On Wednesday, February 27, 2013, the student loan ombudsman at the recently minted Consumer Finance Protection Bureau (CFPB), Rohit Chopra, declared yet another system within the U.S. economy ‘too big to fail.’ While Sen. Warren was grilling Ben Bernanke on what exactly the Federal Reserve is doing to remedy the unacceptable influence big banks wield on the health and state of our economy, the student loan debt market, comprised of public and private lenders, shot past $1 trillion and continues its relentless climb.
Last year, students borrowed $117 billion from the federal government alone—our most inexpensive and forgiving education creditor. We also recently learned through released federal budget documents that for the fiscal year 2013 ending September 30th, the U.S. Department of Education raked in $42.5 million in profit from student loan debt. According to a HuffPost article, that amount is approximately one-third higher than FY2012, but just shy of the record set in FY2011 at $47.9 billion.
But, is this any surprise? The cost of college is increasing at a rate of 8% per year, five times the current national rate. This tuition inflation rate translates to a doubling of tuition every nine years. Of course, tuition is nowhere near the entirety of the cost of higher education. In fact, an investigation by Business Insider estimates an average of $70,000 in additional costs above the tuition sticker price, and that is just an undergrad number.
Some are lucky enough to be able to cover the cost of undergraduate and graduate degrees without accepting loan assistance, but many more are unable to do so without incurring debt. As an individual looks toward an MBA degree and the multi-faceted investment it involves, an estimation of where a graduate management degree has the potential to lead is requisite. Among the factors considered, the likelihood of being able to handle the debt-load is a big one.
Perhaps counterintuitively, an individual might need to set his or her programmatic sights higher and target more competitive and, nearly always thusly, more expensive universities. Meaning, one might be advised to incur even more cost in order to track a future in the direction it needs to go in terms of potential future earnings. However, if that does not make sense for a particular career path, list of goals, and financial position, then one must find how to get what is needed at less cost. In fact, obtaining an MBA might not be necessary at all. (Click here for some, at least, interesting ideas on student debt.)
The numbers surrounding student loan debt are terrifying, both macro and micro (I speak from experience here). But, just as a fledgling company needs investment to grow and prosper, so do individuals. If an aspirant decides to take the plunge, then he or she must go all in. Sign up for a GMAT class, take trips to universities, apply for scholarships and grants, and accept loans if necessary. Reward without the risk is impossible, but risk assessment needs to be done thoroughly, prudently, and with a clear head.
