7 Million Student Loans in Default – Is Yours One of Them?

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I was in the mortgage business when the Real Estate/Mortgage Bubble started blowing up in 2007. From where I sit, the college/student loan alliance is heading down the same path. And the evidence is piling up – quickly.

According to the Consumer Financial Protection Bureau (CFPB), an agency of the US government, more than 7 million student loans – both federal and private – are in default. In addition, a substantial number of debtors are enrolled in alternative repayment plans to lower their monthly payments.

The student loan crash will be different than the Mortgage Meltdown

What makes the student loan crisis – let’s call it what it is – more complicated than the mortgage meltdown is that you can’t default on the loans and then get on with your life. There’s no foreclosure equivalent in the student loan business, and no ability to discharge them in bankruptcy.

7 Million Student Loans in Default - Is Yours One of Them?
7 Million Student Loans in Default – Is Yours One of Them?

If you’re facing a student loan crisis on an individual level, it’s already too late for you to make a clean break. Your only option is to work within the government’s alternative repayment programs, which can lower your monthly payment. But those plans only extend the repayment term – they don’t make the problem go away.

The government has been trying to make the unfolding student loan crisis more comfortable with plans such as the Income Based Repayment (IBR) or the Public Service Loan Forgiveness (PSLF) plans. And while those plans can help those already drowning in student loan debt to manage their monthly payments, your best bet will be to avoid borrowing for an education entirely if you haven’t gotten on that treadmill yet.

A six figure education is no longer practical for middle- and lower-income households, and more upper middle income families than most will admit. Here’s a point that most people don’t fully grasp: Student loans don’t benefit students and their families nearly as much as they do the colleges and universities, because it enables them to charge increasingly outrageous fees.

You have the option to not participate in the madness! What are the choices?

Drop the Animal House delusion

Somewhere lodged deep in the psyche of college students and college student wannabes everywhere is the cult-favorite movie National Lampoon’s Animal House. Perhaps the ultimate moving picture advertisement for the marriage between university life and reckless abandon, it has set the standard (if only subliminally) as to what campus life should be.

Not to rain on your parade, but you probably can’t afford that life (without student loans), and shouldn’t enter an adulthood of indentured servitude to make it your reality.

Back in 1978 when the move was filmed, college was much less expensive and middle class families were often able to send their kids to live away at college, without having to borrow money. That situation has changed completely and you need to adapt to the change – or pay the consequences later in the form of debts you can’t get rid of. You can cut your college costs roughly in half by living at home and commuting to school.

Community college

To take it a step further, community colleges offer even lower tuition than typical four year in-state colleges. You can cut your college costs significantly by spending your first two years attending one, then transferring to a four year school.

Beyond cost, community colleges have another important benefit: since they typically confer an Associates degree upon graduation, you may be able to get a job after just two years in college. Even if that isn’t your plan, it’s an outstanding option to have.

Work/study

Not only can earning money during your college years help to lessen the reliance on student loans, they can also be a valuable source of work experience that will help you to land a decent job upon graduation. Too many college students are living the life, and never hold any meaningful employment prior to graduation.

In today’s job market, you can’t get a good job without having hands on skills. The more you have the more employable you are.

That makes a compelling case for maintaining some sort substantial employment while you’re attending college. By substantial, I mean some sort of job – or even a business venture – where you can learn the kinds of skills that employers are looking for. Sales, marketing, computer skills, accounting, finance, and customer service are skills that are welcome everywhere, even in jobs where they’re not specifically required.

During your college years, you should think of your education in the broadest possible terms – as a combination of what you are learning in school, plus skills acquired through employment/self-employment. It can no longer wait until graduation.

Careers that don’t require a college degree

Today, we have this sanitized, standardized notion that everyone needs a college degree. Bunk! I don’t think it’s a stretch to say that much of the problem with recent college graduate un/under-employment has to do with the fact that a lot of kids are graduating either with useless degrees, or degrees in majors they have no real interest in or aptitude for (there’s a fundamental difference between being able to pass tests, and being able to apply what you’ve learned in the real world).

