There’s plenty of murmuring among Presidential candidates about student loan forgiveness. It’s a promise of freedom from financial bondage; a seemingly great trade for a vote in the next election. In my view, it’s a band aid over a much bigger issue that is starting to affect our rural communities.
Student Loan Debt has reached crisis level. There is approximately $1.6 trillion in student loan debt. For reference, the National Debt for the U.S. is $22 trillion. Wowza. But we’re in rural America, why does it matter does us? Because right now, it’s preventing our students from coming back home after graduation and for the foreseeable future.
The Federal Reserve System conducted research and release the findings in January of this year. It turns out, there’s a surprising correlation between student loan debt and the rate at which rural students return to rural areas. Here are the key findings:
• Individuals with student loan debt are less likely to stay in rural areas – only 52% of borrowers still live in rural areas after entering the workforce. Individuals without student loan debt stay in rural areas at a rate of 66%.
• Borrowers that borrow significant amounts of funds ($30,000 and more) are even more likely to leave rural – after just one year, these borrowers stay in rural areas at a rate of 37%.
It’s just debt, though. Why is it swaying our students away from our communities? It comes back to income disparity between rural and urban places. On average, a 4-year degree recipient will make approximately $50,000/year in a rural place. That same 4-year degree will earn a graduate $71,000 on average according to the study. Time for more math. The average 4-year degree graduate accumulates $35,000 in student debt. The minimum payments on a 10 year payment plan at 5.5% is $379.84 per month. That’s roughly $4,600 per year.
Let’s start with the urban example: the take home pay for that graduate is approximately $53,000. Of that, $4,600 goes to loans. The average 1-bedroom apartment in Lincoln is $750/month or $9,000 per year. Utilities for that apartment is about $85/month or $1,000 for the year. That leaves $38,400 to live on which is pretty good for a graduate. Except that nearly 50% of Americans also have a car loan and 42% have a credit card payment. The credit card payment comes out to $150/month and the car payment averages another $400/month (used vehicle). That’s another $8,000 out the window for the year. Grand total? $30,000 for a recent graduate to live on. That’s doable.
What about the rural example? The only expense that changes, and it is ever-so-slight, is the rental payment which drops by about $100-$150/month. But this rural individual only takes home $34,000. If you’re playing along, they have $20,000 of living expenses and obligations (like their loans). What was once a great paycheck has dwindled to $1,200 to buy groceries, gas and be social – or handle an emergency like a breakdown or health issue.
Turns out students are staying in cities, not because they don’t see opportunity here, but because they’re trapped by their debt. From an economic perspective, we can’t compete with those numbers on the table.
In some communities we see “young families” returning. Custer County is an example, although we wish there were more. Ever wonder why that could be? Perhaps out 25 year old debtor became a 35 year old with a spouse and kids. Remember that 10 year student debt payment plan? That’s gone now. Those kids? They’re in school and that school district in the city may not be the best. With the monkey off their back (student debt), they now have the financial freedom to choose to return to rural America. But what if they didn’t have to wait?
How do we get students out of this rut and keep our community lively? What if we took debt off the table? Our students could return and work any job that fit their degree program to gain skill and experience. Or, if we don’t have jobs for their particular interest, they could build a business. Put their skills to use and add a business to our economy. What if our students started small and affordable at a community college/state college? What if we treated college choice like a good or service and we search out the best deal with the best return on investment?
What if our students had the financial freedom to choose where they build their life from day 1?