4 Reasons Education Loan Costs are Skyrocketing

When you take an education loan, you may assume the cost of the loan will be worth the reward in income to you once you have a degree. This is the tale many lenders tell, but there are times when the cost of education loans is too high to justify going to college. The total cost of tuition, interest and the opportunity cost of the time you could be working instead may mean you actually lose money by attending school. There is no one reason education costs are so high, but there are several contributing factors.

Rising Cost of Education

The first reason education loans cost has increased is because education cost itself has increased. The average college tuition is climbing every year, and even public schools have experienced rising costs as states look to balance their budgets. The rising cost is partially based on the simple economic principle of demand. More people are trying to get college educations. As demand goes up, price goes up. Today, it is hard to secure even an entry level job without a college tuition. This trend is only growing, with more employers asking for four-year degrees than ever before. The result is skyrocketing education costs overall. 

Graduate Tuition Expense

Since the number of people with college degrees is climbing, students are looking for new ways to get an edge. This means graduate school for a number of students. It is common for young people to continue on for Masters in Business Administration, Finance or Marketing prior to going to work in an office. More students are getting law degrees in order to participate not only in the legal area but in industries like insurance or health care. As more students attend graduate school, more loans are disbursed to cover the cost of education.

Deferment Options

Students who continue from undergraduate programs, through graduate school, often need to defer student loans to do so. They will not be earning an income immediately upon graduating, and it is more common for students to work in unpaid internships instead of paid summer jobs. This means some undergraduate student loans go unpaid for a decade or longer. The longer these loans go unpaid, the more interest accumulates. Ultimately, the total cost of a four year college loan plus a two year graduate loan deferred over the entire length of schooling can put a borrower in debt until his or her mid-forties.

Poor Planning

For a long time, loans were easy to come by for education. The credit market did tighten up after the 2007 housing market crash, but student loans are still offered to individuals with no income or a low asset base. Student loans have a high rate of success for most lenders, even if it takes a long time to receive the investment back in full. This means many students take the debts without realizing the impact they will have on long-term earning potential and profitability. The attitude that a degree is better than no degree, despite the cost, can lead to poor financial planning in order to obtain a college education.

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