Student Loan Debt: The Invisible, Incredible Drain on Investment

In investment annals, the story of student loan debt isn't too often told, let alone treated with any sense of urgency. After all, what do portfolios, capital gains or passive income have to do with paying off the package that makes college education possible?

Here's an after all, then, for the oblivious financial managers and investment pundits of the world: "After all" that debt to pay off each and every month -- and it's hit record levels unforeseen a generation ago -- America's newly minted college grads are lucky if they have a few quarters left over for milk money.

"I believe we have a higher education bubble," says Derrick Handwerk, managing partner of Handwerk Multi Family Office in Lansdale, Pennsylvania. "When the average family cannot afford the average education or a home, that is a bubble. The government is enabling the prices of a bachelor's degree to grow significantly above inflation by having loans available that many students cannot pay off when they graduate."

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Such as: "I work with many physicians coming out of medical school with more than $150,000 in debt and the prospect of lowered incomes due to the Affordable Care Act," Handwerk says.

A look at the numbers. Statistics from the Institute for College Access and Success tell a big part of the story. For the class of 2014, the debt figure per student hit $28,950 per borrower, with seven out of 10 students owing money. Over the last decade, student loan debt has grown at twice the rate of inflation; tuitions have risen at roughly the same rate going back 40 years. By many estimates, the per-student debt figure has surpassed the $30,000 mark.

"Total student loan debt in the U.S. currently stands at more than $1.3 trillion, a staggeringly large number that represents millions of college graduates unable to work toward financial independence from financial institutions," says Jeffrey Zucker, an angel investor and president of Green Lion Partners in Grand Junction, Colorado. "It's not surprising that people with student loans are less able to invest their savings in profitable ventures."

Put another way: If you could chip away at $10 a second, $1.3 trillion would take more than 3,200 years to pay back. Actually, it would take a lot, lot longer. The debt figure is skyrocketing by some $2,700 a second.

Not even stock in Alphabet (ticker: GOOG, GOOGL) can keep pace with that. Nor can this story you are reading; a student loan "debt clock" at FinAid.org updates the figure every second. $1.36 trillion is likely a few weeks away.

Trend likely will continue. And where the rubber hits the road, a new survey of 5,000 current college students by Allianz Global Assistance reaches this conclusion: "Student loan poverty" may not end soon. After tuition, about one in four students reported not having extra money to spend. Nearly half (44.6 percent) are paying for their education entirely -- and some 12 percent don't even know how much they owe.

Is all this avoidable? Perhaps. Loans need not represent a last-resort option, even though they're the first thing too many students lean on before the first bill arrives.

Jeremi Gill, who graduated The King's College in 2015 with a bachelor of arts in political philosophy and economics, no doubt put the latter major to work for him. "I was lucky to get out with only $11,000 in loan debt," he says. "And I started knocking that off right away."

Gill, who is single and 22, worked multiple jobs throughout college and continued to do so after graduating. He still does today. "I make sure to pay half of every month's paycheck to my loans, and the other half for living expenses and travel." As for investing, he's started through the smartphone app Acorns. (Its founder, millennial Jeff Cruttenden, hit on the idea while still in college himself.)

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Acorns takes whatever Gill spends from linked credit and debit card purchases and rounds it up to the nearest dollar. The change gets invested in six different funds based on risk tolerance. It's especially targeted towards young investors wary of brokerage houses.

Gill counts himself as one of those.

"Talking to an investing professional is intimidating," Gill says. "The few times I have, they speak a different language than you, are not upfront with fees, and you almost get the feeling you are being cheated out of your money in some way. They do not exude trust."

While that credibility gap remains a huge obstacle for financial advisors, many professionals do have the best interests of young graduates at heart -- as well as the next in line.

Make loans last resort. "The big thing for future college students is to exhaust all other resources prior to taking out a student loan," says David Almonte, member of the AICPA's National CPA Financial Literacy Commission. And those resources are many: "scholarships, grants, financial aid, student work programs, and part-time jobs" among them.

Let's take a page from Gill's playbook: A gig earning just $100 a week, if poured straight into tuition, would offset $20,000 over four years.

Or, students can opt for starting their first two years at community college before moving on to a more prestigious university. "And if they live at home, they can have the degree for less than $50,000 total," Handwerk says.

Investment options. Those ideas, good as they sound, don't directly answer the question of how college graduates can find money to invest. If it's a choice between Alphabet Class A stock at $713 a share and the rent, guess which one wins out 99.9 times out of 100?

Yet some investments come through passive, painless methods for grads who land full-time jobs.

"According to a 2014 report by the American Benefits Council, nearly 80 percent of full-time workers have access to employer-sponsored retirement plans," says James Capolongo, head of deposit products and pricing at TD Bank and based in Mount Laurel, New Jersey. "If your employer matches up to a certain percentage, contribute at least the minimum required to take advantage of your company's match. It's free retirement money."

"While paying for financial advice may seem out of reach, even young professionals should strongly consider at least a one-time consultation with a financial professional," says Anthony Criscuolo, a certified financial planner and portfolio manager with Palisades Hudson Financial Group's Fort Lauderdale, Florida, office.

"Just as you entrust your health to a doctor or your car to a mechanic, a check-up with a financial pro can pay for itself in establishing a sound long-term financial plan," he says.

And in much the same way as you'd find an ace mechanic, word of mouth might prove one of the best avenues around. Sure, it won't pay off today's loan bills right this minute, let alone this decade.

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But if you get the right guidance now, Criscuolo says, it can definitely set a new course, "and will prevent problems down the line."

A former longtime staff writer, editor and columnist at the Chicago Tribune, Lou Carlozo writes about investment for U.S. News & World Report, and personal finance for Money Under 30 and GOBankingRates. He is based in Chicago. Connect with him at linkedin.com/in/loucarlozo.