College debt should be the first thing to learn

Graduation season begins in the coming weeks. Thousands of graduating high school seniors in our state already have been making plans for the next stage of their academic careers, which for many of them means college. But while they may be ready academically for higher education, are they equipped with the financial knowhow to avoid being overburdened with student loan debt?

According to U.S. government figures, Americans hold nearly $1.6 trillion in student loan debt. To put this into perspective, the gross domestic products for Russia, South Korea and Canada are each about $1.6 trillion. Last year, the U.S. Department of Education reported that 1 in 10 student loans are in default. Many young adults struggle with keeping up with loan payments, resulting in them putting off purchasing a house, starting a family or saving for retirement.

For many Americans, the only way to obtain higher education is through borrowing. There are currently debates among our elected leaders of whether or not our current system is the best way to promote higher education.

As a nonpartisan, nonprofit organization, Junior Achievement of Rhode Island doesn’t weigh in on such policy discussions. We do, however, work to educate students on how best to pursue higher education within the system that currently exists.

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A college education will most likely be the second-largest expense we have in our lifetimes, second only to buying a home. Most often the loans being taken out for higher education are by 18-year-olds whose first exposure to a loan application is when they are filling one out for college. And while there are many families out there who have parents or other family members who are able to walk these teens through the process, there are also countless teens who don’t have access to such support. As a result, there is a tendency by many college students to overborrow for higher education.

First, there is no denying higher education as a whole has become considerably more expensive over time. According to Edvisors, over the past 40 years college tuition rates have increased at twice the rate of inflation. Even with that reality, there is still a tendency for many college students to overborrow, or borrow more money than their expected future income can pay off in a reasonable amount of time, based primarily on the avenue they choose to pursue a degree.

We aren’t talking to our kids about more affordable ways to pursue a college degree.

The National Association of Colleges and Employers found that the average income in 2016 for a college graduate in one of 10 major degree categories was $50,556. According to the site Value Penguin, factoring in tuition, fees, and room and board at a private college or university, a four-year degree from one of these institutions may run more than $200,000. Pursuing the same degree at an out-of-state public university could be more than $160,000. If most of that money is borrowed, the monthly payment, depending on the length of the loan, could be equivalent to making a mortgage payment. If you are earning $50,556 a year, it becomes incredibly difficult to save for a down payment on a home, put money away for retirement or provide for a family with that kind of ­obligation.

But, if a student were to pursue the same degree at a public in-state school, which would cost about half of the private or out-of-state schools, or further offset that by spending the first two years at a less costly community college or by attending school while living with parents instead of borrowing to pay for room and board, the amount of student loans becomes much more manageable.

On the surface, this may seem like common sense. The problem is, we aren’t talking to our kids about more affordable ways to pursue a college degree until it is too late. A recent survey by Junior Achievement and the research group Engine found that while 30% of teens expect to take out student loans for college, 41% were “unsure.” According to The Institute for College Access & Success, 71% of U.S. college graduates have student loan debt, meaning the 41% of teens who are unsure will most likely end up taking on student loans anyway after they have made decisions about college but without fully factoring in the costs involved.

At Junior Achievement, we help students in grades K-12 make the connection between what they learn in the classroom and how it applies to the outside world. Two of our three pillars are financial literacy and career readiness, with entrepreneurship being the third.

It’s imperative as a society that we work with our young people to ensure that nearly half of them don’t start college being “unsure” of how they are going to pay for it. We can do this by helping them understand how to plan and budget for things such as college while they are still in high school. Programs such as Junior Achievement, and the volunteers we enlist from our communities, are here to help bridge this concerning and costly knowledge gap.

Lee Lewis is president of Junior Achievement of Rhode Island.