Unless you've been hiding under a rock for the past few years, you've heard about the "student loan crisis"
I put that in quotes because it's not a crisis IMO. It's a problem caused by people who do not understand basic financial principles. But more on that in a minute.
For now, let's begin with what Wikipedia says about student loan debt:
The Economist reported in June 2014 that U.S. student loan debt exceeded $1.2 trillion, with over 7 million debtors in default. In 2014, there was approximately $1.3 trillion of outstanding student loan debt in the U.S. that affected 44 million borrowers who had an average outstanding loan balance of $37,172.
This level of debt in and of itself is not a problem -- as long as that debt can be covered by the salaries of the graduates with the debt.
The problem comes when a person borrows a huge amount that has no chance of being repaid given his expected graduating salary.
Here's a perfect example of what I'm talking about:
A Wilmington woman has reached her wits' end trying to pay off nearly $200,000 in student loan debt with a $38,000 salary.
And it's not isolated by any means. I've seen these sorts of situations for years and years and years.
Dave Ramsey deals with this sort of issue all the time. Here he is addressing it on a video:
And if you really want to hear him go off on the subject, listen to him have a meltdown over student loan debt. It's a classic. ;)
I've written several times about how to avoid this problem -- it boils down to making sure the debt is reasonable given the expected earnings upon graduation.
I only had a general suggestion on how to deal with this until I recently ran into this suggestion from Suze Orman:
Kids should not borrow more than they expect to make in their first year out of school.
In other words, if you expect to make $30k in your first year out of school, you shouldn't borrow more than $30k for the degree.
This seems like a good rule-of-thumb to me. What do you think of it?
And for those interested, here's a piece on how to select a college and another on how to save on college.
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