“Crisis” is one the most abused words in the English language today, being haphazardly applied to whatever political disagreement of the day, the national debt, our failing “public” educational system, border security, the increasing national drug problem, trade wars, and on and on, ad nauseum. Perhaps the biggest tragedy in this scenario is that truly important issues become indistinguishable from lesser problems. When everything is called a crisis, nothing gets treated appropriately as a crisis.
We shouldn’t use the term “crisis” lightly – it should be extremely important on a national scale. The size and rate of increase of personally-held educational debt qualifies (in our opinion) as a national crisis. We know how we got there; can we find a way out? Let’s “set the table,” as the popular saying goes.
Following the victory experienced by the USA winning WWII, remaining service members came home in large numbers. Concurrently, at every level of production, America was returned to a consumer orientation. Multitudes of marriages occurred, tens of thousands of homes were built, and vast numbers of children were born. The “American Dream” was in full bloom. The “Greatest Generation” (a term coined by Tom Brokaw as far as we know) desired to provide their offspring with a better quality of life than they themselves had experienced.
Our national standard of living rose dramatically in the years following WWII. It was widely assumed that the Baby Boomer Generation would go to college, simply because that was acknowledged to be the path to success. The American Dream, parents believed, begins at the hallowed halls of higher education.
At the time, post-secondary education was inexpensive, effective, and rare. Demand was growing, and prices inevitably rose. New college entrants began to borrow money, and lenders were more than happy to oblige. When the borrowers graduated, they simply paid off the debts the old-fashioned way; monthly payments until the balance was zero.
However, the rapidly-escalating cost structure of institutions required ever-increasing borrowing. Students were delighted to have their parents absorb part of the debt. Today, parents account for 14% of new college loan originations. Many parents lack resources to repay their loans without sacrificing hard-earned lifestyles.
We have said that student loan debt has become a crisis. According to the website Studentloanhero.com, aggregated college debt in the U.S. is now $1.56 Trillion, spread among 45 million Americans. That figure is approximately 1.5 times the nation’s credit card indebtedness.
During the “Great Recession,” wages and salaries stagnated, and only recently have they begun to rise. 11.5% of student borrowers are 90 days or more behind in their payments. Far too many parents and grandparents on fixed incomes are experiencing declining quality of life. Graduates are feeling pressure to delay big decisions regarding starting families, buying homes and cars, and other life-changing events. This creates a drag on the nation’s economy.
Unlike many forms of debt, student loan debt is generally not forgiven in a bankruptcy, despite contributing to many of those same bankruptcies. There are now some student loan forgiveness programs, but they are complicated and fraught with potential pitfalls.
There are answers to the complexities of educational funding. More than ever, college planning has become a key element of Comprehensive Personal Financial Planning. It is never too soon to begin the process of planning for educational expenses. Finding a qualified financial advisor begins with a search for a fiduciary Certified Financial Plannerâ.
Van Wie Financial is fee-only and always a fiduciary. For a reason.
