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How much should students borrow?

Some college-age folks believe there doesn't need to be a limit, while older people are more conservative. But students' crushing debt loads affect us all.

By MSN Money Partner May 16, 2013 1:28PM
This post comes from Adam Levin at logoSome call it the Student Loan Bubble -- I call it crazy. And what better time to discuss student debt insanity than now, as countless soon-to-be graduates prepare to slip on their caps and gowns? An estimated 1.8 million students are graduating this year, many with degrees that perhaps aren’t worth a damn when it comes to actually getting a job.

Mortarboard, diploma and money © Comstock, Getty ImagesNevertheless, many of them will soon be paying back the tens or hundreds of thousands of dollars they borrowed to get those nice degrees, and I wonder how many will regret the decision to spend what they spent as they see their interest compound and principals skyrocket through cycles of deferment and forbearance. The college experience can be an amazing one, but is it really worth the cost? (And I’m not talking about just tuition.)

To get at the heart of this question, I recently commissioned a poll that asked adults of all ages about student loans. We asked how much student debt is OK, and how much is too much. One in five senior citizens and almost a quarter of adults between the ages of 35 to 49 agree that $20,000 to $50,000 in student loan debt is too much to borrow. People of college age, between 18 and 24, disagreed; only 16% said graduating with that much debt is too much. Many respondents believe there should be no limits at all.

Borrow now, pay later

Among recent graduates, 22% agreed that students “should borrow as much as they need,” and “no amount is too much.” Baby boomers and seniors overwhelmingly disagree -- only 7.9% of people age 65 and up agreed that college students should borrow to the hilt.

Clearly, many college students and recent grads take a more cavalier approach to student loans than their parents and grandparents. Research shows that many consider high debt loads  to be empowering and give them higher self-esteem. Conversely, young adults -- folks who have  labored a few years into the real world -- are less enthusiastic about borrowing so much; 73% say they owe more in student debt than they can manage.

“It’s not surprising that the generation that has to borrow a lot more for college believes it’s a necessity for others,” says Lauren Asher, the president of the Institute for College Access and Success. “There’s been a big structural shift in how Americans pay for college, and the cost that students and families have to pay has increased.”

Young adults back their beliefs with more student debt. Just shy of half the respondents -- 46.8% -- between ages 18 and 24 said they have borrowed money to finance a college education. That’s the highest level of any age group.

The hard part: Paying it off

Loan totals are going up, too. Young adults reported a median debt of $38,100. That blew all other age groups out of the water. The average college student has about $26,600 in debt, according to the Project on Student Debt, a 40% increase since 2002, and it’s time to find a way to start paying it down.

Today's bad economic climate makes this pretty scary. The unemployment rate for Americans dipped to 7.1% in April. But joblessness among adults ages 20 to 24 remains mired at 12.5%, according to the Bureau of Labor Statistics. When you add in all the college grads working as baristas, waiters and other jobs that don’t require a degree, about 1.5 million bachelor’s degree holders -- 53.6% -- under age 25 are unemployed or underemployed, according to a study conducted for The Associated Press.

High college debt mixed with low job opportunities equal economic fallout.

Signs of stress are already showing. More than half of all student loans are now delinquent or in deferral.

Why it's everyone's problem

So, riddle me this: How do you buy a car, a home, or start a family (i.e. put the “consumer” into our “consumer economy”), if you can’t even afford a monthly student loan payment? You already know the answer. And so the economy will continue to stagnate, with demand flagging along with everything else.

As President Barack Obama and the Congress dither over federal Stafford loan rates possibly doubling to 6.8%, they have done nothing substantive about the real problem: The Great Recession and a competitive technology job market that colleges and college lenders aren’t catering to.

The new economic age of big, portable, sharable data is here, yet many American students today are still preparing for the economy of the past. Rather than slashing investment in higher education and scientific research, we should be adding to it. We should also be seeking innovative ways to keep a lid on tuition increases while simultaneously working to prepare millions of American graduates for the kinds of good-paying jobs they’ll need to pay their loans.

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The real  problem here is the spiraling cost of college. Colleges have raised the total cost of attending school routinely by 8 - 10% every year. They make it easy for students to borrow the money. As long as students have access to money, colleges will raise the rates. Colleges should be forced to disclose how many graduates got jobs within their fields within 6 months of graduation and the starting salaries for each position. Those statistics would be shocking. Students would then take a hard look at borrowing money if they were armed with that info.
May 16, 2013 2:03PM
I see no problem with a $26,000 in loans if you had enough intelligence to get the right kind of degree. Maybe instead of the government throwing more of my money at the schools, the schools should concentrate on education, not sports and not social engineering. Let the pro teams pay something to the college if the college is going to spend tuition money to develop a work force for them.
May 16, 2013 3:41PM
Really, "1 in 5" is a consensus but "16%" is barely any at all? Not seeing very different viewpoints here based on age. Most people agree that it's no good to "borrow to the hilt."
May 16, 2013 3:22PM
Since you can never get rid of the loan balance via bankruptcy, I think we will start to see more and more young folks who can't get a decent job make a hard choice.
1) hit the road and emigrate to another country, using the degree they got to find good paying work, and never paying it off
2) change identity, need to get "fake" ID and new SSN with no loan obligation! Since degree in English is of little market value, they get a fresh start
3) move off the grid and go into the underground/black economy, never pay off
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