Why So Few Talk About Student Loan Debt

Why So Few Talk About Student Loan Debt

by | Dec 19, 2018 | Think Pieces

You probably know a bunch of your friends have student loan debt.  You probably know that they hate it. But do you know how much debt people have and what they’re doing to get rid of their debt? Chances are you don’t, and your friends don’t know your situation either. Even though the vast majority of college graduates (more than 70%) finish with student loan debt, it’s still a taboo topic of conversation.

Today’s post talks about the problems borrowers face when talking openly about student loan debt and tips for overcoming the challenges. Estimated read time ~5 min Estimated watch time at 1.5x ~3 min.

Uncertainty

The first thing that comes up when someone wants to talk about their student loan debt is a sense of uncertainty. You might wonder Did I make mistakes no one else did? Is my situation bad because I was worse than average at navigating college? The uncertainty of how you stack up compared to others keeps many borrowers from sharing their story.

The easiest way to overcome uncertainty is to start by sharing your story with folks who are close to you and very trustworthy. Think your bestie from college, or that cool cousin of yours from a similar background. The more you talk to other borrowers the less uncertain you’ll be about how you stack up. Turns out almost everyone has student loan debt (more than you’d think), and most everyone made a couple of mistakes a long the way.

Hopelessness

What’s the point of sharing your student loan debt when it’s a hopeless mess you’re never going to get out from under? It’s not like anyone holds some magic key to unlock your student loan debt shackles. Many borrowers feel like there’s nothing that can be done about student loan debt, so why talk about it.

Student loan debt isn’t an entirely hopeless situation. Even if you really extended yourself financially there are repayment strategies that can help you. Talking to someone else going through it can help you learn new approaches and tips for navigating your own situation.

Fear of Criticism

If you share a story about your student loan debt, someone is going to be unhappy about it. That’s the ugly reality of it, someone who went to college when it was 4x less expensive and they could work 21 hours a week at minimum wage to pay for it is going to be critical. Not everyone understands objective financial reality, some only understand their own experience.

I share my story all the time and I get trolled all the time. If you’re worried about it, don’t feel the need to share your story publicly. Share it with your peers, other borrowers with debt and looking to talk, and share it with your younger siblings. There are so many people who can benefit from your story because they’re struggling with the same thing. Don’t feel like the only way to make a difference with your story is to share it big. If even one person picks a better strategy because of your story, you’ve done an amazing thing.

Talking about student loan debt is still a taboo topic. I think one of the biggest ways to solve the problem is for all of us borrowers to talk to each other about it. Think of all the problems you solve based on someone else’s experience. I mean if I want to buy a shirt I probably read at least 10 reviews as I make that decision. We can crowd source information about student loan debt repayment in a similar fashion. Learn from the experiences of those around us.

What do you think? Do you share your student loan debt story with folks or keep it close to the vest? Let me know in the comments below or on the Repayable Facebook Page. 

The Making of a Million in Student Loan Debt

The Making of a Million in Student Loan Debt

by | Jun 20, 2018 | #Millenniallife, Think Pieces

Have you read the example about an orthodontist with over $1 million in federal student loan debt? The situation seems totally preposterous and unimaginable.

Estimated read time ~ 10 minutes Estimated watch time at 1.5X about 5 minutes 30 seconds.

The gist of the Wall Street Journal article is that an orthodontist borrowed federal student loans to the tune of $600,000 to pay for his education at USC. He’s now repaying that debt under an income-driven repayment plan and his monthly payments don’t keep up with interest. So his loan balance continues to grow every single month and is currently over $1 million. After 25 years of income-driven repayment the loan balance is projected to be over $2 million.

 

A series of problems with funding for higher education contribute to this unimaginable student loan situation. While not common currently, there are 101 borrowers with balances of at least $1 million, if we don’t approach funding higher education and student loan debt in a new way we’re going to see these >$1 million cases more frequently.

 

Before you brush this off as an impossible scenario created solely by the irresponsibility of a few borrowers, here’s a rundown of how this super debt happens.

