It may be a scary fact that student loan debt has now reached $1.2 trillion — yes, that’s trillion with a -tr at the beginning — dollars, according to the Consumer Financial Protection Bureau (CFPB), but looked at from the individual perspective student loan debt may not be as bad as it seems. Yes, the average debt for graduating seniors was $29,400, as of 2012, according to the Institute for College Access & Success. And yes, 71 percent of all students graduating from a four-year college were graduating with debt. And yes, the average debt has increased over time — it was just $9,450 back in 1993 — but there must be some advantage to having that debt, and the truth of it may be that much of that ties in to the value of a college education.
Six Reasons Student Loan Debt May Not Be That Bad
1. It may not be keeping adults from buying houses with those white-picket fences. Although the general theory is that student loan debt may keep people from buying homes, making major purchases and even, in some cases, delaying marriage or having kids, that may not be the case, according to a report from TransUnion. Although TransUnion shows that a whopping 36.8 percent of an adult’s “loan wallet” now comprises student debt (compared to 12.9% in 2005), it finds that student loans are not prohibiting students from taking on, and managing, other forms of debt, including mortgages and even auto loans. In fact, its report shows that those with student loans had more access to bank cards than those without student loans, and, after two years, had identical rates of auto-borrowing compared to those that did not have student loans. As far as mortgage borrowing, there were fewer students with college debt who had home loans compared to those without college debt, but that gap narrowed after two years.
2. Graduates with student loans may be better at paying their bills. It may not be too far off the deep end to assume those with greater debt may pay closer attention to where their money is going and to whom. Almost no one wants to ding their credit, but college students may be more aware of this than others simply because they have more debt hanging over their heads. This is backed up by the TransUnion study that shows that students with school loans had 15% lower 60-day delinquency rates compared to those without student loans.
3. They may have more earnings over their lifetime. Of course, excruciating college debt is easy on no one, but the truth is that college graduates generally earn more over their lifetimes than those without a college education. As well, access to higher-starting pay (which is often, but not always the case depending on the occupation) can provide graduates with a stronger financial point from which to begin repaying some of that college debt. In fact, the Bureau of Labor Statistics (BLS) shows that those with a bachelor’s degree had median weekly earnings of $1,108 in 2013. That compares to $651 for those with only a high-school education. At a difference of $457 over the course of a week, in favor of the student with a bachelor’s degree, that comes to $23,674 more over the course of a 52-week year. Of course, it’s unlikely that anyone would be able to put all of that extra difference toward their college debt — but it is interesting to note that over a year’s time, the additional value of a four-year education puts a student just about $5,700 short of the average $29,400 that needs to be repaid on student loan debt.
4. There may be ‘other’ savings in the long run. The TransUnion study also suggests that those with student debt can obtain better rates than those without student debt when it comes to loans. Whether it was subprime, prime, or superprime loans, adults with college debt had lower rates across the board. Overall, these rates were 9 percent lower for all tiers when it came to new bankcards and 24 percent lower across all tiers when it came to new auto loans.
5. Your credit score may be higher. Perhaps it’s not a direct result of the debt itself, but adults age 18 to 34 with at least one student loan appear to have slightly higher credit scores than those without a student loan, according to Experian. More specifically, they had a credit score right around 640, which was approximately 20 points higher compared to their peers without any student loans. Of interest, Experian also reported that 18 percent of those ages 18 to 34 with at least one student loan also had mortgages compared to just 13.1 percent for all credit-active consumers in that same age group. As well, the average annual income in that age group was $41,800 for those with college loans compared to $34,000 for all credit-active consumers in the age group. Using Experian’s numbers, that’s an income difference of $7,800 annually for those with college debt. If all of that difference went toward outstanding school loan debt (assuming it’s the average $29,400), one could say adios to it in less than four years.
6. You may have less chance of unemployment. Now that the Great Recession seems to be mostly a bygone, people may not be as worried about finding, and keeping, a job. However, in the case that the U.S. economy should get tossed on its back again due to a bursting housing bubble or anything else, those with college degrees are less likely to be unemployed compared to those who lack them. In fact, the BLS shows, as of 2013, only 4 percent of those with a bachelor’s degree were likely to be unemployed (although this is still a significant percentage if you’ve been on the receiving end of a lay-off) compared to 7.5 percent of those with just a high school diploma and 11 percent of those with less than a high-school diploma.
None of this is intended to make light of the serious consequences of heavy student loan debt, only to put it in perspective. One of the best plans may be to apply for and find as many scholarships and grants as possible and to consider a school that provides you with in-state tuition. The hard fact of the matter is that student debt has to be repaid, and given the average current student loan debt, it may be important to deeply consider both your school of choice and intended career well ahead of time.