Who’s to Blame for the Student Debt Problem?

by Carla Lake | December 11, 2013 10:50 am

According to a survey from the Harvard University Institute of Politics[1], 79% of Millennials say student debt is a problem. And they’re right — $1 trillion in national student debt isn’t the only reason[2] why so many Millennials are having a tough time, but it’s probably one of the most significant.

student debt, young investors[3]Depending on the source you look at, Millennials have an average student  debt of $23,300 to $45,000, a burden that has forced many to live at home or to postpone major decisions like buying a car, taking on a mortgage or starting a family[4]

According to the Institute of Politics survey, 42% of Millennials blame universities for student debt, while 30% blame the federal government. 11% blame students themselves, and 8% blame state government. So the question is — who really deserves the brunt of the blame game?

Well, the answer can’t be boiled down to a single culprit. Here’s why.

Universities Raising Prices, Though Slowly

Tuition for full-time undergraduates is definitely rising[5] — but not as fast as it used to. The median cost for in-state college tuition nationwide is $11,093 for the 2013-2014 school year, but that’s just a 2.9% jump. Compare that to a 4.5% increase last year, and an 8.5% increase in 2011, and the most recent hike seems reasonable in comparison.

But even with a slower pace of growth, students are actually paying more out of pocket after scholarships, grants and loans. So although increasingly higher sticker prices are part of the problem, they don’t tell the whole story.

Federal and State Aid Subsidizes Higher Ticket Price

Though college tuition costs are slowing, federal aid and scholarships have reached a plateu,[6] which means college students are actually paying more than they were when tuition was rising at a higher rate.

From 2008 to 2011, federal spending on Pell Grants more than doubled[7], and the amount of people eligible for the grants increased by 80%[8]. Now, federal spending on student aid has slowed, while costs have not — so students have to come up with the difference somehow, which often means student loans.

Maybe $50K in Loans for an Art Degree Isn’t a Great Idea…

And although it pains me to say this as a former English major, students do shoulder some of the blame for high levels of student debt. Though studies like the one from the Harvard University Institute of Politics suggest that students and recent grads are becoming more aware of the tradeoffs that come with student debt, there are still those who believe the myth that simply having a college degree means you’ll get a well-paying job.

And that’s just not true anymore, especially for certain majors[9]. Clinical psychology majors, for example, have an unemployment rate of 20% — that’s four percent more than the overall youth unemployment rate[10]. And of course, even if you find work within your field, it might not be full-time, with the “mal-employment” or underemployment rate currently near 50%[11].

Regardless of who’s to blame, this generation is paying the price. A recent study from Nerdwallet shows that the burden of student loans could delay Millennials’ retirement age to 73 or later[12] because of lost earning and saving potential in their twenties.

So 79% of Millennials are right. Regardless of who’s to blame, there really is cause for alarm when it comes to rising student debt levels, and the effect that they can have on your finances for the long-term.

Carla Lake is an assistant managing editor at Investorplace Media.

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  1. Harvard University Institute of Politics: http://www.iop.harvard.edu/student-debt-viewed-major-problem-financial-considerations-important-factor-most-millennials-when
  2. isn’t the only reason: https://investorplace.com/2013/11/millennials/#.UqYWoyeQOIA
  3. [Image]: https://investorplace.com/hot-topics/young-investors-series
  4. starting a family: https://investorplace.com/2013/11/investing-generation-y-next-great-baby-boom/#.UqYdGCeQOIA
  5. definitely rising: http://trends.collegeboard.org/sites/default/files/college-pricing-2013-full-report.pdf
  6. federal aid and scholarships have reached a plateu,: http://www.usnews.com/news/articles/2013/10/24/the-rise-in-tuition-is-slowing-but-college-still-costs-more?page=2
  7. more than doubled: http://www.aei-ideas.org/2013/10/new-data-on-tuition-prices-is-it-possible-its-even-worse-than-we-thought/
  8. increased by 80%: http://www.cbo.gov/sites/default/files/cbofiles/attachments/44448_PellGrants_9-5-13.pdf
  9. certain majors: http://graphicsweb.wsj.com/documents/NILF1111/#term=
  10. overall youth unemployment rate: http://www.bls.gov/news.release/youth.nr0.htm
  11. near 50%: http://www.businessinsider.com/rise-of-college-student-underemployment-2013-8
  12. could delay Millennials’ retirement age to 73 or later: https://investorplace.com/2013/10/millenials-delay-retirement/#.UqejZo2E5EY
  13. Sign up for our Young Investors e-letter: https://order.investorplace.com/?sid=YIS100

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