 

Inelastic Demand

 

Federal student loans are directly correlated with the price of tuition and fees at universities where students can use federal student loans to fund their education. As more funding is available, tuition and fees increase. In other markets an increase in price would presumably lead to a decrease in demand. But that’s not the case with higher education.

 

Despite tuition hikes, students continue to demand education at the same rate. The demand for education is inelastic, not based on price, because students have access to as many student loans as necessary to fund their tuition. Colleges and universities realize this and continue to raise tuition and fees accordingly.

 

Perpetual Tuition Hikes

 

College tuition has increased at a rate well above inflation for the past few decades. In constant 2013 dollars, tuition and fees at a four year public university were $2,147 in 1980 and nearly quadrupled to $8,070 in 2013 (NCES Table 330.10). In 30 years the rise of tuition and fees exceeded the rate of inflation by almost 400%.

 

When parents and students estimate the cost of attending college it’s wise to factor in tuition hikes of at least 5% annually.

 

Reduced State Funding

 

Why are colleges raising tuition and fees at such exorbitant rates? One factor is a reduction in state funding of public universities. Public universities obtain their funding from both federal and state sources. State funding is primarily in the form of grants and other funds that can be used for general appropriations (keeping the lights on, paying staff, new construction, etc) while federal funding is primarily in the form of student loans.

 

In 1980 public universities received the majority of their funding from the state, today the balance has flipped and they now recieve the majority of their funding from federal sources. That means, in order to continue funding general appropriations at the same level, colleges pass the loss of funding on to borrowers. Borrowers have more access to student loans so borrowers are the ones footing the immediate bill for state budget cuts.

 

High Paying, High Cost Professional Degrees

 

This seems like an oxymoron, the best paying careers are contributing to the problem of super debt. But it’s true. Degrees that tend to pay a lot on the back end tend to cost a lot on the front end. The colleges offering these degrees will often assure borrowers that they’ll make “good money” and be able to easily repay their student loan debt after graduation. These fields pay well, but without loan forgiveness no W2 employment pays well enough that a borrower can repay a million dollars in student loan debt.

 

When someone goes to medical school they’re on a long road. First, they have four years of an undergraduate degree to pay for, next they have four years of medical school. Medical school is where it gets expensive, even if you attend a public in-state university you’re looking at a price tag of over $150,000 for tuition and fees plus cost of living on top. After graduation, specialization requires residency and fellowship which can take another five years to complete. If the borrower decides to enter forbearance to avoid struggling to make payments on their student loans while making a resident stipend the interest can get out of hand quickly.

 

High Interest Rates

 

Interest rates are the next major contributor to super debt. Borrowers only have access to a maximum of $23,000 in subsidized federal student loans. That means any loans over that amount are in the form of unsubsidized loans which start accruing interest immediately. Interest rates for unsubsidzed loans are typically between 6-7%.

 

That means while students are still taking out student loans they’re immediately accruing thousands of dollars of interest. IF this interest is left to compound for the years of education and residency required in specialty fields the balance quickly becomes unmanageable. Then when high debt borrowers enroll in an income-driven repayment plan, the monthly payment doesn’t keep up with interest and the loan amount continues to rise. Leaving huge amounts of student loans to be forgiven after the borrower has made payments for 20-25 years.

 

Inefficient use of Taxpayer Dollars

 

Ultimately we have a system that is inefficiently using tax payer dollars. Rather than fund our public universities up front and pay the immediate costs (translating to lower tuition for borrowers and lower loan amount) we use taxpayer money to forgive debt that has been accruing 7% interest for years.

 

The most efficient use of taxpayer money is to reduce the cost of college by adequately funding their operating expenses instead of waiting to pay for college education via loan forgiveness because the cost of the borrower’s education is much more than their high paying career can afford to repay.

 

Ultimately, tax payers are going to pay for higher education one way or another. Whether it’s forgiving super student loans or providing funding for universities up front. It makes sense to advocate for up front application of our tax dollars to reduce up front costs and get our money’s worth out of that spending.

