Car? House? Sorry: Graduates of 2013 Are Each $35,200 in Debt

Student debt is creating the most debt-ridden twentysomethings in modern history, and we're all going to pay a price. Here's the best advice from new grads.

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The typical college graduate will leave campus this month owing nearly as much money as they stand to earn in their first year of full-time employment, new research shows.

At a personal level, graduates toting up their private and government student loans, credit card balances, and personal debt will find the sum shocking. On average, they owe $35,200 and half say they are surprised by how much debt they have accumulated, according to a Fidelity Investments Cost-Conscious College Graduates Study.

At a broader level, this debt has far-reaching implications for the economy as young people with starting pay of $44,455 spend much of it servicing debt—not buying cars and homes or beginning to save for retirement or emergencies. Some 70% of college grads have loans; many won’t pay them off for a decade.

(MORE: The Myth of the Four-Year College Degree)

The upshot is that young people are getting a late start building wealth. People in their late 20s to late 30s have 21% less inflation-adjusted wealth than those in the same age range 25 years ago, according to the Urban Institute. That’s partly due to the housing bust, which socked young people who had bought near the top. But student debt is a big factor.

“Student loans are the second largest source of debt for today’s Americans in their late-20s to late-30s,” writes Caroline Ratcliffe of the Urban Institute in her blog. “By way of comparison, student loans were a relatively small component of debt for their counterparts in the 1980s.” Mortgages remain the largest debt source.

Ratcliffe shared this view with the Federal Financial Literacy and Education Commission on May 14 as part of the Commission’s inquiry into student debt issues. She said that educating high school kids about college debt should be a priority, and added:

“But teaching financial literacy at younger ages is also critical. The earlier in life a person begins to build wealth, the more time those assets have to compound and become more valuable. So the key is to teach more people to make sound financial decisions earlier in life.”

Better-informed students would make wiser choices, the Fidelity survey concludes. Some 39% of recent grads said they would have planned differently if they had understood how much debt would pile up. Among steps they wish they had taken: saved earlier, researched financial aid more thoroughly, looked for additional ways to save and control costs while in school.

College loans total $1 trillion, and because of the drag this debt exerts on the economy the topic has never been more front and center. For most, college remains the surest ticket to a better standard of living. “Workers with post-secondary training are more likely to be employed, earn higher wages, and rise up the economic ladder,” Treasury Secretary Jacob Lew said at the FLEC meeting. “Education helps create new businesses and jobs, supports the middle class, and spurs productivity and growth.”

(MORE: We’re Doing a Lousy Job of Getting Poor Kids to College)

But mounting student debt has the opposite impact by leading college grads to take any job they can find to pay their debts, not put their career first; and to spend their income on debt service, not invest for the good of the economy and their future. As Lew said:

“These decisions-made early in life mean the difference between an individual who is prepared to enter the workforce and has put themselves on a course for success, and an individual who is so weighed down by onerous debts that it is hard for them to move forward…In today’s economy, it is also essential for Americans to develop basic financial knowledge and learn how to navigate a complex financial system.”

According to the Fidelity study, here is the advice the Class of 2013 would offer to high school students:

  • Plan sooner Get involved in college planning and financing decisions with your family early, before it’s time to decide on a school.
  • Understand your tab Take time to understand the financial aid process, how different kinds of loans may affect post-graduation expenses and debt, and how grants and scholarships can help offset costs.
  • Consider job prospects Think about the majors offered and how they may impact career goals.
  • Control costs Look for ways to save and control costs while in school and create a plan to help manage expenses.
28 comments
dklloyd
dklloyd

The onus and blame are too often pushed onto the students(consumers of education.)The issue of escalating costs needs to be addressed.

Americans are expected to be prepared for high Insurance Premiums,College Tuition,retirement(millions have to be "put aside" for that.)housing costs,money to raise children,all while investing in the "right" funds.The good American finds the "right " funds and saves and invests wisely.The good American  sees their low-paying job as a steppiungstone to being an overseer of lowpaying jobs or the next CEO of a multi-billion dollar companThe good American does not waste their time on Liberal Arts,creative pursuits.teaching,social services and,certainly not on Activism to address any of these issues.

The good American is a Plutocrat or one of its aspirants.

