Student Loan Debt: What Future College Students Need to Know
Content provided by Student Loan Hero
By now we have all heard the staggering statistics on student loan debt in America. We know some of the overwhelming numbers include: Over 43 million Americans have student loan debt, and that debt totals over $1.2 trillion. We often hear about how the debt is going to hurt America in the long run and how especially for millennials, student loan debt is crippling their place in the U.S. economy and hampering their spending power, as reported by Bloomberg earlier this year.
With the current Presidential election campaign already underway, the topic of student loans is one that sparks huge interest and debate, and nearly all agree it’s a problem for our nation. With Hilary Clinton’s proposed “New College Compact” plan, she wants to not only help relieve current student loan debt but also create college affordability for the next generation. As a millennial myself who started out with over $100,000 in student loan debt, I believe there are some lessons learned that we should be passing down to the younger generation before they start college and take out loans that can leave them in serious financial trouble.
Members of Generation Z, defined as those born between 1996 and 2011, have the chance to learn from older generations’ mistakes, and while we do not have a crystal ball to see into the future of what, if any, policy reforms or political changes may develop over the next decade, there are some lessons they can learn from millennial “mistakes” when it comes to student loan debt.
Parents need to make college an investment-focused conversation and decision
When Generation Z reaches “college conversation time,” they and their families need to have a real conversation. They have to steer clear of the urban myth that college costs don’t come with a genuine price tag with real, immediate impact. Generation Z will have to think of their education as a financial investment rather than an experience and research the best school for them that suits their budget. Research can be as simple as phoning potential schools and getting further information on courses and approximate costs, researching online, looking through discussion boards, and speaking with school counselors and parents. The smartest way to discuss which college to attend is to consider education in terms of investment: risk and reward.
What the millennial generation has uncovered is that many families struggle with how to have the college financing conversation — especially when it feels like you’re putting your hopes and dreams on the line. But if the next generation puts an emphasis on a vocabulary that includes future-oriented financial terms, this will automatically change the conversation of college cost. If Generation Z can begin to have the important conversations at the family dinner table more than their older counterparts did, and steer the dialogue from idealistic to realistic, focusing on budget, expected debt, and potential ROI, then they can make smarter choices.
Prioritize your loan repayments
At Student Loan Hero, we recently conducted third-party research that found some surprising and somewhat scary statistics about the financial priorities of millennials with student loan debt. More than one in four (30%) ranked paying for entertainment costs more important than paying down their student loans, and the research also found that millennials care more about dating than their debts, with one quarter saying paying for dates is their most important financial priority. From this research, only 8% of millennials named paying their student loan debt their No. 1 financial priority. This number specifically has to change for the next generation so they can get a grip on their student loan debt quickly, straight out of college. Paying for dates and entertainment should never come before student loan repayments, and the next generation has to be aware that by cutting out some non-essential items from their budget, they can get a head start on their loan repayments.
Plan, plan, and plan some more
Having a plan in place, not just when you finish college but when you begin college, is a really important step for Generation Z. Many millennials didn’t or don’t even know approximately how much debt they will have when they leave college, and many don’t have any plan for how many years it will take for them to pay it off. An easy step Generation Z can take is to do some simple research and forward planning of estimated costs and estimated repayments for college before they even begin their college life. If Americans start to plan for this early, Generation Z can get ahead of the game and not be surprised when they leave college with a debt.
From the research YouGov conducted for Student Loan Hero we found that one in three millennials report it will take more than a decade to pay off their student loan debt and of that number one in seven (15%) say it will take them over two decades. If Generation Z can make plans and do more research on how to pay off their loans faster, the burden of their debt won’t be felt for as long as millennials will feel it over the coming years. Another way for future college students to cut down on the amount of loans they have to take out is to research scholarships. A Washington Post article found that most high school seniors qualify for 50 to 100 scholarships that they don’t even know exist. Many millennials didn’t take the time or effort to research, plan, and apply for scholarships that they could have won, as referenced by this USA Today piece. There are billions of dollars on the table with scholarships, and Generation Z should take the time to plan and research which ones may get them a free or discounted ride to college.
While there are no quick fixes for the current student loan debt crisis, there are definite lessons the next generation can learn from millennials to get through college and come out on the other side with manageable debt and a great college experience.
Andrew Josuweit is the CEO and President of Student Loan Hero, a company that combines easy-to-use tools with financial education to help the millions of Americans living with student loan debt manage their student loans smarter. Student Loan Hero has helped over 20,000 borrowers manage and eliminate over $1 billion in student loan debt since 2012.