Paying for College

The Devil's in The Debt

Okay, high school seniors … let’s summarize. You probably have piled somewhere, the results of your college quest: the good news (acceptances) and the not so good news (rejections) or, possibly worse, waitlistings.

Waitlistings seem to be the tool of choice these days with highly competitive colleges. You can read my thoughts on waitlists elsewhere on Admit This! Just Google: >>Admit This! waitlist<<


Now, along with the good news, you should have received your financial aid packages. Many times, the results of this “decision within a decision” hovers over the bad news pile. Just two words explain why: shortfall and loans.

A financial aid shortfall simply means that your EFC (Expected Family Contribution) is well beyond your family’s ability to pay. This past year, I’ve seen EFC’s in the $30-40,000 range several times, and that was just within a small group of clients and contacts. Typically, a family will look at a shortfall of that magnitude and say, “How could we ever come up with a yearly amount of cash that equals such a huge percentage of our household income?” That’s a completely reasonable question.

What most families don’t realize is that in forthcoming years, that EFC may increase, along with rising college costs. Colleges tend to make their bast aid offers up front, during the first year or two. That’s called “front-loading,” a kind of “Give ’em a leg then take it away” scheme. The student becomes anchored in at a school and then the financial pressure starts to increase during sophomore and subsequent years. It can be an agonizing situation.

 

For parents of students who have maintained dreams of a particular school or one of a group of schools (such as Ivy League), ignoring a threatening EFC usually leads to that second word: loans. Therein lies the danger, or the “devil,” as my title implies.

I preach  frequently about the perils of student loan debt. My cautions extend to parents, too, naturally. With four-year undergraduate degree costs approaching (or, in some cases, exceeding) the $300,000 level at top schools, a team of parents and students signing their credit away to handle these expenses can lead to a lifetime under financial water. I wrote about this a couple summers ago and it bears repeating, although the bad-news numbers are likely even more ominous these days:

Some of you may have become immune to my blathering and no longer pay attention to my cautions. That’s understandable but unfortunate in my view. The facts are apparent and easily found: National student loan debt reaches a bonkers $1.2 trillion.

That’s $1,200,000,000,000. Put another way, that’s about five percent of the U.S. national debt. A staggering figure.

What are the individual, personal, and practical consequences of such indebtedness? I did some research to find out and posted related information in a thread on the College Confidential discussion forum. It caused a bit of a stir.

 

First, let’s take a look at some perspective:

Kyle Craig wants to go to graduate school, but just being an undergraduate is already drowning him in debt.

“I’ve got student loans just like everyone else walking around,” says Craig, a senior at Old Dominion University. “I expect my debt to be around $30,000 by the time I’m done here.”

“Yes, I have student loans,” says Kyle Coghill, a junior at Old Dominion. “I’m a 22-year-old studying communications at a university. Of course I have them. I have absolutely no clue how long I’ll be paying them off. I don’t really want to think about that.”

Craig and Coghill are just two of the 40 million people across the United States who have monumental student debt, as reported by CNN. In fact, student loans have increased by 84% since the recession (from 2008 to 2014) and are the only type of consumer debt not decreasing, according to a study from Experian, which analyzed student loan trends from 2008 through 2014.

The analysis also finds that in total, a staggering $1.2 trillion is bleeding students dry. …

Aside from the prospect of a lifetime of indebtedness — that’s bad enough — huge loan debt can also be the source of negative health issues, mainly the psychological consequences of such a situation. This aspect has been studied and the findings are what you might expect: student loan debt is linked to poor mental health in young adults.

 

Student loan debt can have adverse effects on borrowers, from not being able to purchase a home to damaging credit scores. But a recent study claims there’s also a link between the piles of debt and poor mental and psychological functioning among young adults. A University of South Carolina study determined that students weighed down by loans were more likely to exhibit signs of depression and stress.

The study, published in Social Science & Medicine, examined the link between student loan debt and psychological functioning for more than 4,600 American 25- to 31-year-olds, then currently enrolled U.S. students. According to the report, both “occupational trajectories” and “health inequities” were negatively impacted among students with student loan debt they could not repay.

The study’s author, Katrina M. Walsemann, suggests that extreme debt is causing young adults to delay decisions regarding marriage and children, as well, as causing some to deviate from their chosen career path. “We are speculating that part of the reason that these types of loans are so stressful is the fact that you cannot defer them, they follow you for the rest of your life until you pay them off,” Walsemann noted.

The study was based on two questions: What is the association between the cumulative amount of student loans borrowed over the course of schooling and psychological functioning when individuals are 25–31 years old? And what is the association between annual student loan borrowing and psychological functioning among currently enrolled college students?

Researchers found that financial strains have a measurable mental and physical effects on people from all socio-economic backgrounds. Walsemann found a direct link between stress, anxiety, hopelessness, and sometimes depression and the amount of debt accumulated by students. On average, the higher the debt amount, the more likely a student or ex-student was to suffer from mental illness.

 

The study noted that certain participants who were raised in poorer families or who had already experienced significant amounts of emotional instability in their lives were more capable of coping with the mental setbacks. “Those who are able to enroll in college despite their early-life disadvantages,” she speculated, “may be in better mental health or possess personality characteristics that increase their odds of attending college, such as being future-oriented or highly motivated.”

In a related articleHow Are Student Loans Affecting the Well-Being of Young Adults?Newswise notes:

When it comes to what stresses out young adults, student loan repayment is often at the top of the list. As annual student loan borrowing has become increasingly commonplace in the United States, the question of how the burden of a large loan looming at the beginning of independent adulthood affects the mental health of young people is one that has not been looked at until recently.

Researchers at the University of South Carolina and the University of California, Los Angeles posed two questions: What is the association between the amount that students accrue during undergraduate studies and their mental well-being post graduation, when they are between the ages of 25-31; and what is the association between annual student loan borrowing and the mental well being of currently enrolled students?

In the first nationally representative study to specifically look at the effects of student loans on health, lead author Katrina Walsemann set out to examine the relationship between student loans and early adult mental health. Using data from the National Longitudinal Survey of Youth 1997, a nationally representative sample of young adults in the Unites States, researchers found that those who had higher amounts of debt incurred from student loans reported higher levels of depressive symptoms, even with adjustments for parental wealth, childhood socioeconomic status, and other factors …

 

In my view, the entire panorama of negative effects caused by excessive student loan debt has not been fully explored, particularly in the area of how it affects other life decisions, such as occupational choices, delaying marriage and children, and general decision making.

To quote myself from a previous loan-debt rant, there appear to be three lessons here:

1. Try to avoid “easy” financial aid. That is, don’t choose to borrow easily and quickly available funds when other options may be available, such as merit-aid scholarships, family resources, and even part-time work. The classic claim, “I worked my way through college” is sometimes reasonable and attainable.

2. Be alert for signs of depression. While in college, if you find yourself losing interest in your work, your well being, and your social life, seek out campus resources, such as mental health counseling, which may be able to help you pinpoint the sources of your downturn. There is no shame in seeking help for an increasing case of the blues.

3. Consider cost-effective higher education. One way to bypass the consequences of heavy student loan debt is to take a path that leads through lower-cost schools. Starting at a community college and then transferring to a public university can save many thousands of dollars and perhaps even eliminate the need for loans altogether. You don’t need to pay for a $60-75,000-per-year college to be successful and happy in life!

Thus, think long and hard about that aid package attached to your first-choice (or even any) college’s good news. Don’t turn your good news today into a lifetime of bad news.

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Be sure to check out all my admissions-related articles on College Confidential.