It's no secret that student loan debt is at record high levels. As of the most recent data, U.S. student loan debt is at $1.2 trillion, which is more than the total of credit card debt, and is second only to mortgage debt as the most prevalent debt in the nation.
According to a recent study by the Brookings Institution, 38% of U.S. adults between ages 20 and 40 have student loan debt, and the average amount of debt is about $19,300. This has risen steadily since the study began tracking debt levels in 1989, when only 14% of that age group had student debt, and the average debt load was just $5,810 (in 2010 dollars).
However, in the interest of telling the whole story, there are some facts about student debt that you should know, but that are not covered too often. Here are three things that might make you think that the increase in student debt may actually be doing more good than harm.
More people are getting advanced degrees
The study found that approximately one-fourth of the increase in student loan debt is simply due to increased levels of education attained by borrowers, particularly at the graduate level. In other words, more money is being borrowed, but that money is producing more advanced degree recipients.
As of the 2013 data, nearly 34% of U.S. adults between the ages of 25 and 29 have achieved a bachelor's degree or higher, which has steadily risen from less than 25% in 1995. And, the number of members of that group with a master's degree or higher has grown from 4.5% to 7.4% in the same time period.
Expected lifetime earnings have risen more than debt
With just a high school diploma, you can expect to earn about $1.3 million in your lifetime. However, with a bachelor's degree, this amount jumps to $2.3 million, and climbs even further to $2.7 million for those with a master's degree, according to a recent Georgetown University study.
The Brookings study found that the lifetime earning power of college graduates has more than kept up with the increasing debt levels. In fact, it was found that the expected increase of earnings power from 1992 to 2013, by obtaining a college degree, would pay for the increase in debt incurred in just more than three years.
Government payment plans have actually made loans more affordable
During the past decade or so, there has been tremendous progress by the government in making student loans more affordable to borrowers. Originally, you had to pay back your loans in 10 years, and there were graduated and extended repayment options offered, as well. Now, there are several programs designed to make monthly payments more affordable, and even to forgive some of the loan balances after a certain amount of time.
With the advent of income-driven repayment, borrowers' monthly payments are limited by how much they earn. Under the Income-Based Repayment (IBR) plan, which has been around for several years now, monthly payments are capped at 15% of the borrower's discretionary income, as defined by the Department of Education. And, any remaining loan balance is forgiven after 25 years of on-time payments.
The Pay-As-You-Earn plan is the more recent income-driven plan, and it was just announced that it will become available to all student loan borrowers by the end of 2015. Under this plan, payments are even lower, capped at just 10% of discretionary income, and any remaining balance is dropped after 20 years.
And, there are other forgiveness programs that can wipe out some, or all, of some borrowers' debts. For example, teachers in certain public schools can be eligible for up to $17,500 in loan forgiveness after five consecutive years of service. And public service employees can apply to have any remaining loan balance forgiven after 120 on-time payments.
The point is that, while the dollar amount of student loan debt has certainly soared, so have the programs in place to make the burden easier on borrowers.
The ends justify the means
To some extent, it really doesn't matter how high student loan debt climbs, as long as earnings power climbs as fast, or even faster, and repayment programs make it affordable to pay back student loans regardless of income. So far, that definitely seems to be the case.
Basically, we need to look at student loans as one of the most important investments we can make in ourselves. And, according to the data, the investment can certainly be a lucrative one.
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