Student Loan Crisis Tips & Strategies

Executive Summary:

The student loan situation has reached crisis levels. It has become a 2020 campaign issue. In this show we talk about student loans. We discuss the causes and how to deal with it. And, after some differing opinions, we do provide some tips and strategies in the end. If you are thinking of taking out a student loan, co-signing, or dealing with repayment problems, listen in.

Author: Daniel J. Wendol

Daniel J. Wendol is the owner of the Dolphin Financial Group. He is licensed as an investment advisor representative and also has an insurance license. He combines the investing and insurance worlds with a focus on retirement. Each week Dan hosts Dolphin Financial Radio, a podcast about the wide-ranging issues people face leading up to and through retirement.

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Podcast Transcript

Tony Shore 0:00
With more than 7.5 million student loan borrowers in default and nearly 2 million others seriously behind on their payments, we’ve got to do something about student loan debt. This is a major, major issue for so many people. And Dan, I’m looking forward to your thoughts on this problem today.

Daniel Wendol 0:48
Hello, and welcome to another Dolphin Financial Radio Show with me Dan Wendol, host of the Dolphin Financial Radio alongside me today is Tony Shore, looking like he’s sad because he brought up student loan debt. He knows that it’s a sad situation for a lot of people. I’m going to look at him and say himself included with a question mark.

Tony Shore 1:13
Yeah. I never had student loan debt. However, my children will. And that’s the problem. My son is a junior in college and my daughter who’s in high school yet she’s a junior high school, she’s already picking out her favorite colleges and has toured seven schools already. And of course, her so far the one in the lead is the most expensive one we’ve looked at.

Daniel Wendol 1:45
That’s just how it works, Tony. Yeah, you got to pull the reins on that and say this one’s not going to be one we look at.

Tony Shore 1:51
Yeah, I want I want you to try to tell my daughter, my middle daughter, anything. You tell her, see how that works out for you, Dan. I you’re really good at talking with people and really good with youth. But I’d put my daughter up against anyone.

Daniel Wendol 2:11
No, that’s not gonna happen. I’ll tell you what, though. You’re right. It is a crisis. Maybe. All right, if your daughter could vote for president who would she vote for knowing the current candidates?

Tony Shore 2:29
Well, she would probably lean toward one of the liberals. She’s big on women. So I know she really likes. She likes some of the things about Elizabeth Warren but hate some things about her to or dislike strongly I should say. So I don’t know. I mean, that’s her decision, but I do know that she’s not a fan of Trump, and she’s not a big fan of a lot of the Democrats. So I don’t know she’s having a tough time. I think Bernie said she loves a lot of what Bernie Sanders said. But I said, you have to make sure that you look at all the aspects and you know, like you I say, Dan, you gotta do the math.

Daniel Wendol 3:23
Well, if you’re going to do the math, I would say you’re going to be voting for Bernie, and you got three kids. They will be in college over the next six years or so. Right? You gotta you gotta vote for The Bern. Feel the Bern, Tony!

Tony Shore 3:40
Well, I don’t know if we can just go ahead and eliminate student debt or make college free. I’m not, you know, I don’t think that’s a realistic scenario either. But you’re talking about two extreme sides. And I don’t like to go toward either one. I’m kind of more of a centrist but I will tell you that still loan debts, obviously are a problem. I mean, the statistics are out there crazy, aren’t they?

Daniel Wendol 4:05
Yeah, well, it is out of control the I think student loan debt is greater than credit card debt now and auto loan debt. Yeah. So that’s never been the case. And when I graduated in the 90s, $10,000 was the average student loan now it’s like $30,000. So it’s getting a little bit difficult. I saw the Department of Education puts a stat out. They looked at the people that took out a student loan in 2004. And 40% of those are going to default. Yeah. 40%. So, yeah, people are taking out a lot of debt. They’re not paying it back. And it’s a campaign issue, which is why I asked about who your daughter would vote for, you know, it’s a crisis and it should be a campaign issue. And it’s probably going to be a big one. I think it’s a bipartisan issue. I think both sides realize how bad it is. But you’re right. Bernie Sanders and Elizabeth Warren, both have solutions. And Bernie’s is to get rid of it all, forgive all student loan debt.