The job market is more diverse now than ever, and you should seriously investigate careers that don’t require a college degree. The demand for “managers”, “marketers”, “consultants”, “account executives”, and other generic categories is largely saturated, and you will probably earn better money in some of the trades, or up-and-coming internet based careers. If that’s where your interests lie, skip college and do what you need to to get a foot in the door of work that you can turn into a career.

Self-employment

The entire concept of “jobs” is a rapidly evolving concept. More positions than ever are contract, temporary, or especially part-time (the Affordable Care Act will guarantee that). The education you are getting to prepare for jobs that would have been typical and abundant in the 1990s may not exist by the time you graduate.

I believe we are transitioning back to the days before the two world wars, when the majority of people were self-employed. No, it won’t look at all like the 19th or early 20th Centuries, but absent jobs, people are increasingly having to create their own. You may want to investigate self-employment as an alternative to a college education.

While it may be that you will need a degree for the business you want to enter, consider that the internet has made self-employment easier than ever. It enables a one-man shop to leverage products, services and partnerships in such a way as to perform as a much larger organization.

Unfortunately, college doesn’t adequately prepare graduates for self-employment. Their focus is primarily on training them for life in the organizational/institutional world. If you want to be self-employed, you will have to go out and become self-employed.

I realize that sounds like an over-simplification, but it’s absolutely true. There’s no way to become self-employed through any method other than trial-and-error. The best education in that regard may be to spend the four years you would be in college working to build your own business. Once you start, you can gain experience, build contacts and alliances and learn the necessary skills and systems to be successful in the business. No one can teach you any of that – you can only learn it, and that will only happen when you do it.

Apprentice into a career

One of the best ways to blend education and experience is through the centuries old process of apprenticeship. It’s an opportunity to earn and learn in a real world environment. You can possibly apprentice into a business, or even certain jobs, but the best place for this is in the skilled trades. Apprenticeship is the normal course of entry in the trades.

If you really would rather be a plumber than an accountant, you should ignore the societal pressure (to say nothing of high schools) to pursue a college norm job, and go the skilled trade route. There are several major advantages to this:

  • You can begin working and earning money immediately.
  • You won’t incur student loan debt.
  • Your income will increase as you move through the apprenticeship process.
  • Since the work is local, it can’t be off-shored.
  • Technology can supplement the trades, but it can never replace the tradesman.
  • Common trades – mechanics, electricians, plumbers, etc. – have no geographic limitations – they’re needed everywhere.
  • The trades are an excellent entry into self-employment.
  • Because fewer young people enter the trades, pay levels are often higher than what they are for college norm jobs.

Follow your passion – even if it doesn’t require a degree

I’ve written on this topic before: Pursuing Your Passion Isn’t as Risky as it Used to Be. As the traditional job market degrades, pursuing your passion becomes a lower risk proposition all the time. But more important, you are more likely to be successful in a career or business that you are passionate about than in one that you merely enter to “make a good living”.

The job market is no longer a low risk proposition. As such, you might be better off pursuing your passion than risking burnout in the pursuit of a career-type position you’re not particularly enthusiastic about. I reached that realization when my mortgage career ended seven years ago. I finally let go of the elusive notion of “security”, and began pursing my passion to be a blogger/freelance blog writer. As a veteran of the pursue-your-passion route, I strongly recommend it. You will be working for the rest of your life, and doing so will be so much easier if that work is something you really like.

Once again, college doesn’t necessarily prepare you to follow your passion. In fact, it’s generally the default choice in favor of security. But there is no security, not any more. You might be better served by seeking out the kind of work you were “meant to do” – we all have such work, but most people aren’t doing it. If college and your passion don’t mix, you will probably be better off going for your passion.

You don’t need an education to do that. For the person pursuing his or her passion, inertia is your best friend. You simply need to set the direction on your passion, and you’ll learn all you need to along the way.

Once again, it’s a strong dose of trial-and-error – but don’t we all know that that’s really the best teacher anyway?

