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May 10

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Student Loans are Restricting Other Spending

00009076The cost of attending college is rapidly increasing.  The job market is recovering, but is still weak for college graduates.  Students have been forced to take large amounts of debt out to finance their education.  The burden had caused these students to delay retirement savings, purchasing real-estate, buying a car, and getting married.  CNN Money recently reported some interesting statistics from a survey conducted by the American Institute of CPAs:

  • 41% of surveyed individuals held off making contributions to retirement savings
  • 40% of surveyed individuals postponed buying a car
  • 29% of surveyed individuals put off buying a home
  • 15% of surveyed individuals delayed getting married
  • 60% of surveyed individuals feel some regret about taking out debt to fund their college education

Total student debt outstanding is over $1 Trillion, with about 1 in 5 households having student debt.  It represents the largest non-mortgage debt in the U.S.  Student debt can become an increasing burden on borrowers as the interest on the debt can begin to rack up quickly.  In July, interest rates on government subsidized Stafford loans are set to double, going from 3.4% to 6.8%.  This is a high cost in the current environment, although there is a bill before Congress to set student loan interest rates to the Federal Funds rate at which banks borrow money, currently at 0.75%.

With this level of student debt, we will surely continue to hear more as our young citizens struggle with this problem. The ever increasing cost of higher education and the resulting student debt burden will no doubt cause some to questions whether the benefits are cost-justified, a reasonable question which is explored further here.

About the author

Anand Khemlani

I am a founding member of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA), Accredited in Business Valuation (ABV), a Certified Fraud Examiner (CFE) and am a licensed Real Estate Broker. I regularly serve as an expert witness involving results of my forensic accounting assignments and damage analyses. My resume is available on Fulcrum's website

Permanent link to this article: http://betweenthenumbers.net/2013/05/student-loans-are-restricting-other-spending/

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