The 5 Stages of Tackling Student Loan Debt

The 5 Stages of Tackling Student Loan Debt

by | Jun 6, 2018 | Mindset, Think Pieces

Getting out of student loan debt is a long term goal. It’s no easy feat to wipe out tens of thousands of dollars in education-related debt. For most of us, becoming student loan debt free is an undertaking that takes years to accomplish. Today’s post is going to talk about the totally normal waxing and waning of motivation that happens when you decide to tackle your student loan debt.

 

Read this if you want a fresh perspective on why your motivation for repaying student loan debt cycles. Estimated read time ~5 minutes. 1.5 x watch time ~4 min.

To describe the changes in motivation that happen throughout student loan debt repayment I’m going to use the trans-theoretical model, better known as the stages of change. This model is commonly applied to behavioral changes such as beating addiction or making another health-related lifestyle change. The stages of change also apply to tackling your student loan debt.

 

Stage 1. Pre-contemplation

 

Borrowers in this stage are not thinking seriously about repaying their student loans and tend to defend their current lack of concern. Many don’t see student loan debt as a big deal. The benefits of borrowing money outweigh the adverse consequences so they are happy to continue borrowing.

 

This is the stage most actively enrolled college students are in. Students need money to pay for their education so they continue to borrow and spare themselves from worrying about the long term impact of repaying the loans until a future time.

 

Stage 2. Contemplation

 

Borrowers in this stage are able to consider the idea that they can do something about their student loan debt but feel ambivalent about taking the next step. On the one hand their student loans gave them the education they needed, and ignoring repayment may give them more money to spend each month. On the other hand, they are starting to experience some adverse consequences like wage garnishment, offset tax returns, and collection calls if in default or rapidly accumulating interest, failure to pay down principal, or not enough cash flow if in the wrong repayment plan.

 

This is the stage many recent graduates are in and this is often the stage many defaulted borrowers are in. The consequences of student loan debt are starting to surface and come to a borrowers attention.  

 

Stage 3. Preparation

 

Borrowers in this stage have usually made a recent attempt to figure out what to do about their student loan debt. Borrowers are less ambivalent about taking the next step because they see the cons of doing nothing are starting to outweigh the pros. They are usually taking some small steps towards changing their repayment approach. They believe that change is necessary and that the time for change is imminent. Equally, some people at this stage decide not to do anything about their current repayment strategy.

 

When borrowers reach out to me with an email, this is typically the stage of change they’re in. Borrowers in this stage have often done some reading online or perhaps unsuccessfully contacted their loan servicer to figure out what their best student loan repayment strategy is. This stage can happen at any time for a borrower.

 

Stage 4. Action

 

Borrowers in this stage are actively taking steps to change their repayment strategy and making big steps towards significant change. Ambivalence is still very likely at this stage. There is a great risk of “relapse” in this stage because borrowers are likely to encounter several difficulties and a lack of information.

 

Borrowers in this stage are calling their loan servicers, completing necessary applications, and actively making adjustments to their repayment strategy. This stage happens after borrowers have reached a decision about their student loan repayment strategy.

 

Stage 5. Maintenance

 

Borrowers in this stage have successfully changed their repayment strategy and are continuing to keep up with maintenance paperwork (such as annual income certification) and are making on time monthly payments. These borrowers have learned to anticipate expenses and have developed effective financial strategies to stay on track. Borrowers may lose sight of their goal temporarily, but don’t tend to see this as failure.

 

The Cycle of Motivation

 

During the long process of repaying student loan debt, some borrowers will experience default, or relapse. Relapses can teach important lessons and strengthen a borrower’s resolve to get out of debt for good. The drawback is that relapses can also trigger a borrower to give up on their quest for a #debtfreedream. The key to recovering from a relapse is to review the repayment process up to that point, identify strengths and weaknesses, and develop a plan to resolve those weaknesses to solve similar problems the next time they occur.

