Student Loans: Is College Worth it for Low-income Households?
Insight provided by Rey Idieu, originally published on April 21st, 2022.
One of the most daunting questions for American families and teens is: how are we going to afford higher education? The soaring price of tuition has not made it any easier on these individuals. Private and public universities, from 2020–2021, increased tuition and fees by about 2–3%.
“Similar to businesses that faced coronavirus-related revenue losses, colleges and universities “had no choice” but to raise tuition fees to stay afloat” — Stacey MacPhetres
The average annual cost of attending a 4-year public institution and private institution in the United States is $35,331 and $53,217 respectively. The average cost of higher education has more than doubled in the past decade with an annual growth rate of 6.8%. These costs do not include room & board and a tremendous amount of other unexpected expenses. Families who have not had the luxury of creating a 529 plan (an investment account for education expenses) or students that have not qualified for academic/sports scholarship have very limited options. If families would like their child to receive an undergraduate education, there is really only one answer: federal or private loans. Today, there are 45 million student loan borrowers with an immense $1.7 trillion in student loans. Since 2007, there has been an increase of 144% with no signs of slowing down.
Picture below: 10 year average of student loan debt
Every circumstance is different for all households. Some individuals may not qualify for FAFSA grants due to their yearly earnings. Forbes Magazine believes that the loan crisis is worse than we think and has emphasized four major driving factors.
- Increased access to student loans
- Less state support for higher education
- Plus Loans are too easy to get
- Not all colleges and universities should have access to student loans
These factors are some of the contributors of increased tuition and board prices. Points 1&3 are why individuals can grow so much debt, as they have the ability to receive the financing to pay for school. Easily accessible loans may seem very beneficial, but they come with incredibly high interest rates that make it difficult for individuals who might not have a high paying job after school.
In today’s world, there is often a stigma associated with not attending a 4-year institution and receiving a degree. This has dated back to past generations where college was viewed as one of the only options to set yourself up for a successful career. Millennials and Gen-Z have trumped that negative notion. There are now kids younger than 12 making millions of dollars on social media platforms like Tiktok, Youtube, and Instagram without ever stepping foot on a college campus. There are many successful individuals who have not followed the status quo and have paved their own path to financial success. Look at some of the largest tech moguls today. Mark Zuckerberg (Meta), Bill Gates (Microsoft), Steve Jobs (Apple), and Micheal Dell (Dell); all of which are college dropouts who decided to pursue the route of entrepreneurship.
Trade school is another avenue that people can take to set themselves up for a comfortable life by specializing in a certain skill. The average cost of completing a trade school program is around $33,000. The median annual income for a technician, stated by the U.S Bureau of Labor Statistics, is $56,180 while the median annual income for a plumber is $55,160. These trades could fulfill your return on investment within two years. There are a plethora of other options post high school graduation, such as the army which provides you with housing, health benefits, income, and skills that can be applicable after your service. Upon completing your service, multiple branches provide funding to pursue a degree if affording college is out of reach. The options mentioned are not offered to deter high school graduates with low incomes from attending college but to inform them about the endless opportunities they can explore without incurring mass amounts of student loan debt.
Thank you for reading this insight written by Rey Idieu, an Associate in the Mel Rines Angel Investment Fund. To learn more about The Fund, please visit https://www.rinesfund.com/
Rey is a junior from Bridgeport, CT who is currently pursuing a Business Administration major with options in Finance and Entrepreneurial Studies, and a minor in Sales. Reynaldo spent this past summer at Barnum Financial Group in the Advisor Scholar Program working under account executives on Financial and Investment planning in the world of fiduciary financial services. On campus, Reynaldo is a member of the Professional Sales Club and an executive board member of the Sigma Alpha Epsilon fraternity. Reynaldo is also a part of the Black Student Union on-campus, the Sales Club, and the Financial Partners Program. Reynaldo is in the final stages of creating a not-for-profit Organization for impoverished children of Haiti called Followme. Reynaldo joined the fund to gain valuable insight into the early-stage private equity market and what it takes to become a successful entrepreneur.