Tony Shore 5:16
Yet, according to debt.org, before we dig in further, and I, and I get your full take on this, Dan, I thought I’d let our listeners know what we’re talking about here and debt.org they’re America’s debt help organization, and it’s a nonprofit, nonpartisan, and they they go with the actual figures- total US student debt is $1.4 trillion. Student debt accrued every second – $2,858.

Daniel Wendol 5:52
So Bernie saying he’s going to take on or just forgive over a trillion in debt. Well, I guess that not all of that’s government debt.

Tony Shore 6:04
Yeah, I believe that includes both federal and private loans.

Daniel Wendol 6:09
Even still federal loans are probably over a trillion. I mean, it’s just mind boggling numbers.

Unknown Speaker 6:15
Yeah. So federal loans, chunk of it. Not all of that is federal loans. But even even that, even if it was put, let’s just say, it was about half that. That’s a lot of money to come up with. You know what I mean? I mean, we’re talking billions

Daniel Wendol 6:31
who’s gonna come up with it? Who’s gonna come up with it?

Tony Shore 6:33
Dan, I know that I’m sure that they’d knock on your door for a little bump. Well, you know,

Daniel Wendol 6:39
it’s just as we becoming a we just gonna say that college is an extension of high school now and just everywhere, everything’s free, or not free taxes, you know, so, my property taxes going to go to paying for college now, because the kids don’t know anything graduating high school. It’s like, geez, yeah, my dad was an English teacher and that was his big thing. He hated social promotion – kids that were being promoted just because they were getting older. But even though they didn’t know how to read, that’s not good. So we’re just going to extend it and they’re going to be 24 by the time they get out of college and school, I should say high school. I don’t know. All I know is if Bernie Sanders has a chance of winning, I’m enrolling in the most expensive college I can find that’ll take me I’m going to go full out 100% loan get a degree and anything. I’m going to get a degree in whatever anything yeah, something I you know, boating, maybe I’ll be a naval ship captain. And just you know, something. Just take it take a loan. Teach me something I never know nothing about and forgive me. Yeah. Yeah, right. I mean, what and just think about this. I’m now if you start forgiving this debt, like Elizabeth Warren also wants to forgive debt but she’s got a sliding scale based on income. Yeah, that I think it starts at $50,000 forgiveness if you make less than 100. Well, again, What if you make 101 you only get now you get 25. So you’re going to start promoting people to start looking at income you’re going to start promoting people to, to taking on debt that I mean people need. The problem is, what about the people that already paid off the debt like me?

Tony Shore 8:19
I don’t that argument is like, hey, that’s not fair. I already well, don’t you want? Well, sure, you had to pay and now somebody’s coming up doesn’t but that’s like, Hey, I had to go through this painful procedure, everybody should have to? No. If I can help other people avoid it. I’m all for that. That’s not to me. That’s not the best point but but I get a lot of people want full fairness, and they’re like, Hey, I had to pay for college. These kids should have to pay for college. But there are already I read an article. There are already some income driven repayment plans out there for people. Well, there are yes I know that they’re really from what I’ve heard, they can be really tricky to get into and easy to fall out of an income driven plans can be really confusing and hard to stay in. I do like the fact that there are income driven plans, you know, if Hey, if you if you get out of college and you’re not making enough to pay off your student loan, you know, I agree with it. So somewhat, but again, if you went to school and got a master’s in pottery, and now you can’t find a job to pay off your $125,000 of student loans, or $150,000 Yeah, you can’t get a job in pottery that’s going to allow you to pay off a six figure loan. Right?

Daniel Wendol 9:49
Well, that’s just it. So that means you made a poor decision on your choice of what you want to learn and a lot of people get upset take offense to that. You should learn whatever you want to learn. No. You shouldn’t take on…all right here’s an example take on $100,000 debt to become a teacher you know that’s not fair teachers don’t make squat in this country. They should, but so so that’s not the problem the problem isn’t so much well that’s a big problem is people taking on debt to get degrees they don’t know what they’re doing they drop out they just they just go to school because I don’t know what else to do. Yeah, by the way, I’m not gonna let you go off of that whole thing that I’m that’s not the st like the argument I say it’s not fair. That’s like saying to the people that fought in World War II, you know, they went over there for freedom and they’ll be like, you know, giving them a hard time you know, spitting on them. They could say hey, I fought for you and now you’re not appreciative. I could still say that except I say I paid my college loans and you’re not that’s not wait

Tony Shore 10:47
Now you’re comparing having to pay student loans to…

Daniel Wendol 10:51
Yes, paying student loan to a military feat. Yes.

