Public education after high school is now seen as a necessity by many Americans, particularly given that many companies require some form of degree to even be considered for an entry-level position. Unfortunately, this is coupled with spiraling college debt, which has recently exceeded $1 trillion.
How Did Student Debt Start?
The education system that led to these debts started after the GI Bill was signed by President Roosevelt. This created a formal system that helped soldiers returning from World War II and then the Korean War to transfer into civilian life with qualifications.
As the United States prospered during the Cold War, more and more people started going to college and receiving a higher-level education. In addition to an arms race and a space race, there was also an education race — one that the United States was determined to win. As a result, the government felt it necessary to provide loans to the best and the brightest so they could afford education. Ultimately, significant expansion in this field has led to students picking up large amounts of debt in order to fund a wide range of courses and degrees.
In April 2012, student debt passed $1 trillion.
The financial cost for this form of debt is clear: It means less money in the economy as students struggle to repay their loans, and it also increases the likelihood of a default. In addition, due to the nature of student loans, they are exempt from bankruptcy protection except in cases of “undue hardship.”
How Much Debt Do Students Owe?
On average, each student is repaying $351 a month on a debt of $37,172. Naturally, this repayment figure includes a significant amount of interest, so the actual capital being repaid can be relatively low. On a 4.66 percent interest rate — which is at the lower end of the spectrum — the interest would be approximately $144 per month for a debt of $37,172. At an unsubsidized rate of 7.21 percent, this figure would be $223 on the same debt.
Student loans are not going away anytime soon, as they are a vital part of the current educational landscape. However, it is possible to save money toward your children’s education through the use of 529 plans. Depending on your state and your personal financial situation, this can have significant tax advantages and fund matching advantages. A 529 plan can also be used as an estate planning tool because it is not considered part of your gross estate.
Ultimately, preparing for your future or that of your children entails getting your own finances in order. If you want to secure your finances for the futre, you should consider investing in a Gold IRA. In fact, this should be a key part of your investment strategy, acting as a hedge against unexpected shocks and providing income should the economy take a downturn.