Student Loan Debt: Shackles to our Economic Future
Jenna M. Duryee explains the importance of financial planning when it comes to student loan debt. She breaks student loan debt down into seven best practices.
FOR IMMEDIATE RELEASE
Victoria A. Velazquez
Craig James Financial Services
Student Loan Debt: Shackles to our Economic Future
On August 6 President Obama stated, “We need to build a housing system that is durable and fair and rewards responsibility for generations to come.”[i] He proposed changes mortgage lenders, the private sector and government need to make. Jenna Duryee, vice president of marketing at Craig James Financial Services LLC and graduate of Fordham University, claims the government should not simply focus on the changes that need to be made by mortgage lenders and private capital sector, but should open their eyes to the massive student loan debt that is choking graduates.
August 8, 2013 – Long Island, N.Y. – How can the US economy to recover when American college graduates are drowning in unprecedented levels of student loan debt? Jenna Duryee, vice president of marketing at Craig James Financial Services LLC, expresses concerns about why the rise in student loan debt not only poses a threat to US economic recovery, but why it may be the impetus to larger and more serious economic problems for people of all ages in the future.
Graduation day is one of the most memorable days in a young adult’s life. A few moments following this fond memory, regardless of whether or not they have attained a job, the majority of college students receive a mailing from Sallie Mae or other popular student loan lenders specifically outlining their loan repayment information.
This letter illustrates the monthly dollar amount they will be required to pay for next 10 years or more of their life. Making these monthly payments drastically decreases the average young adult’s free cash flow and causes a lack of emergency savings, the money for a down payment on a home or even a security deposit for an apartment. When one balances their college education expense against the poor job market, it is no wonder why many graduates are pondering whether college was worth the cost.
However, the cost is not just tuition and fees. “We are talking about the personal cost of having more debt, low credit scores, decreased borrowing power, inability to purchase a home, lack of savings and the inability to start investing for retirement,” said Duryee.
Duryee reminds us that receiving a higher education comes with a huge ticket price, and for many student loan debt serves as a large burden to bear over many years.
According to a recent study by The Center for Retirement at Boston College, 43 percent of young adults have student loan debt, compared to 25 percent of young adults just a decade ago.[ii] Also, the study reports that the average borrower’s balance has doubled in the past decade and was reported to be more than $20,000 in 2012.
“More and more high school graduates are in pursuit of accomplishing the ‘American Dream’ by going off to high tuition, well-established and well-endowed colleges and universities across the country, yet they are nowhere near close to having their white picket fence,” explains Duryee.
The Center for Retirement Research at Boston College proposed that student loan debt may be the reason for lower credit scores among young adults and the lack of home purchases across the US. The Federal Reserve Bank of New York has found that student loans caused many young adults to do poorly under two of the primary tests conducted by Freddie Mac and Fannie Mae to determine approval of standard home loans—credit score and borrower’s debt relative to income.
The Federal Reserve found that on average a 30-year-old with student loan debt has a credit score that is 24 points lower than a 30-year-old who is debt free. Duryee emphasizes that students in the past few years have graduated with large debt and no job to help repay the loans. Duryee feels that “students are taking jobs with lower incomes and others are going off to graduate school--taking on more student loan debt--in pursuit of higher degrees and hopes to get a job in the future.”
A student with large debt and a starting salary is going to find it very difficult to afford a home and will most likely not even apply. But what about those college graduates making decent salaries, working for a few years and paying off student loan debt monthly? The study found that if student loan debt is being paid off monthly, the average young adult would be disqualified for a mortgage.
According to the National Association of Realtors, historically, first-time home buyers account for 40 percent of US house sales. However, first-time home buyers only account for 29 percent of all US house sales currently and the percentage of young adults who own a home has also sharply declined.
If young adults in today’s generation cannot afford to buy homes, what is going to happen to the value of homes owned by baby-boomers and retirees? What will happen to interest rates? If property taxes are not paid by the youth, what will the government do to replenish those funds?
