New Graduates: Dream to Grow Rich
by William Hamilton | Arizona State University
According to 2010 Social Security Administration wage data, the most recent available, 60 percent of workers in the US make under $35,000 per year. The top one percent of wage earners make over $200,000–that’s just 1.3 million people. Over 91 million, however, make under $35,000.
This is a problem.
Average student loan debt for the same period topped $25,000, according to a recent report from the Institute for College Access and Success, with a range from $15,000 to $31,000. Using that average, a graduate will have to pay just over $250 per month for 10 years at 4 percent interest to pay off her student loans. That comes out to $3,000 per year, or 8.5 percent of a $35,000 salary. Almost 10 percent of the above median worker’s salary, then, will go to paying off student debt.
Paying $250 per month seems easy enough, but it’s difficult to do. Recent figures from the US Department of Education show 3.6 million students entered repayment from October 1, 2008 to September 30, 2009. Of those, 320,000 students defaulted before September 2010. The average default rate is up almost two percent to 8.8, with for-profit schools going as high as 15 percent. Total figures are far higher, as this is just one window of time.
The student loan data used to calculate the $25,000 average excludes graduate students and transfer students, and notes that data on private loans is somewhat unreliable. Private student loans originating outside of the school are excluded, as are Parent Plus Loans. Including student debt to show a realistic path of a student–switching from an out of state university to an instate, for instance, or taking a year off yet getting a private loan–shows the problem to be much worse.
Sara Tobin, a student from Tulane University, has an undergraduate debt burden of $100,000. Tamara Reese, who graduated from the University of Findlay in Ohio, has an undergraduate burden of $70,000. They’re not alone, as the ICAS report notes the average debt for high cost, private, non-profit schools can reach just over $55,000. According to the NY Federal Reserve, total outstanding student debt in the US is around $845 billion.
Assume a $50,000 student loan debt creates a repayment scheme of $504 per month for 10 years. That’s $6,048 per year, or roughly 17 percent of a $35,000 salary. Almost $2 out every $10 earned will go to student loans.
But not many new graduates will make $35,000 per year. Data reported by the NY Times show almost 45 percent of graduates in 2009 were either unemployed or working in jobs that require no college degree. The median income for jobs requiring a degree was $26,756. The median income for jobs with no degree requirement was $15,896. Only 55 percent of graduates got a job requiring a degree, and of those, 50 percent made less than $27,000. One out of every five graduates will have no job after university, and another one out five will be working in a field that requires no degree.
The student loan burden looks even harder to pay off. At $25,000 debt and $250 per month for 10 years, a graduate will pay 11 percent of a $27,000 salary annually. A $50,000 burden with payments of $500 for ten years will take 22 percent.
That’s too much. An $800 rent, $300 car payment, and $500 monthly loan payment comes out to $19,200 per year. That leaves $650 available per month, assuming a $27,000 salary. Add health insurance, add dental, add groceries, add gas, and the picture becomes bleak. The overwhelming majority of college graduates are being forced into working poverty, largely because of unjust student loan debt.
And that makes me sick.
Sick enough to stay in bed and dream.William studies English literature at Arizona State University. He’s published in the Financial Times, Morningstar, Popmatters, and writes an opinion column for ASU’s student run newspaper the State Press. He keeps a close eye on ASU’s administration--pouring through financial reports, tax statements, and salary data to keep them honest. William always responds to emails: email@example.com.