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The Real Cost of Student Debt

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Preparing for college expenses is a daunting task. According to Bloomberg, in the past 30 years, the cost of a college degree has increased by 1,120 percent, while medical expenses have only increased 610 percent. However the reality is that for many career paths, higher education is still a necessity. In order to meet this need, many are forced to turn to student loans. While these loans offer the opportunity to achieve goals, they come at a cost.

According to the Wall Street Journal, the average student graduating in 2014 with student loans will owe $33,000. Monthly payments on a student loan load similar to this would fall somewhere in the ballpark of about $250 a month for 20 years. While this may be a manageable payment for most, it’s not necessarily about what you’re doing with that $250, but what you’re not doing. For starters, 27 to 30 year-olds with student loan debt are buying fewer houses. Graduates are renting longer, rather than building equity. That’s also $250 that isn’t going into savings in a 401k or IRA, or college savings accounts for the kids. The College Funding Group estimates that if two students were to invest similarly, one with student loans and one without, the student who started without loans would have an additional $600,000 in savings at retirement.

While the lasting effects of student debt are formidable, studies still show that higher education is worth it. Recent estimates by the U.S Census Bureau suggest that graduates with a bachelor’s degree can expect to make an average of about $1 million more during their work lives than those without a degree.

The key to avoiding the pitfalls of crushing college debt is to start preparing early. Saving whatever you can, when you can adds up. With all of the frightening numbers and startling sticker-price of higher education it’s easy to get overwhelmed, but just remember, every little bit helps. As college approaches, take the time to educate your child on the lasting effects of student loans. Being in the know can help to motivate them to track their spending, work when possible, and reduce the total load of debt that they graduate with. If you start early, you can make a lasting difference for the financial well-being of your child.

Written by Dan Payne

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