Do you agree that the cost of college and the size of student loan debts have become too threatening to ignore? What careers or businesses would you recommend right now, either for a high school graduate or someone looking to change careers?

( Photo by louisleoiv )

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11 Responses to 7 Million Student Loans in Default – Is Yours One of Them?

  1. So many students are taking on piles of debt and then graduating without a sense of direction, or a job to help repay the debt. My daughter is preparing for medical school – so the expectation is the direction and ready job will be waiting. Most degrees don’t allow for this.

  2. Hi Kevin – I agree. Medical school is one of the last remaining fields where you can afford to “pay the price” for an education with a reasonable expectation of a commensurate future cash flow. Unfortunately, I think the general population is 10-15 years behind the curve on the reality of the situation. Or they see no other options for their kids. Hence the entire purpose of this post 😉

  3. Education loans surface a lot in today’s time, but due to lack of adequate jobs, the loan ends up being a burden only, as even after gaining loads of qualifications, the individuals still get no jobs. This kind of a situation is bad for the society. Thanks.

  4. Agreed, an army of unemployed/underemployed young people carrying heavy debt loads isn’t good for the entire country. This isn’t just a problem for the idebted graduates alone.

  5. “inertia is your best friend” – WTF??????????? That’s the stupidest thing I’ve ever heard! Hands frickin down!

    Seriously! What are you proposing? Just throw in the towel?

  6. Hi Jim – Inertia is more commonly thought of as stagnation. But the full process is “objects in motion stay in motion, objects at rest stay at rest”. My use of the word refers to the first half of the definition, to stay in motion. That’s exactly what’s needed.

    But I’m glad you brought it up, since others will be confused too.

  7. I think some reasons college expenses and loan debt have soared in recent years are the massive building and sports team expenses.
    In my Central VA area, the local state uni has built no less than 20 buildings in the last few years. Most of those buildings are student housing, parking decks and athletic facilities.
    Today the uni just announced that the basketball coach is leaving for a school in Texas. That basketball coach will be receiving $14,000,000.00 + perks as compensation. Here in VA he was on a multi-million dollar contract.
    They say ‘star’ athletic teams bring in money to the school. If this is so, why are student fees rising so sharply? Why are 50% of the instructors poorly paid adjuncts or master’s program working as instructors for credit and a small stipend? Why does the basketball coach make more than the Dean of the Medical School?
    Our priorities in this nation are seriously out of whack. I can’t think of any other nation that puts so much money into college sports and then proceeds to gouge its other students financially.
    I used to work at a college and sales people from text book and equipment firms would come around like pharmaceutical sales people do at doctors offices. I think the text book mode of learning is seriously out of date and it is not the way many students best learn. With the advance of cnline and virtual learning there is just no reason to continue to promote over-sized, over-priced books that need to be updated every semester. College textbooks are a prime example of planned obsolescence.

  8. Great article Kevin! College tuition fees are expensive, my sister is planning to continue to go to college but at the same time she is currently working.

  9. Hi Mary – I agree with all that you’ve written. A good friend of mine said that college athletics are the “farm system” for pro sports, and I agree. Also, sports are a major part of a schools public standing. Many people perceive that a school with a top athletic program (or two or three) is also a “good school”. Sometimes that’s true, sometimes not. There’s no question that winning sports programs attract media attention and raise enrollment, since everyone wants to be part of a winner. That’s especially true of schools with winning football and basketball programs. There’s also the scholarship factor. The more that a school issues, the more kids who can go there on a free ride – curiously, more kids get athletic scholarships for “minor sports”, since only so many can be issued for major sports.

    To your point about sports and revenues, I think that colleges operate like governments, in that no matter how much money they take in, it will never be enough. The “mission” of the college (or gov’t department) will always expand faster than the budget, no matter how large the budget is. It’s a vicious cycle with no end. I think the reason for this phenomenon is rooted in human nature, so sorry to say it will never be remedied in any meaningful way.

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