 

Relapse is a factor in the action or maintenance stages. When it comes to substance abuse and lifestyle change, research clearly shows that relapse is the rule rather than the exception. If you’re struggling and need a little help you can always DM @therepayable on Instagram or send me an email jeni@repayable.org

 

A lapse is different from a relapse. A lapse is a slip up with a quick return to your maintenance repayment strategy whereas a relapse is a full-blown default. For borrowers a lapse might mean you splurged financially somewhere and failed to keep your goal of making an extra student loan payment. But you’re still on track to pay off your student loans. For borrowers counting on PSLF a lapse would be failing to re-submit your annual income certification on time and letting your income driven repayment plan change back to a standard repayment plan. You’ll pay more money than you needed to before getting loan forgiveness but you’re not ineligible because of it.

 

I hope this article gave you some language to think about your student loan debt and any potential slip-ups you’ve made. I would love to know what stage you’re in, let me know in the comments below or on the Repayable Facebook Page.

 

Next week’s post will share a few strategies you can use to move yourself forward from one stage to the next and talk about my journey through the stages of change.

Student Loan Debt is a Solvable Problem

Student Loan Debt is a Solvable Problem

by | Apr 23, 2018 | Think Pieces

Read this if you’re ready to defy the expectations of the student loan debt narrative. Let’s build your #debtfreedream and secure it for future borrowers. Estimated read time 10 minutes.

 

The Problem

 

Student loan debt in America is a staggering $1.4 trillion strong. Student loan debt is second only to mortgage debt and easily outpaces other consumer debt like credit card debt and auto loans.

 

Over 42 million borrowers have student loan debt and about 10% of those borrowers have defaulted on their student loans because they’re struggling to repay that debt. Replace the faces of hopeful young adults seeking opportunity through education, unsure if their wages will be garnished, desperate to escape debt and falling victim to loan forgiveness scams.

 

Whoever started it, it doesn’t matter. Because, after today, you are going to be a part of the solution.

 

We’ve got a problem with funding

 

Public post-secondary learning is funded both by the federal government as well as state governments. Historically (from 1987-2012), states contributed about 65% more funding than federal government. In the wake of The Great Recession, state spending on higher education has been cut sharply while federal money (primarily in the form of Pell Grants) has steadily increased.

 

In 2013, federal spending on major higher education programs totaled $75.6 billion and state spending amounted to $72.7 billion.

 

Here’s an example from my state; Wisconsin’s per-student funding is 25% below 2008 levels and tuition has increased $1,485. If you want to know how your state stacks up you can find out.

 

I pulled the above statistics from The Center on Budget and Policy Priorities. They have links to each state (minus the three who increased funding) so you can examine the change in higher education funding in your state. I encourage you to check out your state’s funding at http://www.cbpp.org/research/state-by-state-fact-sheets-higher-education-cuts-jeopardize-students-and-states-economic

 

You may think it doesn’t matter where the money comes from as long as the money comes. The thing is, funding sources matter a lot. Over 70% of state funding is used for general appropriations, giving colleges flexibility in spending. On the other hand, the increased supply of Federal funding is primarily due to Pell Grants. That means colleges increase tuition to cover the loss of state funding and supplement their operation.

 

We need multifaceted solutions

 

Solving this problem is going to require many different solutions. Because the problem has a multitude of moving parts and is widespread one individual solution won’t fix it. For example, let’s say we funded public education fully. The future would look great, but today’s borrowers would still be stuck with their student loan debt and likely a higher tax bill to pay for those currently going through the system.

 

It’s a noble option but without careful planning it could worsen the student loan debt burden for those currently repaying.

 

We need to develop solutions within each industry that are unique yet complementary. Solutions that don’t replicate work and overlap dollars but produce synergistic results with their combined efforts.

 

Colleges

One of the lowest cost solutions colleges can implement right now is to promote transparent outcome-driven data. Decreasing cost is only one side of the equation. Increasing the value of an education also gives students a better financial outcome.

Colleges need to collect and report three major outcomes by degree program: median student loan debt, job placement rate, Median starting, 5 year, and 10 year salaries.