Tony Shore 11:02
Real world problems right? Now, come on.

Daniel Wendol 11:05
You’re right. The the changing the changing of a policy is is not something that I agree with. I agree with you on that, that you can’t use that as an argument against it. But I do not like the idea of paying off student loans, not because I don’t think that people should have free college. If that’s what you know, you want to do, and the country wants to go, that’s fine, but who’s paying for it? It’s going to be coming out of higher taxes. And so it’s, you know, and it’s going to be, it’s going to be ridiculously it’s going to lessen or cheapen the value of a college education. I think the bigger problem and the place to focus is on the cost of college. Why is it so expensive? It’s because the government backs the loans. If you had the ability to declare bankruptcy on a student loan, and it was a private loan, then the private companies would do everything in their power to make it a more reasonable loan and come come to terms. Because right now you can’t declare bankruptcy unless you truly have hopelessness. It’s and so if and I saw that, DeVos the education secretary, Besty Devos. She said that the Department of Ed wasn’t meant to be a bank. And I agree with that. Get the government out of this nonsense. If you either you make it free and then it becomes just like high school, or you privatized the privatized the whole process privatized the student loan process, let the market handle it. And they’ll come up with unique ways, the income share of repayments, percentage of your income, and maybe the colleges will have some skin in the game. I’ll loan you 100,000 and you pay me back once you get a job. Now think of that. The college will do everything in their power to make sure you get a job, or else you’re not going to pay it back, then all of a sudden, their goal is to make sure you get a job as opposed to just take as much money as they can from you and kick you to the curb. You know, that’s, that’s where I think the problem lies is the cost is extravagant for college. It’s outpacing every everything else. So we need to stop that madness. And I think the first place to start is to stop backing these loans, let the universities and colleges eat it instead of the government.

Tony Shore 13:32
Yeah, I agree. You have to look at the cost of education. It has a lot of parallels to the problem with healthcare costs. Because I’m very upset with healthcare insurance companies for constantly raising the rates and prescription drug companies that the the cost is going up. But what you do have to look at is the cost so you have to look at hospitals, doctors, the pharmaceuticals. Why is the initial cost so much? I am still not 100% happy with insurance, health insurance companies but I also agree that it’s the cost of health care why does it have to be so outrageously expensive? Same with the cost of education. Why does a decent college education half the cost so much? I mean, Macalester in the Twin Cities, my nephew went there, and I think the tuition it’s a private liberal arts college. Very well renowned. Used to be if you graduated with a degree from Macalester, you just walked into any major company and they’re like, Oh, yes, it’s not that way anymore. And, I think the starting yearly was like $65,000. But then they they give, you know, obviously they give pretty big scholarships to break that down and grants and things however, still, that’s crazy. And it was still ended up being a crazy amount. And he ended up with a philosophy degree.

Daniel Wendol 15:08
Right and that’s fine. But he’s got to realize that you need to pay that loan back.

Tony Shore 15:14
And the job he ended up in a job at the Pottery Barn. You can’t quite pay off that hundred thousand dollar school loan, you know?

Daniel Wendol 15:30
That’s because we need to raise the minimum wage at The Pottery Barn so that you could pay off the student loan of $200,000. You know, this is the problem. It’s like, you need to be, the students today they’re too young to be making these decisions in my opinion. They’re just not mature enough.

Tony Shore 15:48
They’re making decisions in high school a lot of time.

