As noted in a recent news article, college graduates are drowning in debt. Nationwide, student loan debt is currently $870 billion dollars, and a report from the Project on Student Debt estimates that the average student with loans graduates $24,000 in the hole.
But how do these numbers relate to Maine students? Surely the situation in our state isn’t that serious, right?
Actually, it’s worse.
According to the Project on Student Debt, Maine currently ranks third in the nation for average debt load of college graduates. Maine’s college class of 2009, the group used in the study, had a whopping debt load of $29,143. Around 65 percent of students graduating from Maine colleges have debt. Further, the University of Maine, the largest public university in the state, was on the list of public universities with the highest debt in the country.
While it is difficult for the typical college student to graduate without some level of debt these days, it is important that students be aware of how borrowing will impact their future. Excessive debt repayments may limit career choices, delay important life choices such as the purchase of a house and reduce the opportunity to take risks. This is tough news for a state that prides itself on small business and entrepreneurship.
A commonly used rule of thumb is to limit total loan debt to the estimated first year of work income. Using that limit, a student who might expect to make $30,000 at their first job out of school could responsibly borrow up to $30,000. While this is a helpful guideline, that measure still is a bit abstract for most college students.
A better estimate to measure a loan’s impact on the future is this: each $1,000 borrowed for education will cost roughly $10 per month to repay on a typical 10-year repayment plan. So the $29,000 that Maine students borrow will actually cost them about $290 per month, every month, for the next ten years. Likewise, a $60,000 debt load — which is not unheard of — will cost $600 per month.
Suddenly all that borrowing isn’t looking so good.
There are a few steps that students can take to reduce their debt load, including making financial assistance a priority when choosing a college and minimizing borrowing for nontuition expenses. But by far the best way to reduce the amount you owe is to increase the amount you pay, through scholarships.
Scholarships, such as those held by the Maine Community Foundation, can help bridge the gap between college financial aid and the cost of attendance. The time it takes to fill out an application could be repaid handsomely: the average community foundation scholarship in 2011 was $1,400.
Many students are reluctant to take the time to apply for scholarships unless the reward is large, such as a $5,000 scholarship or more. But even smaller awards, such as $500, can help reduce the amount a student needs to borrow. Ask a 2011 recipient of multiple Maine Community Foundation scholarships: She pieced together nearly $10,000 in aid from five separate scholarship funds.
Students can find scholarships by searching the Maine Community Foundation website, visiting the website of the Finance Authority of Maine and talking with their local guidance counselor.
An educated work force that isn’t drowning in debt benefits us all.
Cherie Galyean is scholarship manager at the Maine Community Foundation.