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Shane J. Lopez, Ph.D. Headshot

Hope and Happiness Delayed for the Indebted Generation

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"We are going to pay off Daddy's student loans!" My son, 6 years old at the time, knew it was big deal. He was sharing the news with everyone we passed on our walk to the post office. That happy memory is quite fresh. I finished paying my loans in November 2011, after more than 10 years of mortgage-sized monthly installments.

Managing my student debt meant some sacrifices for my family. Compared to our friends, the loan-free Joneses, we have a small nest egg and little saved for retirement. But our struggles were negligible compared to many who took out big loans to finish school and then graduated into a bad economy. Worse off are people who started college, took out tens of thousands of dollars in loans, and then dropped out. For the millions of people who are chronically indebted -- they collectively owe a large chunk of the trillion dollars in student debt and have to scramble every month to make their loan payments -- they have mortgaged their futures. They may have sacrificed their hope and happiness for the college degrees.

Here Comes the Indebted Generation

In the New York Times series Degrees of Debt, you meet more than a dozen young people who attended colleges in New York and Ohio. Dropouts and graduates alike work multiple jobs to make minimal payments and see no end in sight. They live with their parents or friends and don't see themselves buying their own home. Regret and shame make their debt even heavier.

What's good for the Indebted Generation and America is a hot topic right now. Congress and the president are going back and forth about how to keep the interest rate low on student debt. Then the issue of paying for higher education will resurface in the throes of the presidential election. No doubt the candidates and the country will debate whether the student debt problem represents bad federal policies, the colleges' exploitation of the soft spots in a student loan system built for a different economy, or a crisis of students' personal responsibility. Given that no reasonable, scalable solutions are currently in place, nothing will be resolved by year's end. Unpaid student loans will be a bigger drag on the economy, and indebtedness will take a huge psychological toll current on millions of young people.

Hope and Happiness Delayed

I don't think we can wait much longer to resolve this crisis. As we dawdle, a new crop of college freshmen will be lining up to cash the biggest batch of loan checks ever. They assume big debt despite lacking the requisite financial savvy to manage and pay back the loans. On that point, a recent Gallup poll of American students shows that college students of tomorrow are lacking the financial know-how to succeed in college and life.

Many of the indebted generation seem to have given up on the American Dream. It is understandable. Paying off the past leaves little time to invest in the future. And since many in the Indebted Generation will spend most of their time, energy and resources during their 20s and 30s chipping away at their student loans, they won't be starting new businesses, buying new homes, or investing in the market at the rate of previous generations. They will be accruing more credit card debt, living without health insurance, and delaying the dreams that they brought to school in the first place. It is all too easy to see how the stories of the chronically indebted rarely have happy endings.

College students take on debt without understanding that they may be handicapping their own happiness. Here is on likely post-graduation scenario that might limit well-being: A student graduates with more than $20,000 in student debt. She gets an entry-level job at an established company in the public sector that pays $40,000 a year plus health insurance. A sizeable chunk of her income goes to pay the nut on her loan. In a few years she considers a better paying, more exciting job at a startup. But, she can't take it. The uncertainty is too much for someone with big loans. While managing life, she takes on more and more credit card debt. Increasingly, she sees her life options as limited. Ten years out of school she is making only 10 percent more than her starting salary. She is nowhere close to reaching the $70,000 a year mark commonly associated with the height of happiness.

Even if the loan system is fixed and the meteoric rise of college costs slows, we will need to prevent new students from assuming so much debt that it robs them of their futures. For the bright-eyed students starting their college career, every college and university should require every freshman to invest one hour or more in a financial futures course (such as those offered by Outside the ClassroomEverFi and IgradXXX). Through online education, a student can come to terms with how their future self will be paying back their student loans. With this deeper understanding, their present self might be a little more prudent.

As students are more equipped to responsibility for their own financial futures, they can track how income, expenses and debt affect them over time by monitoring their own financial well-being. This will help them make changes in money habits now that can make hope and happiness more possible tomorrow.