Credit Bryan R. Smith for The New York Times
The problem with a lot of the advice that teenagers and their families get about higher education debt is that it’s totally, utterly bloodless.
The federal Department of Education takes its shot in its role as the de facto provider of advice to people borrowing their first federal student loans and repaying them. That counseling is mandatory for borrowers, but because the topic is dense and the department’s content is devoid of anecdotes, it’s tough to make the lessons stick.
So in my column last week, I asked readers to share their own stories and offer the most important thing they wish they had known before they borrowed money and began to repay it. The comments painted a troubling picture of clueless teenagers, frazzled parents and college administrators who may not always take students by the shoulders and question their debt levels.
Not one person suggested that college was a mistake (though a few regret going to law school). Borrowing too little is dangerous if it leads to dropping out or never attending in the first place, and undergraduates who borrow from the federal government without taking on additional private loans are unlikely to get in trouble if they manage the repayment process well.
Still, it’s obvious that too many families know too little about student loan debt. Here’s what past borrowers would have families and schools learn and do:
THE LIST As the fifth child in his family, Tim Ranzetta already knew the deal. His family income was too high to receive any need-based financial aid. His parents might put aside some money for college when the income tax refund arrived each April, but they weren’t going to be writing any checks once he enrolled.
So at the age of 16, he sat down and made a list that summed up his savings and his overall “financial situation.” The year was 1983 and it required no computers or graph paper, just basic awareness about money that every child should have by that age but that far too many do not.
If your teenagers have no idea what you have saved or can afford to pay, tell them. Even if college is a few years away, start explaining the financial aid and loan system to them now so that they are capable of plotting out their own situation. You don’t want their introduction to personal finance to begin when they confront their first confusing financial aid “award” letter and the five-figure bill that arrives later.
Mr. Ranzetta now runs a nonprofit group called Next Gen Personal Finance, where he helps teachers who are looking for better ways to teach their students about money. I particularly like his online collection of videos and documentaries about student loans, which can serve as a sort of family movie fright night a year or two before applying for college.
THE COUNSELING Mr. Ranzetta sees no reason the federal government cannot require that people who borrow money from private lenders like Sallie Mae undergo mandatory counseling the same way that federal student loan borrowers do.
Federal law makes it difficult for people to discharge student loans in bankruptcy court and private lenders benefit greatly from this restriction. Auto lenders and credit card companies don’t have that same privilege.
So why not require a separate counseling session for private loan borrowers, who may not immediately grasp the distinctions between that kind of debt and any loans that come directly from the government? Alfred MacDonald, a 26-year-old graduate of Trinity University in San Antonio and a resident of that city, suggested making it crystal clear that private loans do not come with the same guarantee of flexibility as federal loans, with their income-driven repayment options.
THE COURSE Many teenagers come from families where parents don’t have the knowledge, time or English-speaking skills to teach their children about the financial aid system. So Ben Lindsey, 27, who graduated from Oklahoma Christian University with about $100,000 in student loan debt, said he wished that colleges would require all new students to take a basic course about money that forced them to run their overall loan projections at the beginning of their first year.
It’s tempting to denounce the small percentage of the indebted who have this much debt and say that they should have known better. And Mr. Lindsey isn’t looking to point fingers or evade responsibility. Plus, college was great for him in many respects — he met his wife and has a good job in the commercial loan field in Oklahoma City, far from the shakier economy in his native Delaware.
Still, college applicants are children and undergraduates often behave that way. And children need grown-ups to help them make good choices. There were ways that Mr. Lindsey could have borrowed less and he should have. “College is a valuable investment, but that is an incomplete truth,” he said. “It’s like I’m paying two mortgages with only one house.”
THE CHECKUP The one complaint that I heard repeatedly was this one: Given the hopscotch manner in which students take on debt each year, loan by loan, it is much too easy to lose track of your running total. Shannon Doyle, a financial counselor with Lutheran Social Service in Minneapolis, says families often come into her office with no idea how much a student owes and with mistaken ideas about how parent loans can be combined with student loans after graduation.
She advises students and families to keep score on three pages of a spreadsheet that they update each term. The first one should have federal student loans, divided into subsidized ones (where the government covers the interest while the student is enrolled) and unsubsidized ones (where the interest accrues during school). The second page is for private loans, if any, from entities like Sallie Mae, and the third is for any loans the parents take out themselves. Sites like tuition.io can help with this sorting task.
My conversations with Ms. Doyle ended with a plea of sorts to the schools: Please, do your best to provide a running total of debt on the financial aid statements you send out each year. “There should be no barriers to students knowing how much they have borrowed,” she said.
THE DAILY INTEREST Before Kim Liao’s enrollment at Georgetown, the story of her family had been one of downward mobility. Her father had died, the family had struggled and there was pressure on her to work part time as an undergraduate — not to pay her way but to send money home.
She considers herself lucky to have graduated with just $22,500 in student loan debt in 2006, but that didn’t sit well with her. What really flipped the switch in her head was when a phone representative at her loan servicer told her that she would be paying $2.23 in interest each day. “So you start out with zero dollars to your name, and you’re going negative by that amount every single day,” she said.
For people repaying their loans, it may be worthwhile to confront that figure when they make their daily spending decisions. “The calculators will tell you how much interest you’ll accrue over 10 or 20 or 30 years,” said Ms. Liao, who paid her debts off much faster than that and now works for the Federal Reserve. “But the fact that I was spending $2.23 each day without actually buying anything for myself resonated with me so much more.”
Student Loan Calculator
A guide to student loans at various universities, and what it takes after graduation to repay that debt.