Aside from student loan debt eroding many young adults’ credit, Duryee feels there is much more at stake. Duryee explains that student loan debt also reduces a young adult’s ability to accumulate any savings, including retirement savings.
“If the average young adult only focuses on paying off their student loan debt and puts every dollar earned toward decreasing their debt, then they do not have any savings and they have not created any wealth for themselves,” said Duryee. “This could be almost as detrimental if not more so than having student loan debt.”
Duryee encourages graduates to recognize the importance of saving money and investing in their future. “Opening up a small investment account and getting into the routine of saving money is important. Set a goal, start saving to reach that goal, and pay off your student loans along the way,” said Duryee. It is vital for employed graduates who have the opportunity to invest in their retirement through an employer-sponsored retirement plan, such as a 401(k) or 403(b), start depositing money right away. Starting early with tax-deferred investments can make a huge difference.”
Student loans are hurting recent graduates throughout the US. Many young adults are making irreversible mistakes that could be prevented with the right guidance. Understanding and finding a balance between paying off student loan debt and accumulating wealth for oneself is essential.
If this balance is not found, there is a possibility that future generations will either be debt free and have no savings or become entirely dependent on their parents or government.
The future generation’s success relies on the ability to educate and assist them with adapting to and one day breaking free from the shackles of student loans.
Duryee has provided some tips for recent graduates and parents who are concerned about potential issues that may arise from student loan debt.
Duryee’s Seven Steps to Combat the Detrimental Effects of Student Loan Debt
1) Try to make the interest payments on your student loans while in school. Every payment helps, so why not start early? The interest payments are very small and should be something you can budget for while in school. This will help establish credit and paying history early on as a student.
2) Don’t forget about saving money and building wealth. Too many recent graduates get so caught up in paying back their loans as quickly as possible that they forget the importance of accumulating wealth. It is important that you balance your income between paying bills, debt and also saving money in an account.
3) Start saving for retirement. If you have the opportunity to take advantage of tax-deferred, growth do it! Tax-deferred growth is a powerful tool that many young adults put off to the later years of their working career. They have the mentality that they do not make enough, but this is simply not true. Every little bit helps when it comes to saving for retirement.
4) Become educated about how credit works—do you know everything that negatively affects your credit? Many people have no idea that their balances should be no more than 10 percent of their limits on revolving credit when seeking better scores. The closer the balance is to the limit the lower the score. Also, people have credit cards that they open once and then don’t use, but did you know that inactivity of credit for a 10 to 12 month period can reduce credit scores and may cause accounts to close. Make sure cards are used at least once every year for a period of one to three months.
5) Manage your current credit cards with precision. Never be late for a payment and if possible, pay off the balances in full. If you are a college graduate and have student loans you should not be buying anything that you cannot afford to pay in full at the end of the month.
6) Sign-up for automatic payments to help eliminate the possibility of forgetting to make a payment. This is not only a suggestion for student loans, especially since many lenders often decrease the interest rate if you sign-up for automatic deductions, but any other major bills that affect your credit.
7) Look for other ways to increase your credit score. It may be hard to get approved for a car loan at first, but another large purchase or lease such as a car can really improve your credit score since you will be paying back a major lender. With that being said, the loan needs to be paid on time all the time!!
To schedule an interview with Jenna Duryee or for more information, please contact Victoria Velazquez at 631- 393-2888 or Victoria.firstname.lastname@example.org.
ABOUT CRAIG JAMES FINANCIAL SERVICES
Jenna M. Duryee is the vice president of marketing of independent financial and retirement planning firm Craig James Financial Services LLC, serving New York City, Queens, Brooklyn, Nassau and Suffolk County and the east end of Long Island. Duryee is the co-host of Long Island based radio show “It’s All About Retirement” and assists in managing wealth in today’s economic environment and is securities licensed, as well as life and health insurance licensed. Craig James Financial works with retirees and those transitioning into retirement on how to invest and save for retirement and beyond. If you would like to learn more about Jenna M. Duryee and Craig James Financial Services contact their office at 631-393-2888 or visit longislandinvestmentadvisors.com.