After delivering the opening keynote address titled “When Borrowed Money Isn’t Real” to a group of financial education teachers earlier this year, a young man came up to me and introduced himself by saying, “what you said is exactly true. I had $180,000 in student loans from my undergrad years.”
The only response that came to my mind was, “What the hell happened?”
Doug (as we’ll call him in this post) said he was a typical high school student in the Northeast, wooed by a private school situated on perfectly manicured grounds, promising that a degree from their institution would be worth it’s weight in gold. Doug spent four and a half years, head down, applying himself to a degree in education, amassing nearly two hundred thousand dollars in student loans in the process.
Fast forward a few years beyond graduation and Doug was facing a mountain of student loan debt with little ability to pay even the interest, let alone the principal that was growing by the month. According to a recent Wall Street Journal article, nearly 5 million student loans are now in default. The aggregate amount of these loans is staggering, coming in at a whopping $84B, or 13% of the overall $631B that is supposed to be in repayment currently. Another $850B is hanging out there in limbo, waiting for borrowers to either finish school or enter their repayment period.
Houston, we have a problem.
An Educator Gets Educated
Doug, an educator in a public school system, did his utmost to pay the bills that came due after leaving the private college that promised so much. However, as many of the above mentioned borrowers have experienced, after a few years of paying with no decrease in principal amount, Doug got frustrated, then he got educated.
Struggling under mounting bills, Doug began investigating bankruptcy as his last option to wipe away some of the debts that had ballooned out of control, including his student loans. The advice he received time after time was the student loan portion of his debt was non-bankruptable. However, Doug found a caveat in the language around discharging debts that suggested his student loans may be eligible.
Doug’s servicer, Navient, which has made the news regularly for deceptive collection practices (amongst other things), is also now the defendant in a class-action lawsuit. Navient has reportedly over $300B in it’s servicing portfolio, over ¼ of all borrowers owe payments to them monthly.
With the assistance of a talented student loan lawyer (highly recommended if you’re in similar shoes), Doug’s case began in the summer of 2016 and by February of 2017 had been settled out of court. Before ever seeing his day in court, Doug’s loan amount was cut to a more manageable amount of debt (about 20% of the original amount) at about 1/7th the amount of interest charged for the life of the loan. In effect, Navient proceeded in the case as if it wasn’t going to win. This is HUGE for borrowers.
How Does This Keep Happening?
Having been in the college marketplace for the past 15 years as a speaker on campuses nationally, I’m never surprised at the amount of student loans that borrowers are carrying. It’s nothing for me to hear stories of 100, 200, 300 thousand dollars in debt being racked up with no conscious understanding of what that actually means. (My TEDx talk from London suggests why…)
We HAVE to do better.
As of the writing of this post, there are only 6 states that mandate a personal finance class as a prerequisite to graduating high school. SIX. STATES. And one of the states that pioneered this idea (Go Utah!), had me present at their statewide financial literacy conference this year. Their main challenge is the legislature may limit the funds given for financial education in the coming budget. Right, as I might add, when the state is gaining momentum on their initiatives.
We Have To Tap The Brakes
Until and unless the system installs preventive measures keeping young people from racking up tens or hundreds of thousands in loans, it will continue.
In my experience with students at the high school and college level, I think part of the challenge is the generation entering higher education is not as mature as students were 20 years ago. Their decision making skills are not as challenged, and therefore not as acutely aware of the negative repercussions of the amounts borrowed.
It’s up to both parents and students to tap the brakes when it comes to making decisions about college and their career choices. If an 18 year old is in no way ready to blaze their own trail, so to speak, perhaps it’s best to get them working for a year until they understand what it takes to make a living. Pushing the college agenda to those who either don’t want it or aren’t ready for it is a recipe for financial disaster.
If they have no context around what debt costs, then they’re not ready to take it on. Period.
Instead of trusting that the almighty degree will save us from the debt we incur, let’s instead focus on getting through school with the least amount of debt humanly possible. If that takes a few more years to pull off, so be it.
Wondering How To Have The Conversation? Watch This.
My production team and I spent the better part of a year interviewing people to put a documentary together meant to help families have this discussion.
Please, please watch Broke, Busted & Disgusted and download the screening guide to know what questions to ask before and after. The financial future of the next generation is at stake and it’s up to their mentors to help them pursue the Mastery of Money.
Absolutely love the post–but I’m not sure where to go to watch the video at the end! Is there a link you can provide for it? Thanks so much!