How families can tackle student loan debt
As high school seniors and their families prepare to choose which college to attend, student loan debt looms large. Currently, 43 million Americans have student debt and the average household with student loan debt owes almost $48,000. More than 5 million borrowers are in default.
With the nationwide student debt topping $1.5 trillion, CBS News business analyst Jill Schlesinger urges families to discuss debt long before the college application process begins. Students and their parents need to look at what their loan entails. Before taking on debt, students should have an understanding of what their degree will be worth in the future job market.
"If you can graduate with a total amount of debt that is at least equal or lower than your first year's salary, you'll probably be able to pay it off pretty easily within 10 to 12 years. So, if you're going to be a software engineer and you have $60,000 in debt, you're gonna be OK. But if you're going to be a docent at a museum and you're making $32,000 a year and you've racked up 100 grand in debt, that's going to be really hard," Schlesinger said.
Some colleges may offer scholarships or other assistance to families with lower incomes. Or a public university may have roughly the same value as a private one, becoming a better choice in the long run.
Paying off debt
For borrowers already in debt, Schlesinger recommends listing out every single loan—student loan, car loan, credit card debt—based on the interest rate. See what you can afford to pay each month beyond the minimum payment in order to pare down the debt quickly. Some borrowers may be able to refinance. But understanding your debt is key.
"Before you start dipping into your house or refinancing or borrowing against your 401(k), all those things are really dangerous positions to put yourself in financially, you've got to get real with these numbers. Wrap your arms around them. Live them, learn them and figure out how you're going to eradicate the debt," Schlesinger said.
As for parents or grandparents, Schlesinger said they shouldn't offer money they don't have, or put off retirement to help pay for college.
"If you don't make your retirement needs and goals, who is going to take care of you? Probably your kid. So you're not doing your kid any favors by really putting your own retirement at risk," Schlesinger said. "Steady your own financial ship. Then you can see whether or not and to what extent you can help your kids."