Economics for Life Real World Financial Literacy Chapter 8 Student Loans

. Student Loans Student Loans Are Good Debt The current amount of outstanding student loans is approximately trillion meanwhile , the total outstanding credit card debt stands at 922 billion . As you can see below , student debt has risen continuously over the past decade and a half , continuing a trend over the previous four decades . FRED . ma non , son son 400 7003 7040 7044 7047 7018 9017 9071 Shaded areas , Board ! Ma Pastime ( I Figure . Board of Governors ofthe Federal Reserve System ( US ) Student Loans Owned and zed retrieved from FRED , Federal Reserve Bank . Louis September 30 , 2027 . Borrowing money for a college education is an investment . In 2020 , the average annual salary of a high school graduate in the United States was while the average annual salary of a college graduate was . Those with a college degree will earn at least 60 more money for over their lifetime . In addition , a college degree is more likely to lead to career advancement . Considering a analysis of college degrees , we can calculate a return on investment ( ROI ) for a college degree . In 2019 , the College Board reported that a budget for a 135

while a moderate budget at a . Thus , the return on investment would look like this Annual Average Public College Budget 26 , 590 total investment Additional Income over . Diploma 37 , 000 per year Annual Income Difference ROI Total Investment ROI 23 annual ROI 106 , 360 The ROI for a private college can be calculated the same way Annual Average Private College Budget 63 , 980 total investment Additional Income over . Diploma 37 , 000 per year 136

Annual Income Difference ROI Total Investment ROI 11 annual ROI 215 , 920 In comparison , the stock market has an average annual return of 10 . This also does not include any cost of living increases or other raises . However , this assumes that you graduate from college , as the higher salaries above are for college graduates . Student debt has been driven higher by the relentless cost of a college education , having grown 145 since 1971 137

Average College Tuition in 2018 Dollars All Institutions Year 559 Year Institutions ) or ?

Figure . Average College Tuition . Student Debt Abuse by Educational Organizations For profit colleges ( like University of Phoenix , Corinthian Colleges , and Strayer University ) and training schools ( like ' Technical Institute and Education Management Corporation ) are some of the biggest culprits of student debt abuse . These organizations accounted for about 40 of all student loan defaults while only representing about of all loans . According to a 2014 report by The Institute for College Access and Success , a student is three times as likely to default at a school than at a public or profit college further , they are almost four times as likely to default than at a community college ( see reports on ) of college students drop out entirely . More than half of the students enrolled in college take more than to graduate .

colleges have abysmal graduation rates . percent of students at have graduated after six years , while the same is true for only 23 of students at schools . Dropouts are then saddled with student debt but still stuck at the same salary level as before going to college . Because these schools are motivated by profit , they admit less qualified students and offer less support . Beginning in the 1980 , government student loans led to a massive expansion of educational institutions . However , the Obama administration cracked down on schools with the worst graduation rates , denying them the ability to qualify for federal student loans . As a result , their revenue declined precipitously . For example , the University of Phoenix revenue declined 70 , and Corinthian College declared bankruptcy . The Rules of Student Debt The government will pay the interest on federal loans if you qualify based on income while you are in school . When you stop going to school , you must start paying back the loan . There are four types of student loans from the US . Department of Education Direct Subsidized loans made to eligible undergraduate students who need to help cover the costs of higher education at a college or career school . Maximum loan is per year of schooling ) Direct Unsubsidized loans made to eligible undergraduate , graduate , and professional students , but eligibility is not based on financial need . Maximum loan is per year of schooling ) Direct PLUS loans made to graduate or professional students and parents of dependent undergraduate students to help pay for education expenses not covered by other financial aid . Eligibility is not based on financial need , but a credit check is required . Borrowers who have credit meet additional requirements to qualify . Maximum loan is per year of schooling ) Direct Consolidation Loans allow you to combine all eligible federal student loans into a single loan with a .

Below , you can find interest rates for each type of loan . All interest rates shown are fixed rates that will not change for the life of the loan . More information on student loans can be found at . Table . Interest Rates for Each Type of Loan Graduate or Professional Parents and Graduate or Undergraduate Borrowers Borrowers Professional Students 530 Direct Subsidized Loans and Direct Unsubsidized Direct Unsubsidized Loans Direct PLUS Loans Loans Paying Back Student Debt While you are in school , the interest on your loan must either be paid , covered by the government ( if you qualify ) or accrue on the loan . Leaving school is defined as dropping to less than a class load . After you leave , you get a si grace period before you must begin paying back the loan . There are a number of payment plans you can qualify for . See the Department of Education website . Government versus Private Lenders for Student Debt ?

