The current outstanding student loan debt in the United States is roughly $1.3 trillion, and getting bigger by the second.
The good news (for those not concerned about economic realities), Obama has just set the precedent that loans will be forgiven, the bad news, parents are now telling their kids to take out more student loans if they intend on going to college. But there is a twist.
According to Bloomberg, a new survey by Discover Financial Services found that 48% of parents think their child should pay a portion (if not all) of the cost of attending college, up from 39% four years ago. And just how will potential students pay that portion? Why, student loans of course. 32% of respondents said they would ask the bank for help, while 27% plan to rely on family savings, 4% said they would dip into retirement funds, and 3% even indicated that they may refinance their home to pay for their kids college.
Bloomberg goes on to offer up the silly notion that "free money" exists by way of government aid (FAFSA), stating that "about $2.7 billion in federal grant money was left on the table because parents didn't bother to fill out these forms." What Bloomberg fails to mention is that nothing is ever free, and also, as the government subsidizes the bill for those attending college, it only makes tuition more expensive.
The student loan bubble is something that we've been covering for years now (this is from 2012), and given the fact that parents aren't able to help as much with the cost of tuition, the amount of debt burdening millennials will only get worse. As for those families planning to dip into savings or retirement funds to help out, if those funds are tied up in financial securities, we would recommend taking a wait and see approach to ensure those funds you've worked so hard for don't dissappear when the market finally corrects.