Daniel Wendol 15:53
Yeah. They’re making decisions on what they don’t even know what degree they’re going to be.. A lot of kids don’t even know and I don’t blame for not knowing. But they’re they’re spending $200,000. And then they don’t like it. It’s like, now what? You got to be held accountable for that spend. You can’t just say, Oh, that was a bad decision. Yeah, it was. It’s the worst decision of your life to date. So, you know, so now the government’s going to bail us out, and I’m going to bail everyone out, because I’m going to pay taxes. I don’t like it, Tony. And so I’m a big proponent of getting the government out of it and letting these these companies that are loaning the money, put some pressure on the colleges, and maybe the colleges will step up and start saying, Yeah, I guess we need to do something about this. Instead of spending so much on the college football team, or maybe I’m getting cranky and old or something

Tony Shore 16:41
To play devil’s advocate, though. I see what you’re saying. And it sounds like a great point. However, let’s look at what’s happened with health. Okay, so healthcare insurance is privatized right now. But that hasn’t helped. Like you’re saying let these private companies give loans. Try to keep, you know, maybe they the private companies can get the college costs down or work with colleges to get it down. That hasn’t helped it happened in the healthcare industry, the private insurers have not gotten health care costs down. Health care costs are skyrocketing. insurance costs are skyrocketing. And the government’s not involved in it. I mean, now wait before you correct me, sure there’s Medicare and I think that’s thank God we have it. It’s kind of a safety net for a lot of folks when they get older. And and, sure there’s the Affordable Care Act, but it’s still private insurance companies. It’s still the government isn’t controlling the cost of healthcare, they’re not controlling the cost really, of insurance. They’re not the government isn’t insuring it. It’s still a private and still Blue Cross Blue Shield or whatever it is, you know, United Health or whatever. They really in charge of the healthcare insurance and the health care. So it’s private companies and it’s still skyrocketing. So getting the government out of something doesn’t necessarily mean the costs are going to get better.

Daniel Wendol 16:43
I think so. I think you just got to give it time and, you know, healthcare, comparing healthcare education doesn’t work because healthcare costs are going up because people are living longer and, and the medicine issue is very different than universities. Why is the cost of college education going up so rapidly? Healthcare, we could say, people living longer, people are as a country, we’re becoming unhealthy the way we eat. So we’re treating these things and it’s got to go up, and I can justify that. We’re at the end of the healthcare, open enrollment. A couple in their early 50s, I just got them, they filled out the forms at healthcare.gov, they got a $1,300 dollar a month subsidy. Doesn’t that sound great? Their cheapest plan still cost them over $100. The cheapest plan is over $1, 400 a month. That’s crazy. But if the government wasn’t there, they would not buy it. And maybe that’s sometimes better than having the government subsidize it, because then they don’t feel the pain. You know, and the government saying that employers are going to be the place to get health insurance. No. Get rid of that whole thing. Let people pay it themselves. They’ll feel the pain. They’ll say, wait, we got to do something here. And then boom, things will change. In my opinion. Same with college, you start you start letting these people default on loans, but them declare bankruptcy. These loan officers are going to say, you know what, I’m not going to take that risk. They’ll stop loaning the money. The kids won’t be able to afford to go without the loans. The schools are gonna say, wait a sec, why aren’t people coming anymore? It’s because I can’t afford it. Boom. But what really is happening is the government’s bailing them out now parents of bailing them out. More and more parents are coming to me saying how do I save for retirement? What do I do? And I look, and they got student loan debt. I said, that’s the first problem. You shouldn’t be subsidizing your students’ education, your kid, if you can’t afford your own retirement. People aremjust making incorrect decisions and society’s letting it happen, and I don’t like it.

Tony Shore 20:21
Yeah. And so I agree with your question on why does college cost so much?

Daniel Wendol 20:28
I don’t have that answer.

Tony Shore 20:30
I agree, though, that that’s a question that needs to be answered. So let’s say somebody does have a lot of student loan debt. We’ve talked a lot about the problems and back and forth about our opinions on the problems, but what about solution? So if you have a client that comes to you, whether it’s adults who are co signed on a loan with their for their kids, or for themselves, they still have a lot of student loan debt. What do you recommend to them? Obviously, if Federal loans it cannot be refinanced. It cannot be can’t declare bankruptcy or refinance it. What do you?