Government loans are always better for student debt . They have lower interest rates and more flexibility than student loans from financial institutions . Defaulting on Student Debt If you do not have the ability to make your loan payments , you must contact your loan . The Department of Education uses companies to 140

service student loans . These companies collect the payments and keep records for the Department of Education . Since their job is to take payments , they are not very forgiving . Bear in mind that they are companies , and they want to keep their lucrative contracts . Below , you can see the rate on student loans is increasing . It is now about 12 , which leads me to believe that there is a serious problem with the student loan program . Percent of Balance Days Delinquent Percent Loan Percent 15 15 Student Loan 10 10 HE Revolving ' New York Fed Consumer Credit 12 Figure . Percent of Balance Loan Time by Federal Reserve Bank ofNew York has no known restrictions . If you default , most creditors must first sue you in court and get judgment to start garnishing your wages . Federal student loans , however , get special status and does not have to get a court judgment before attempting to garnish your wages . It also depends on the local state laws . In Pennsylvania , 141

for example , creditors can not garnish your wages . Moreover , the interest keeps growing , adding to the total loan amount . Federal law allows the loan holder to garnish up to 15 of your disposable will get a notice that explains the US . Department of Education intention to garnish your wages . This will include an explanation of the nature and amount of your debt , your opportunity to inspect and copy records , your right to object to garnishment , and your option to avoid garnishment by voluntary repayment . lfyou are struggling to make payments , you need to talk to the . There are programs that could help . Problems With Student Debt Remember that student debt is not forgiven in personal bankruptcy , whether you have a government or private loan . When Congress enabled student loans , they put in the provision that they would not be discharged in bankruptcy , and bank lobbyists got them to add private loans to this exception . A Philadelphia Inquirer article notes that some students can leave school burdened by crushing Since this debt is considered when applying for other loans , outstanding student loans have substantially depressed and new business formation according to the Inquirer . Most experts blame the skyrocketing cost of college education for this explosion of student debt . College education costs have increased 400 over the last 30 years . In addition , public universities have seen their state support decline by double digits . 142

Figure . Additional annual tax revenue associated with higher educational attainment would exceed the annual costs of plan within 10 years of the initial implementation year . 200 130 160 140 120 100 220 60 40 20 Billions of dollars 10 11 Year plan cost Tax revenue Source Georg Center or and Me ol data he Center for Slat , of Education tables and 306 20 , 2019 , me Data , and the us Bureau am Bureau ol Labor , Current al on Survey , 2019 Figure . Tuition Free College Plan by Georgetown University Center on Education and the Workforce is used under License . Debt Forgiveness for the Helping Professions The federal government established the Public Student Loan Forgiveness program in 2017 for students who would end up working in helping professions ( teaching , healthcare , etc ) There were two main requirements . The borrower works in a public service profession . The borrower has made loan payments for ten years Public Student Loan be great for those who plan to or already work in sector . However , many people do not qualify . According to the Department of Education , only 96 people received loan , the year the first round of applicants became eligible . As of September , received loan forgiveness under the program . This is a 143

huge improvement from the original 96 . However , applications were still rejected . How Much Debt Should I Take On ?

According to the Association of Public and Land Grant Universities , the average a student who they graduate from a public college is , or per year . Among all public university graduates , including those who did not borrow , the average debt at graduation is . According to the College Board , the average cumulative student debt 2017 was for graduates of public schools and for graduates of private nonprofit schools . lfyou end up with debt around the average , you should be able to handle the payments . It is the people who begin college and do not finish that have serious problems with their student debts . What Majors Are Worth Taking on Student Debt When you are deciding what you want to major in , keep in mind the kind of salary you will potentially earn , as well as the demand for employees in your field . Dozens of websites can give you this data so you can make an informed decision , such as the Federal Reserve Bank of New York . The Department of Labor also has extensive employment projections of what fields will be in demand over the next ten years . You should choose a field you will enjoy working in however , it is worth taking a close look at the employment potential and salary in your chosen field , before deciding . 144