For many, student loans are a necessary evil.

According to the U.S. News and World Report, the average annual the average annual tuition and fees for the 2019-2020 academic year for a private college is just under $37,000, while the average for public colleges is $10,116. In contrast, the U.S. Census Bureau reported that the median household income in the United States for 2018 was only $61,937. Thus, unless a student’s parents have been able to set aside significant savings, many families do not have the available funds to easily pay for four or more years of higher education.

While scholarships often help, many students are turning to student loans as a means to supplement their college funds. Unfortunately, they do not always consider the impact that student loan debt will have on their livelihood after college.

The burden of student loan debt creates a significant impact on the life of the borrower. In early 2019, Forbes reported that approximately 45 million individuals in the United States currently owe a total of over $1.5 trillion in student loan debt. More than 11% of those loans were in default, indicating that they are more than 90 days past due. College graduates are so heavily burdened with the weight of this debt that, according to a recent poll completed by OnePoll for SplashFinancial, many of them said they would take extreme measures to get their student loan debt forgiven. For example, 51% said that they would shave their heads, while 40% would never have caffeine again. Most shockingly, 39% of those surveyed said that they would spend a week in jail to be rid of their student loan debt.

Many sources believe that the United States is in the midst of a student loan crisis, and politicians are arguing that a major reform to the student loan infrastructure is necessary. Some recommend that student loan debt be forgiven, while others are recommending more pervasive student loan reform. As the Presidential election of 2020 looms, we will undoubtedly hear more and more about what can be done to ease the burden of student loans, so it is important to be informed regarding this crisis in order to make wise decisions regarding your family and our government. One proactive measure that may be helpful is ensuring that we are teaching young generations the basics of personal finance.

Recent research has indicated that younger generations are severely lacking in financial literacy skills. In an environment where check writing and reconciling bank statements has become antiquated, many individuals are spending carelessly and recklessly. As students graduate from high school and make the important decision of whether to go to college, they are often committing themselves to significant student loan debt with very little understanding of how loans work. Federal Student Aid, an office of the U.S. Department of Education, reports that interest rates on Direct Subsidized or Unsubsidized Loans for the 2019-2020 academic year are 4.53% on undergraduate loans, and 6.08% on graduate or professional loans. Some students are taking out tens of thousands of dollars of student loans without understanding the implications of interest and repayment terms. For example, if a student borrows $50,000 for college at an interest rate of 4.53%, then payments of $519 per month, or $6,228 per year, must be made over the course of 10 years in order to repay the loan and related interest in full. This is a major commitment for a student just graduating from college. Further, college students must understand that delaying graduation for a semester, or even a year, has significant financial implications that may potentially add years to their loan repayment schedule.

Legislators and accrediting bodies have begun to institute some changes in higher education to try to help students better understand the implications of their decisions. The U.S. Financial Literacy and Education Commission recently released its document, “Best Practices for Financial Literacy and Education at Institutions of Higher Education,” which stressed the importance of educating students about the implications of student loan debt, as well as the fundamentals of financial literacy.

Universities across the nation are scrambling to try to address this crisis so that students can make better decisions about funding their education. While some changes are in the works, student loans will undoubtedly be a popular topic in the years to come in both the political and educational arenas.

Disclaimer: This column is for informational purposes and should not be considered personalized finance advice. Everyone’s circumstances are different, and individuals should seek advice from a financial planner or other financial professional based on their unique financial situation.

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