June 29, 2013
The student loan debt perfect storm
With Congress and the Obama administration focused on Monday’s deadline to prevent student loan interest rates from doubling, it is an apt time to examine the larger consequences of America’s staggering student loan debt load. Even as mortgage, credit card and other consumer debt levels have decreased, today’s students carry unprecedented — and growing — debt burdens. With outstanding student loan debt in the first quarter of 2013 totaling a record $986 billion, the impact on individuals is disturbing. But add to that the fact that this debt load threatens the nation’s very ability to compete in the global economy, and you have the makings of a national crisis.
It is easy for those of us who are well beyond our college years to dismiss student loan debt as merely a rite of passage that we, too, endured. But today’s students are in a much more difficult financial position than any previous generation. Families are facing stagnant pay; public funding for student support has declined; and the real costs associated with higher education continue to rise. Combined with a still challenging post-graduation job market, the situation is truly a perfect storm, and one we cannot continue to ignore.
Sadly, many students are making uninformed decisions with lasting impact. While loans are an important ingredient in a student’s overall investment in higher education, it is of great concern that two out of five student loan borrowers fall behind on payments within the first five years of entering the repayment phase.
While there are no quick fixes for the student debt crisis, three sectors — education, government and business — must all step up to help solve this looming problem. A comprehensive national action plan is needed, and it must provide students with the knowledge and tools they need to fully understand their student loans and better manage their overall personal finances. Helping students and families take advantage of available financial aid options and teaching money management skills will reduce the amount that students need to borrow and help them to manage any debt they may incur.
Government at all levels has an important role to play, starting with local school boards. Ideally, financial education should begin at a young age, with concepts introduced early in childhood and reinforced throughout the K-12 years. Federal and state governments have the power to create curricula to ensure that students understand the basics of saving, spending, investing and borrowing, and have a firm grasp of higher education costs and tuition funding options, including scholarships and financial aid.
Colleges and universities, too, have a unique opportunity to reach students at a time when they are beginning to develop both independence and career ambitions. By teaching them to align their educational plans and career paths, higher education institutions can prepare students to successfully choose, manage and ultimately repay their student loans.
Finally, businesses need to understand that a failure to act now will jeopardize their ability to find the knowledgeable, educated workers they will need to meet the demands of a global economy. The financial services industry in particular is in a position to help students get and stay on track with their finances. The industry needs to tap its wealth of knowledge and creativity, and devote time and resources to develop improved financial education programs that get results.
To truly effect positive change, businesses must work together with individuals and institutions to develop real-world resources and practical solutions. An example of a collaborative project between the financial and education sectors is a new, multiyear endeavor between TIAA-CREF and the Council of Graduate Schools (CGS). The program will enlist the leadership of colleges and universities to develop financial education programs tailored to undergraduate and graduate students with a wide range of personal and financial circumstances and career goals.
Working together, educational institutions, policymakers and businesses can help build a nation of financially literate Americans who are not only well-prepared for their chosen careers, but also secure in the skills they need to lead financially healthy lives. A dedication to financial education will help ensure that our nation has the highly educated professionals who can lead the way to future prosperity.
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