For years, this blogger has been telling of the massive burden college students bring upon themselves – or their parents – by borrowing money to attend college. The ballooning expense of college nowadays means borrowing at least $100,000 to finance four years for most students.
The average debt will vary quite a bit based on the interest rate and loan terms, as well as the amount borrowed. But let’s put some hard numbers on what you can expect to pay. The following data comes from a website Student Loan Debt Statistics [2024 Data] (thecollegeinvestor.com).
The College Investor, citing data from the Federal Reserve, pegs the average monthly student loan payment in 2024 as $503, or more than $6,000 per year. Again, that’s an average, meaning many college graduates (or worse, non-graduates who never finished a degree but still owe money) owe much more. The average balance owed was a little over $37,000.
$6,000 a year is not an unbearable burden if your degree lands you a job in a high-paying field with a starting salary around six figures. But that applies to a small fraction of students taking out loans to finance their education. Most of them will earn less than half of six figures starting out. Then they must contend with the arithmetic of compound interest. I wrote about compound interest several years ago. Below I’ll repeat a key segment:
Suppose you borrow $1,000 at an annual interest rate of 10%. (Most interest rates are below 10%, but I’m using that number to simplify the example.) If you pay nothing to reduce your debt, at the end of a year you will owe the lender $1,100. If you go a second year without paying anything back, you will owe $1,100 + $110 = $1,210 and so on. If you extend the arithmetic, you will find that (assuming no payments and same interest rate) the original amount owed will double in a little more than seven years.
The example I cited back then used $1,000 just to simplify the illustration. Let’s use the same arithmetic to see what happens if you owe $10,000. This time let’s use a more realistic interest rate of 5%, which is actually a bit lower than most student debt loans charge.
If you pay nothing to reduce that $10,000 debt, the next year you will owe $10,500, the year after $11,025 and so on. Sure, maybe you’ll reduce that amount by paying back at least some of the loan each year and each month. But let’s look at a big picture illustrated by The College Investor website.
The total amount of student debt owed in the U.S. is $1.76 trillion. Trillion, with a T. It’s an incomprehensible amount. Only 19 countries on earth have total gross domestic product (the of all goods and services produced in that country) of more than $1 trillion.
So, a bunch of former students (or their parents) owe $1.76 trillion. Here’s how much of that debt is owed by different age groups:
• Under 30 – 23%
• 30-39 – 32%
• 40-49 – 22%
• 50-59 – 15%
• 60+ – 8%
What this shows is that almost half of all borrowers are still paying off student loans beyond age 40
When most people are looking to buy homes and raise families. In fact, many people in their 40s have children starting college, who will need help to finance their education.
And, about one out of every 12 borrowers is still paying off student loans at an age when they should be on the verge of retirement if not already there.
A trade career is a bargain when you look closely at these numbers.
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