It is a sensible life plan: You do your studies and get your first “real” job, which enables you to live independently and maybe even set aside some money for a rainy day.
Unfortunately, it remains unreachable for too many women to live this dream. The new study by the American Association of University Women shows that it is almost impossible for many college graduates to finance their living expenses as they begin their careers.
Even more worrying is the likelihood that the Covid-19 pandemic and the resulting economic downturn will make a dire situation worse. Most of the layoffs in the past year were in women-dominated areas, with many more women volunteering to take care of childcare and homeschooling. With so many women still unemployed, countless women will find it impossible to repay student loans. If we don’t address the student debt crisis immediately, we could see an even bigger setback in women’s development in the years to come.
Soaring college expenses
This problem has existed for decades: A generation ago, a year of college was about 22 percent of median household income. Today that number has risen to 43 percent. It’s no wonder Americans have a staggering $ 1.7 trillion in student debt – a number that has doubled in the last 10 years and is nearly six times the rate of inflation.
Unfortunately, women – especially women of color – bear the brunt of the student debt crisis. Women take on more student debt than men for a variety of reasons: They tend to earn less on the job, some don’t get as much help from their families as men, and women tend to go to for-profit universities, where debt is higher. Additionally, the gender pay gap means that once women graduate, they have less money to pay back their loans. How could it not be more difficult to meet your financial obligations when you make 82 cents for every dollar a man pays?
Our analysis found that women who graduate college with student debt have a monthly loan payment of $ 307 per month. We added this to the other cost of living new graduates typically have: a monthly average of $ 920 for housing, $ 396 per month for a car loan, $ 387 for groceries, $ 163 for utilities and $ 113 for medical care.
We then compared that expense to the typical salary women expect in their first year out of college, which is just under $ 30,000 after tax. When we did the math, we found that the typical woman only has $ 148 left to pay for things like clothing, household products, gasoline, and tolls – not to mention spending money on building an emergency fund or retirement plan save up. Worse still, a working mother – who makes up 16 percent of new graduates – has to pay for childcare and ends up with more basic expenses than she can afford.
A social problem
Even before Covid-19 took a big hit, student debts prevented many young people from reaching the life milestones they had reasonably expected: building savings, buying a house, getting married and starting a family. And the consequences extend beyond the individual to the overall economic well-being of our society.
Debt forces many new graduates into less skilled jobs rather than waiting to find the better jobs they were trained to do. Delayed home ownership is a burden on an already tight rental market. Tight budgets can make it difficult for people to pay for health insurance, and poor credit ratings can prevent aspiring entrepreneurs from starting new businesses that are vital to our country’s economic health.
Suffice it to say, it is time to address the student debt crisis once and for all. The temporary student debt relief granted during the pandemic needs to be extended – a patch won’t work, we need systemic change. States and the federal government must take credit measures and ensure that the people who need it most are getting it. Looking ahead, policymakers need to ensure that higher education is funded in such a way that tuition fees remain manageable.
Dealing with student debts
Until then, women with outstanding credit should do their best to get out of debt as soon as possible. Save money in interest by paying more than the minimum each month, which undoubtedly brings with it short-term losses. When you have good credit and a good job, consider consolidating your various loans into a single personal loan with a lower interest rate. (You should also see if your employer offers loan repayment as a benefit; not many do, but you should check with your compensation negotiation) Sign up for automatic payment so you never get a late fee and if you get extra money Use (a raise, a bonus, a generous birthday present) to pay off your debt and start building your nest egg for financial security.
Experts say it can take about 20 years to fully dispose of student debt, but the sooner you do it, the better. It will take you one step closer to the post-college life you deserve.
Kim Churches is CEO of the American Association of University Women, a nonprofit committed to promoting equality between women and girls through research, education, and advocacy.