Our world is in constant motion today, which means things are always changing, some for the good and some for the bad. Technology is taking off like a rocket, allowing almost all of us to have the most up-to-date news at our fingertips at all times. New jobs are opening up each and every day in fields that did not exist just a few short years ago. And, with continued growth in the economy, the stock market continues to rise. Times are seemingly good with all of this change. Well, that is all but one category: the cost of college.
The Rising Cost of College
College used to be for the rich and intelligent only. Back in the 1970's, only 15% of the high school population continued their education and graduated from college. Those that attended and graduated were often guaranteed high-paying jobs and were much more secure when it came to holding onto employment. Naturally enough, this led to more and more young adults furthering their education in universities across the globe. And, as basic economics has taught us, with higher demand and a limited supply comes increased prices. Over the past twenty years, college costs have increased by 7% each year while the rate of inflation grew by only 3%. With each passing year, the cost of a diploma is rising higher and higher and is leaving many students with mountains of debt once they get out.
The Increased Debt Load
According to TransUnion, the average student loan total for a college grad in 2005 was $17,442. Today, just 10 years later, this amount has nearly doubled! The average student loan total has now climbed to $29,575. The cost of education has risen so quickly that even the high-income earning families are borrowing money for their children's education.
In relation to the cost of a home, $30k sounds like a drop in the bucket, but don't let this fool you. $30,000 is a lot of money! Think about it this way – How long does it take the average person to pay off a home loan? Typically 30 years or more, and this is one of those top priority costs that gets paid consistently every month. How long would you like to make payments on a student loan? For those that borrow more than $30,000, the time frame is often 10 years or more. With these hefty student loans, young adults will have to bear the load of their student debts until they are 32 years old!
Home Purchases Delayed
Due to the housing bubble that burst back in 2007, the economy has been incredibly sluggish. Many expected that we would be back on our feet in 2009 or 2010, but even now as we come to the close of 2014 there is still uncertainty about the strength of the economy. In my humble opinion, the economy has not bounced back as quickly as expected because of student loan debt.
We all know that the economy is dependent on consumer spending. Since students are now coming out of college with a $30,000 debt load and are entering an uncertain job market, spending is at a minimum. This is certainly true when it comes to home buying. I have personally seen many young adults head back home to live with their parents as they try to cope with their new found debt. Even that those that find decent work still aren't earning enough to make it on their own.
Should Student Loans Delay Buying a Home?
While it is true that student loans are causing young adults to get uptight and move back home, should these loans really deter them from buying a place of their own?
If a large student debt is accumulated (even this so-called ‘good debt'), the initial focus should be on living cheaply and paying that debt down immediately, not creating more debt. If this means living in your parents' basement for a couple of years, do it. If you refuse, then do yourself a favor and find an extremely cheap rental and put all of your extra money into those loans.
Yes, many of you are scratching your heads right now, and that just drives me crazy! This is why: cash flow.
I have seen some very close friends of mine come out of college with quite a lot of debt and then bought a nice house inside of the first year. They thought they were being smart by buying instead of renting, but now they are so strapped for cash each month that they can't even invest in their future. I guess that investment will now have to wait 10 more years until they pay off those student loans.
If instead, they would have focused on paying off their student loans in just a couple of years and then purchased the house, they would be able to enjoy their home, have a social life, and put money into their 401k for their later years. Doesn't that just make logical sense?
Don't bury yourself in debt. Work hard to pay it off and you will not regret it.