The True Cost of Higher Education

Hard work and tears may be enough to get graduates through college, but the real payment for their degree comes after graduation.

Many college students and recent graduates are faced with the burden of their student loan debt that hangs over them long after the four years they spent in school.

“Your still paying for college so many years after you graduate,” Blair McCraney said, a recent Winthrop University graduate.  “It’s like you get out of college, but you’re still thinking about college all of the time and how much it cost you.”

According to Susannah Snider’s article “Avoid Turning Into a Scary Student Loan Stat” that was published on the U.S. News and World Report website in July, the average undergraduate borrower from the class of 2012 took on $27,183 in student loan debt.

“The student loan business is a big market so often times students are great targets for student loan companies because they know that your investing in your human capital, and provided that you successfully complete college you will be able to pay it back,” Philip Gibson said, assistant professor of finance at Winthrop University.

Private companies or the government can fund the loans that are available to students and these loans can be subsidized or unsubsidized.

According to Gibson, it would be good for students to understand the difference between subsidized and unsubsidized loans. 

“A subsidized loan is where the government will pay your interest while you’re in school versus an unsubsidized loan in which your interest is accumulated on your loan while you are in school,” Gibson said.

These student loans do come at a price, which is the interest that has to be paid on that loan.  Recent graduates can find themselves in serious financial trouble if they fall behind on payments and default on their loans.

“[Defaulting on loans] can destroy your credit, and it is extremely difficult to file bankruptcy to get out of student loans,” Gibson said. “During the period in which you’re not paying you are accumulating interest.  You are liable.  So your wages can be garnished and you can possibly loose your home.”

McCraney and her husband have begun to take measures to chip away some of their debts in order to remain financially stable.

“We began to take a financial peace class when we first got married.  The ‘snowball effect’ is a strategy that we learned.  Essentially you pay off the smallest loan first because those are the ones you can finish the fastest and will no longer be paying interest on those loans.  Any extra money that we have goes towards that and we are very committed. We have a strong budget that we both agreed to.  As soon as you get the first one paid off you roll that entire payment to the second loan and you pay it off with that same intensity.  It just keeps going like that.”

According to Gibson, how students manage their loans while they are in college can have a significant impact on the payments and debt they have after graduating.  He believes that while student loans may be viewed as taboo they aren’t a bad debt to have, “it’s the irresponsible use of student loans that is bad.”

“Many students will take out extra student loans to fund things like a spring break vacation or a car,” Gibson said.  “Just things that are wants, but not necessarily needs.  Sticking to the needs is a way to avoid using loans irresponsibly, which is covering tuition, housing and other school related expenses.  For anything else get a part-time job to pay for it.”

Consolidating loans as a recent graduate could be beneficial and make it more feasible to make payments toward debt.

“With loan consolidation you could get a low interest rate and extend the repayment of this loan over a longer monthly period, which would result in lower monthly payments,” Gibson said.

The website of The Project On Student Debt, a nonprofit dedicated to making college more affordable, reported that 71% of all students graduating from a four-year college in 2012 had student loan debt.

“We are at this point in society when a lot of people go to school and the majority of people graduate with some debt,” McCraney said.

McCraney, however, believes that the benefit of college out weighs the costs.

“College and the expenses from those four years is so astronomical now, yet it so imperative to your life after graduation,” McCraney said.  “It comes down to the value of education.  Even though college is very expensive it is something that is priceless because no one can ever take your education from you.”

While these loans burden college graduates they have afforded many students the opportunity to go to college who may not have otherwise been able to.

“Student loans can be viewed as you borrowing against your future income.  It provides someone who may not have the means available to go to college to borrow from their future income.  Once you start working you’re going to pay it back, it is essentially moving your income across time,” Gibson said.

Professor Gibson provides some tips to help minimize the cost of college and the effects student loans have on millenials in this audio clip.