The numbers are staggering: more than $1.2 trillion in outstanding student loan debt, 40 million borrowers, and an average balance of $29,000.
With Millennials exiting college and buried in debt, it’s no surprise they are postponing marriage, having babies, home purchases and other major life events.
While the student loan issue has been looming for years, the magnitude is now taking center stage. All of the 2016 presidential contenders have an opinion, and many are starting to propose solutions – some going as far as to call for “debt-free college.”
The issue has also caught the eye of the Consumer Financial Protection Bureau (CFPB). In its 2014 report, the CFPB stated one in four recent college graduates is either unemployed or underemployed. They also stated when faced with the inability to repay their debt, students lack payment options and are unclear as to how to resolve their debt.
There is a bright spot. Experian reported new findings stating that among adults 18 to 34 years of age, the average credit score of those who had at least one open student loan account was 640, 20 points higher than others in their age group. So, if paid in a timely manner, student loans can help younger people establish a decent credit history before they go on to buy things like homes and cars.
Still, education is key. Today, only 24 U.S. states require some form of financial literacy to be included in their high school course work, with only four states (Utah, Montana, Tennessee and Virginia) devoting a full semester to a personal finance course.
Education is needed before students start diving into the student loan scene, and also after they graduate, to ensure they understand their repayment options and obligations.
The CFPB is calling on all parties (universities, colleges, private lenders, advocates, policy makers and even family members) to get involved. Providing financial education, financial literacy, repayment options, deferral methods and income calculators are all needed to tackle this growing problem.
The Great Recession and slow recovery brought home the importance of a college degree in today’s economy for many Americans. Bachelor’s degree recipients fared much better than their counterparts who only finished high school.
The question becomes how to fund it, and make sure students who rely on loans understand the finances attached to this milestone investment.
Learn more about Experian’s student debt trends and credit education in The Increasing Need for Consumer Credit Education: A Review of Student Debt.