Sorry, But No One Was Forced to Take On Student Debt
We have all heard the scary stories. Those poor university students have been forced to take on huge amounts of debt. Except for one thing: No one forced anyone to do anything. Students who take on debt are making an investment. They wouldn’t be making that investment unless they thought it would pay off for them.
First, let’s look at the facts. How much of a tab are university graduates running? Some 45 million Americans owe roughly one-and-half billion dollars in student debt, $600 million more than total U.S. credit card debt. But how big a debt load is that for students to carry? The average student loan recipient pays back the loan at a pace of $351 per month, covering both principal and interest – between the ages of 20 and 30. The median monthly student loan payment is $203 – again, until age 30. Compare that to taking out a mortgage to buy a home, at an average $1500 in principal and interest payments – over 30 years.
People look at the amount of debt students take on, compare it to the cost of their own education, and feel enormous sympathy. That’s understandable, when over the past 20 years the average cost of tuition fees at private universities is up over 160 percent, from just over $16,000 to just over $43,000 per year. But compare that economic cost to the enormous economic benefit.
Workers with less than a high school diploma earn a median of about $26,000 per year, with an unemployment rate of about 8 percent. Earnings for those with a high school diploma are higher, but still only a median of about $35,000 with an unemployment rate over 5 percent.
On the other hand, what about university grads? That’s when the money starts coming your way, depending on your major. Median salaries for workers with bachelor’s degrees come to just under $60,000 with an unemployment rate under 3 percent, with holders of master’s degrees earning about $70,000 (unemployment rate les than 2.5 percent), those with doctorates earning a medium of about $85,000 per year (unemployment rate of less than 2 percent), and those with professional degrees earning about $90,000 per annum – about three-and-a half times as people with no university – with an unemployment rate of about 1.7 percent.
So not only are university students making an economic calculation when they take on student debt, it would appear to be one that pays off, at least from an earnings point of view. At $43,000 annual tuition for undergraduates at a private university, those with an undergraduate degree, bearing a debt of roughly $170,000, will make that up in less than eight years – and everything after that is gravy.
No wonder so many make the entirely private decision to take on university debt. No one held a gun to their head. Students are in no position to say “stop me before I borrow again.’ The investment is paying off, at least for most university grads. Rather than extend sympathy to them, it would make more sense to offer congratulations.