to pay off any debt they take on.
The different focus comes with acknowledgement of one constant. The cost of college continues to rise. Consider these numbers from the College Board on the increase in tuition and fees from the 2011-12 academic year to the 2016-17 term:
- Public 4-year universities – 9 percent increase.
- Public 2-year colleges – 11 percent increase.
- Private nonprofit 4-year universities – 13 percent increase.
A report published by the American Association of University Professors points to two primary factors for the hike:
- Erosion of private endowments.
- Decrease in state appropriations.
The cause may remain uncertain, but the cost of pursuing a degree undeniably continues to rise. The practical takeaway for students and their families is to pay close attention to personal costs and maintain a manageable debt load to receive the greatest financial benefit.
Consider the possible outcomes
Another indisputable fact: A college education still has value. A recent Georgetown University report clearly illustrated the importance of having some sort of formal education beyond high school. Job gains between January 2010 and January 2016 showed:
The greatest gains have been for students with a bachelor’s degree while job gains for those with a high school degree or less have remained almost unchanged. This indicates pursuing a degree provides a substantial return on investment if students are able to manage their debt load.
With the importance of ensuring the student loan total does not unnecessarily reduce the return on one’s academic investment, it is necessary to consider all available schools and programs carefully.
Dr. Debra M. Townsley, former president at William Peace University, had valuable insight into how students and their parents could best accomplish this. “Families need to do a cost-benefit analysis of different types of education available vs. the student’s future career goals.” Many students make these decisions based on emotional preferences rather than their future needs, which can be a costly mistake. While a dream school may be initially the most attractive choice, it may not be the best financial decision or even the best academic fit.
Factors that should be considered as part of the analytical process include:
- Learning environment
- Degree programs offered
- Growth potential of career field
- Financial situation of the family
- Available financial aide
- On-time graduation rates
Townsley further explained that not all students are best served by attending college. Many may be better suited to exploring certification in areas with high growth rates such as plumbing, HVAC, and electrical fields.
The strategy for paying off student loan debt
Here’s why it pays to be cautious in taking on student loan debt. The Institute for College Access and Success recently released an analysis of the student debt for those graduating from college in 2015. The data showed that about 68 percent of graduates had student loan debt, with the average amount per borrower totaling $30,100 – an increase of 4 percent from the report on 2014 grads.
A recent GAO report made it clear that a significant number of those students who leave with a degree and debt will be in default with their student loans. However, the increasing number and the cause has not been adequately explained.
David Levy, a former director of financial aid and current editor at Edvisors, and Senior Vice President Anita Thomas took the time to explain some of the steps current and prospective students can take to ensure they are able to repay their loans.
- Do not consider loan limits targets; borrow as little as possible.
- Do not use student loans to pay for unnecessary expenses. Interest rates effectively cause each dollar spent to be repaid as two. If there is any alternative method to pay for daily expenses, it should be utilized.
- The total amount of debt should not exceed the student’s starting salary.
- Exceeding the amount of the borrower’s expected salary may make it impossible to repay the loan within 10 years under such methods as income-based or extended repayment plans, which will add both years and amount of interest paid.
The Occupational Outlook Handbook, maintained by the Bureau of Labor Statistics, provides a variety of resources to make it easier for students and parents to find projected job availability and information on the median salary of various career fields.
The cost of education has continued to steadily rise along with the amount of student debt accrued. While the exact cause is unclear, it is possible for students to modify their expectations and behaviors to adapt and thrive in the financial reality of higher education.