DanHawes
DanHawes

Is a University experience just measured by cost? What about the friends you make; the independence; the fun; learning new skills; developing a lifelong habit for learning and critical thinking not mention specialist knowledge in a subject? The challenge is making the transition into the working world and matching your skills in the right way to maximise your career success.

jjjjmonkey
jjjjmonkey

Let's see, these students are smart enough to go to university, smart enough to apply for loans, smart enough to pass their courses, but not smart enough to figure out that $30,000 - $40,000 in debt is a big deal.   No sympathy from me.  

Raita Nagappa
Raita Nagappa

But the good news is you will earn more in your lifetime than most people who dont graduate. So get a job any job and start saving pay off quickly and get on with your life. Dont do graduation in useless subjects

Vijay Banga
Vijay Banga

Well never mind but where is the job to pay back

Ivette Justiniano Bermeo
Ivette Justiniano Bermeo

We have to stad up and fight for our children's .College is ridiculous expensive .Just the same way hospital charge you . But people think Capitalism is the right way.

Baris Ertan
Baris Ertan

Babies born in america are approximately $250k in debt due to borrowing by federal govt

Andy Pratt
Andy Pratt

No debt, but no magical job, but no stability anyway, nor way to compete or keep up with the competitive markets, but no mobility within the markets to make a difference anyways. That's not mine or the president's fault. That's God's fault.

Paul Chen
Paul Chen

My wife has been attending a local community college in California. (Still does.) Less than $3,500 for all tuition, fees, and books for 15 units (that's full time) per semester for a whole year. Now my wife has been going part-time at night because she is also a full-time stay-at-home mother to our toddlers. So the costs have been more like $2,000 per year. She'll be getting her RN (registered nurse) from the SAME community college in 2 years. Total school cost per year will be $5,000 per year for tuition, fees, uniforms, and books. And after she passes the NCLEX, she'll have an RN and be looking for a job as a registered nurse (not even an LVN/LPN) at a local hospital. Who borrowed $100,000 for an interdisciplinary degree in religious and women’s studies, and came out to work as a photographer's assistant? http://www.nytimes.com/2010/05/29/your-money/student-loans/29money.html

Soon Khow Wong
Soon Khow Wong

In Malaysia housing alone cost Rm $300,000 + study loan Rm 75,000 + car loan Rm $ 80,000 total dept before start working =Rm $455,000 and Malaysia is consider 3th world country how it happen...???

Shalabh Tayal
Shalabh Tayal

@ron yes it is indeed quite serious ! Hope we learn this time.

Ron Isbell
Ron Isbell

1.1 Trillion and counting as of last yrs. outstanding debt on student loans.

Russell Haydn
Russell Haydn

My two daughters in the UK both graduated last year with an average debt each of £25,000 ($37,924). They have both found jobs (not easily) but constantly have to juggle finances in order just to live! What is the system expecting of these young people and is it morally right... I think not!

Live Adnan
Live Adnan

getting a suitable job would also be a challenge

Geoffrey Mwangama
Geoffrey Mwangama

Why not try study in African? Cheap and most employers are those huge companies in mining, oil and gas sectors from USA, Canada, Australia, and Europe

Mpendulo Ndlovu
Mpendulo Ndlovu

I concur with you Shalabh. The focus has shifted so much on education that it makes the fees ridiculous. It is funny to note that tuition is actually cheaper than room & board.

Carolien van den Berg
Carolien van den Berg

...and good luck finding a job in this economy. Welcome to the lost generation, everyone.

Mpendulo Ndlovu
Mpendulo Ndlovu

That is the sad truth. Then there's the car, a house and all. It's not as rosy as it seems from a distance but it works out well in the end. In SA the fees are not like the hefty private college fees in the States so I don't think the situation is as bad, as many students have bursaries, removing the job hunting head-ache at the end of a degree.

Shalabh Tayal
Shalabh Tayal

Graduation will lose its worth in the near future if univs continue as 5 star resorts and focus on everything except education. Another reccession will grip as students dont have a job to pay debt to banks !

Alison Rezabek
Alison Rezabek

There is a reason we have to sponsor people with H1B visas to fulfill a lot of the open jobs in the U.S.

Steve Soman
Steve Soman

$35,200? are you delusional? Try trippling that!

David Lim
David Lim

Thank you for the reminder TIME. "sarcastic smiley face" :)