Daniel Wendol 21:08
You might be able to refinance with a private loan, but usually, the people that could do that have great credit and all that. So they’re probably the least problematic. The people that really need to refinance are the ones that won’t refinance, because the private loans will be like, “no way.” They won’t touch you. Yeah, true. So you got to treat it like any other thing. Any other debt, you got to attack it attack and attack it. You can’t go on these trips. You can’t, you can’t start spending on credit cards, you got to start paying this stuff down. You can’t just let it sit. Because it’s just going to get out of control. Unless your strategy is to is to vote for Bernie Sanders and then cross your fingers then I wouldn’t pay any of it back. You know, let it let it balloon and hope he wins. I mean, that’s not a good strategy. You got to treat it like a debt. I would definitely try and refinance if I could, that would be number one, but let’s even back up further, Tony, the real strategy here is don’t take it on. True. True. You’ve heard me say before though, I’d rather you have your student, your son or daughter, take a student loan than you pay for their college. In fact, I’d rather you put money in your own retirement then buy a 529 to pay for your kids college. And the reason being is because, now of course, there are exceptions to everything. But for the most part, you got to look at yourself, get a retirement analysis and say, am I ready for retirement? Because you can’t take a loan to retire. Your student can take a loan to go to school. And if you add that pressure to the student, oh, no little, little, little 18 year old Johnny’s going to be sad because he’s got to take the debt. And he’s going to have that feeling of, of hopelessness because he’s got a $30,000 loan. Too bad. That’s the price up paid to go to college. So maybe Little Johnny will think twice about where he goes, because mommy and daddy aren’t going to pay for it. I know it sounds harsh, but I think way too many people are putting their kids ahead of themselves. And it’s perpetuating the problem. Because what happens if you cosign on a loan and the student can’t get a job because their degree is terrible, or they didn’t do well, they fail out, they get a job that’s minimum wage, and they can’t afford to pay it back. You think the loan companies gonna say, Oh, yeah, they’re going to come to you and say, Yeah, I see. Tough luck. Too bad you son is a deadbeat. You know what we’re going to do – we’ll hit him up, we will leave you alone. No way. You’re co-signed. They look at you, you’re on the hook. 100%. They don’t care. That’s a huge decision. A huge thing people fail to realize they constantly are making that mistake. I’d rather you have the student put it in their own name. Put them through a work program if you have to. Just don’t sacrifice your own retirement for your son or daughter’s college or grandkids college, it’s just the payoff just doesn’t make sense.

Tony Shore 24:08
Yeah. Yep. Good point. Well, we’ve covered a lot today. It’s a very fascinating topic. And, you know, it’s I don’t think there are any great answers out there on either side of the fence as far as partisanship, but it really like you said, it’s a bipartisan issue. People want to want to help fix it. The question is how?

Daniel Wendol 24:30
We have to fix it. And both both parties, major parties agree that there’s something wrong so I’m all for every type of option. Forgiving loans, I’m not a huge fan of it, because that’s just a wealth redistribution tactic in my opinion. But I get it, you know, I get it. I had student loan debt. It’s not fun. But I think we need to come up with something better than just forgiving it because that’s not going to reduce the cost going forward. It’s just like, you know, we’re just gonna go in the same bad habits, same trajectory, something’s gotta change at a more fundamental level.

Tony Shore 25:10
For sure. Well, before we go, why don’t you let our listeners know how they can schedule a no cost, no obligation consultation with you talk about where they’re at with their finances, and how they can get on the right track or where they should be. Have a plan in place for retirement.

Daniel Wendol 25:27
As a true financial planner, I’m a big proponent of making the right decisions, analyzing the big picture. If you’re thinking about putting money aside for your kids college or your grandkids college and you think and why Dan just said not to do it. Why? It’s because I want you to do an analysis of your own retirement first. That is something I’d be happy to do. So you call me, we’ll go through your situation and I’ll tell you, yeah, you know what, you’re in a situation where you could put a little bit of money toward college for your kids or grandkids. That is a better way to do it than just to do it because you think College is so important. Yes it is. But your retirement is going to be even more important to you and you’ll won’t realize it until it’s too late. The number to call me 888-508-5935 or go to DolphinFinancialGroup.com. Tony, thanks for getting me riled up in a very innocuous little you know topic here. I don’t know why I’m so upset about it, but I am for some reason.

Tony Shore 26:22
It’s a huge problem. All right. Well, hey, great discussion and always good to prompt some thinking about a serious issue and topic like this, especially with how much money is involved for so many people. But great show Dan and excellent points. Listeners, that does it for today’s episode of dolphin financial radio with our host Dan Wendol.

Thanks for listening to Dolphin Financial Radio

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