Student loan debt a ticking time bomb

With student loan debt a source of mounting anxiety for many American families generally and an acute pain point for millennials specifically, it should come as no surprise that presidential candidate Hillary Clinton this month made a headline-grabbing proposal: debt-free tuition at public colleges for all students.

U.S. student loan debt totals $1.2 trillion. Yes, that’s trillion with a “T.” In 2014, 70 percent of college graduates left school with an average student loan debt of $33,000. While the National Debt Clock has become quite well-known, student-loan clocks are now cropping up too, and they grow by $3,055.19 every second (as estimated by the Federal Reserve)! To put the skyrocketing costs of college in perspective, consider that since 2000 the Consumer Price Index has climbed about 40 percent, medical costs about 75 percent and college costs nearly 140 percent — while real wages have stayed flat.

Political rhetoric or real solution?

Clinton’s “New College Compact” is clearly aimed at wooing millennial voters, but is there any real substance to her proposal? She says it will cost $350 billion over 10 years and that the money would come from curtailed deductions for upper-income taxpayers. There’s already debate about that, as well as what states and their universities would have to do in order to get the funding, and how she’d revamp the federal student-loan program.

But the merits of her plan (and politics) aside, Clinton’s bold proposal has put education-related debt at the very center of her campaign — and thus in the spotlight of the national stage. There is clearly something wrong with the current system of college costs, and with a presidential election on the horizon, we’re going to hear a lot of proposals for fixing it. Let’s hope we arrive at a real solution.

In the meantime, what can you do about your own student debt?

Your loan’s true cost

First, let’s make the debt problem a little more real for you. Using a hypothetical debt scenario with the student loan-repayment calculator at the Sallie Mae website, it is very easy to see how much any one of us could actually end up paying for an education. Let’s say you’re starting college this month with an annual tuition of $9,139, the average cost today of public colleges for in-state residents, according to the College Board. Your total loan amount over four years would be $36,556. Using a fixed, low-end interest rate of 5.75 percent and making monthly payments of $402.67 after graduation, you’ll end up paying $56,370.12 for that loan — and that’s only if you also make monthly payments of $175.16 while you’re still in college! That’s $19,814.12 in interest, money you could have been investing or using as a down payment on your first home.

Tips for paying back student loans

Let’s be honest: Student loans are preventing many millennials from getting their lives — and finances — properly started. The ripple effect is causing young people to live at home with their parents, put off buying their first home and get married later. Is there any easy way to pay them off? No, but here are some tips to help you stay on track:

• Start paying the debt off immediately. It can be tempting to give yourself a grace period after finishing school to reward your hard work, but don’t. The sooner you start, the sooner it will all be paid off.
• Make sure you read the fine print. Know exactly how much you owe in total, what your monthly payment is, when it is due and what your interest rate is.
• Make sacrifices. Anyone who says paying off your loans is easy is clearly mistaken. Craft a plan and stick to it. The latest iPad and gaming system, as well as new clothes and eating out, are oh so tempting. But paying off more than the minimum due each month on debt will help tremendously in the long run. As in the example above, interest jacks your debt up higher every day. The more you pay off each month, the less interest you’ll owe.

Jennifer Pagliara is a financial adviser with CapWealth Advisors, LLC, and a proud member of the millennial generation. Her column, which appears every other Saturday in The Tennessean, speaks to her peers and anyone else that wants to get ahead financially.