By Priya Krishnakumar for Tuition.io
It’s time to talk about the 1%. No, not the focus of last year’s Occupy Wall Street protests—the other, unluckier 1%–a small percent of people who, according to the Federal Reserve bank of New York, owe over $150,000 in outstanding student loans.
While the average student debt in the United States comes in at about $12,000, the small but heavily burdened percentage of Americans who owe six figures in student loans face a much different and much more troubling set of obstacles when it comes to repayment.
So how does it get this bad? For the vast majority of one percent-ers, the bulk of their debt comes from grad school payments—in fact, graduate students make up for a third of America’s over $1 trillion in student debt. The average law student owes $100,000 in student debt, and while a career in law may once have guaranteed ease in paying off such massive debt, the current economic recession has made easy repayment nearly impossible for most graduates. In order to pay off a six-figure debt in the ten year period dictated by most repayment plans, graduate students would have to earn six-figure salaries—right after graduation. The Huffington Post reports that in order to pay off a debt of $150,000 in ten years, a graduate would have to earn a yearly salary of at least $207,000, a far cry from the national average of $41,000 per year earned after graduation.
Unfortunately for graduate students, these debt levels are unlikely to go down anytime soon—if anything, they may get worse. In July, Congress voted to bar graduate students from taking out federal subsidized Stafford loans, which were long considered to be the most popular option for students in grad school. Students now must take out either unsubsidized or private loans, which often come with higher interest rates and harder to navigate repayment plans. Indeed, a study done by Young Invincibles in Washington, D.C revealed that two-thirds of graduates who took out private loans did not fully understand the terms of their student loan, in matters ranging from interest rates to repayment schedules. When you combine the high cost of graduate school with a private loan with confusing and high-interest terms, it’s not hard to see how easy it is to slip into massive amounts of debt. And while there are government and income-dependent repayment plans, if you fail to qualify for either program, the entirety of your loan will fall on you.
Given the new obstacles facing students who want to pursue a higher education, the most surefire way to prevent drowning in debt is to carefully weigh the costs and benefits of accumulating such debt—and, of course, to read the fine print of those loans. Understanding the terms and repayment plans of unsubsidized federal and private loans may help make the decision about if, when, and how to pursue a graduate degree. Additionally, practicality is key—knowing the additional earning potential of a graduate degree may tip the scales in deciding whether or not to shoulder a large debt burden. The Wall Street Journal reports that receiving a master’s degree in engineering increases an individual’s earning potential by up to $19,000 more a year, but other careers may not be quite so lucrative. For those who are intent on going to grad school but are reluctant to take on massive amounts of debt, stay tuned for a future post discussing other financial options available to future grad students!
Priya Krishnakumar is a student at Northwestern University’s Medill School of Journalism. She writes for Tuition.io