New York (May 9, 2013) – Students go to college to get ahead, but many are falling behind in life’s next stages because of burgeoning school debt, according to a national telephone survey of student loan borrowers and their parents conducted for the American Institute of CPAs by Harris Interactive.
Three quarters of those surveyed, 75 percent, said they or their children have made personal or financial sacrifices because of monthly student loan payments. Forty-one percent have postponed contributions to retirement plans; 40 percent have delayed car purchases; 29 percent have put off buying a house; and 15 percent have postponed marriage. Most did not anticipate the financial strain, according to the survey. Only 39 percent said they fully understood the burden student loan debt would place on the future, and 60 percent now have at least some regret over the choice of education financing.
“As the pomp of graduation fades, many college graduates become keenly aware of their financial circumstance: ‘In debt,’ ” said Ernie Almonte, CPA, CGMA, chair of the AICPA’s National CPA Financial Literacy Commission. “They start out with an anchor that slows their progression toward future goals. It’s a difficult reality confronting a growing number of people, one that will come into sharp focus in the coming weeks as the nation’s colleges and universities produce a new crop of graduates.”
Almost 39 million U.S. adults had student loan debt at the end of 2012 – 70 percent more than in 2004, according to statistics from the Federal Reserve Bank of New York. During that same time, the total amount of student debt nearly tripled to $966 billion to become the biggest non-mortgage debt burden in America. The average student loan balance: $24,803.
“Education can be a powerful investment that improves job prospects and earning potential,” Almonte continued. “But the payoff is diminished if you’re also burdened by debt that takes decades to pay off. For those nearing college, it should be approached like any other investment: With a clear understanding of the risks, rewards and expected return. Those already contending with the financial burden of student debt should redouble their efforts to manage and eliminate it.”
Members of the National CPA Financial Literacy Commission offer the following tips:
Start early. It’s tried and true advice that works. The earlier families start saving for college, the better positioned children will be when they get there. One simple idea: Save half of birthday and holiday money your children receive for college. A CPA can help with more complex or tax efficient strategies that might make sense for your situation. Online education planning calculators can provide a sense of what you need to sock away.
Think different. Consider attending a community college for the first two years, living at home or attending classes part time while working part time to cut down on costs. Online courses are another potential way to gain credits while managing costs. The U.S. Department of Education offers a number of tools, including the College Scorecard that helps you find out more about a college’s affordability and value.
Set limits. If you use loans, be judicious. As a general rule of thumb, your total balance at the end of four years should not exceed the amount you can expect to earn in your first year using your degree. Be realistic about your prospects. And be creative and aggressive during your college years to fend off debt. Avoid credit card and other obligations that add to your burden.
Pay fast. Resist the temptation to start your payments at the lowest level with an increase over several years. This has the effect of increasing the amount of interest you will pay and makes it difficult to build a budget because your monthly expenses will keep rising. You might have to make short-term sacrifices, but once you’re debt free it will be easier to pursue long-term goals.
The CPA profession has a comprehensive financial education program—360 Degrees of Financial Literacy—to help Americans achieve long-term financial success. A robust website (www.360financialliteracy.org) is the centerpiece of the program with tools, calculators and advice to help Americans understand and manage their financial needs during 10 life stages, from childhood to retirement. In addition, the AICPA partners with the Ad Council on the Feed the Pig national Public Service campaign, which provides resources for “career builders” in the 25- to 34-year-old age group.
Since 2007, the AICPA has conducted an annual survey of Americans to determine their top financial concerns and assess their financial well-being. Harris Interactive conducted this year’s telephone survey on behalf of the AICPA within the United States between March 14 and March 17, reaching a nationally representative sample of 1,011 adults aged 18 and older by landline and mobile phone. It identified 237 respondents who either have student loans or whose children currently have them. Percentages are based on those responses.
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