Between student loan debt projected to hit $17 trillion (the same today's US GDP) by 2030, and the fact that over 40% of student borrowers aren't making any payments on their loans, the table is already set for a new financial crisis of epic proportions.
Of course, current college students who are taking on student debt today load aren't concerned with that - those things are for economists, money managers, and bank CFO's to worry about. No, college students have other concerns, such as who is going to be responsible for booking the spring break vacation in Cancun this year, and who is buying the ice luge for the party the night before everyone leaves.
According to a survey, about one in five American students graduating this year who carry debt said they used student loans to pay for expenses such as vacations, dining out, and entertainment reports Bloomberg.
Texas A&M graduate Eric Hazard recalls the excitement of student loan refund day.
"Checks were celebrated across the campus as almost like a bonus for being a college kid. [Students] would go directly to the bank to cash it. I bought electronics for my dorm room and drinks were on me for a month or two. In an abstract way, I knew I would have to pay it back. But you don't have a timeline in your mind about what that was going to look like. I just knew it would happen later."
Ah later, later is good. However, if Visa has anything to say about it college debt is just phase one, those millennials who are graduating will be ushered into a plan where they will be saddled with a lot more debt throughout life, so that "later" may have to turn into "much later", or perhaps "never."
Does taking the left over student loan money and blowing it on electronics, booze, and vacations violate lending agreements? Not necessarily says Mark Kantrowitz, publisher of a student loan informational website Cappex. And even if there were violations, students wouldn't face consequences.
"If someone is using it for something like going out on a date, to see a baseball game, it's not a legal violation," he said. "Once that money is in the student's hand, there is no control to ensure that they're spending it on textbooks, apartments, or food. There's nothing to prevent them from buying an iPad, and technically an iPad might be OK."
How about spring break, or a six-pack? Kantrowitz said it might violate the letter of the lending contract, but the student wouldn't face repercussions.
Schools are looking into disbursing excess funds over a longer period of time to prevent students from wasting it all at once, but with many of student expenses occuring up front, that plan may not work very well for students. The asnwer, at least to Justin Draeger, president of the National Association of Student Financial Aid Administrations, is to educate students about responsible money management.
"We are moving to experiment to disburse funds over a longer a period of time, which might work for some students but not other students," said Justin Draeger, president of the National Association of Student Financial Aid Administrators. "Schools are supportive of the ability to be flexible."
Because most expenses come at the beginning of the semester, the slow-burn payout might prove impractical. Ultimately, the solution lies in further educating students about the purpose of their loans and in responsible money management, Draeger said, noting that students will inevitably make mistakes.
Of course what would be a good unsustainable debt story without the inevitable "but it makes them feel good to spend money they don't have" line of thinking.
"If taking on a little bit extra in student loans means they get to live the life they want to live and be a happy person, then it can be worth it," said Erik Almon, director of financial planning at the Society of Grown Ups, a Brookline, Mass., financial literacy group.
That said, everyone surely needs time to unwind and de-stress (ideally on someone else's dime). However it is probably not a bad idea to teach these mostly young adults who now collectively owe more in student loans than there is total credit card debt outstanding, about the consequences of racking up unrepaybale debt just to have biggest flat screen in the fraternity. Then again, with the push for "free everything", why would anyone listen to that boring speech.
At the end of the day can one really blame students: they merely look for/at role models and what these role models do. And in a world in which the answer to everything is more debt, is there any wonder why the chart of total student loans issued by Uncle Sam looks like this.
Finally, it's not like anyone else will repay their debt, and neither will students, so may as well enjoy the moment, especially since everyone else - those who still idiotically believe in acting responsibly - is paying for it...