Skyline Financial NorthwestThe Student Loan Crisis

By Skyline On Friday, May 24 th, 2019 · In Field Note

Student loan debt has continued to grow at unprecedented rates, rising 157% between 2007 and 2018. With 69% of 2018 graduates averaging a $29,800 student loan debt, it is no wonder politicians, e.g. Elizabeth Warren and Bernie Sanders, are incorporating this issue in their platforms. While legislation may force change to the student loan crisis, prospective students must also take measures to prevent the unnecessary accumulation of debt.

Students and parents of prospective students need to understand that not all colleges are created equally; some schools offer a greater return on investment than others. Among private schools, MIT and Princeton provide a better return on investment than Vanderbilt and Notre Dame. Among public schools, UC Berkley and West Point offer better returns than Oregon State or Auburn University. Moreover, public schools generally offer greater long-term financial benefits than private schools. While 66% of public school students graduated with an average debt of $25,550, 88% of students graduating from private for-profit colleges left with a $39,950 average debt.

Similarly, not all majors are created equally. Engineering and economics degrees often lead to better paying jobs. According to a 2014 study, drama and theater majors will need to use 24% of their first year income to service their student loans. Similar fates also await graduates with degrees in health and physical education, civilization, ethnic studies, composition, speech, fine arts, and nutrition and fitness studies.

Amongst the most important financial considerations for any prospective university student is calculating their total debt to income ratio after graduation. Ideally, student loan payments would not exceed 8% of estimated income. In total, monthly student loan payments and other debt and housing payments should not exceed 36% of income. With the current average student loan payment at $393, and the median monthly payment at $222, a recent graduate would need to make $58,950 and $33,300 respectively. As of 2018, the average starting salary was $48,400.