These outcomes give potential students the information they need to analyze the financial impact of their education. Right now most decisions are being made without this information. So the decision about how to spend 4-8 years of your life and tens of thousands of dollars is often based on an educated guess rather than real data.

Easily accessible outcomes data allows buyers in the market to purchase supply from colleges that meet their financial needs. Outcomes data also encourages colleges to eliminate non-profitable degrees that fail to attract borrowers.

 

Government

The government can make policy changes that massively impact the student loan debt problem. Here are a few examples.

Mandatory tuition freezes for institutions eligible for federal funding. The idea is that an institution would freeze a student’s tuition for the duration of their education (within reason). Freezing tuition allows a borrower to know ahead of times the total cost of their education rather than having to guess about tuition hikes. This could have the negative consequence of colleges charging much more than they need up front to account for future needs while unable to hike tuition.

The government could provide fixed low-interest rate student loans specifically for tuition and fees. Federal loans aren’t based on credit-worthiness and this would likely cost the government money. However,  by limiting this to only the cost of tuition and fees the government could reduce the risk of excessive borrowing.

A low fixed interest rate will also provide a little more cushion from the disastrous impact of compounding interest, keeping interest from being a significant contributor to a borrower’s debt load.

Stop cutting state-level funding for higher education. Education represents the third highest spending category for states, behind elementary and secondary education and Medicaid. That means cuts to this spending save states big in the short term. In the long term, when colleges hike tuition in response to budget cuts, the cost of the budget savings gets moved onto the shoulders of students and the future work force.

This is something we can all demand of our state legislators. We can access them at our State Capitols, tweet them, stop in their local offices when they’re out of session. Tell them our concerns and give them a horse in the race. State legislation can be driven effectively by grassroots movements. Your legislators need to know how you expect them to allocate state funding.

 

Employers

Employers benefit from the education of their workforce. Many of them know it and are willing to pay for that benefit. However, we can continue to encourage employer engagement in solving the student loan debt problem.

Offer employer-sponsored student loan repayment as a benefit. Some fields require college education (much of healthcare, engineering, teaching) so it makes sense that the employer will offer a benefit that will target many employees. The idea is to create a match for student loan payments, similar to a retirement account.

This isn’t a tax deductible benefit yet, but if enough employers seek to offer it as a benefit and demand policy change to accommodate it, this benefit can join the tax deductible benefits of health insurance and retirement contributions. Making this a pre-tax benefit would give this solution maximum reach.

You are the necessary catalyst

 

The last set of stakeholders we need to solve the problem are borrowers. That’s you and me. The people in the thick of things, repaying their debt, dealing with the financial consequences, and striving for a better future.

 

You can start by figuring out the best solution for your own debt. You’ve really got three options to choose from:

Refinancing, best for high earners with, good cash flow, reliable employment, excellent credit, and job security.

Loan Forgiveness, best for borrowers unable to afford their current debt and willing to wait a while to see it disappear.

Optimizing your Repayment Plan, best for borrowers who need flexibility and don’t want to give up federal benefits.

 

I’m always here to help you make that choice so feel free to send me an email jeni@repayable.org and I’ll get back to you. I respond to every email I get.

 

Once you understand your own debt it’s time for you to help others understand theirs. Teach your co-workers, your classmates, your students how to approach student loan debt.

It starts today, when you claim the power of your education and find smart strategies for your debt. Today you work with other repayers to engage stakeholders and command their participation in solutions. Today we relentlessly chip away at the cost of college. Today we boldly apply the assets of our education to overcoming it’s problems.

We are the generation that will strive and toil to repay our own debt. And we refuse to do this in vain because we will not resign the future to the endless tuition hikes of the past. That trend stops with us.

We will free ourselves from debt and create a future where no one has crippling debt because they pursued opportunity through education.

We will systematically compel progress until one-by-one each barrier is eliminated and education is accessible to those who seek it’s opportunity.

 

It starts with you, you are the hero of your debt free dream.