My background is on the lending side of the financial services industry. I've owned and run commercial finance companies and served as an executive officer at several banks.
Now I also teach part-time at the University of Hartford, where a colleague and I developed and launched a personal finance course for the undergrads soon after the 2008 crash.
Ever since I first began teaching that course, there isn't a semester that goes by where I'm not approached by students and alums who are struggling with truly difficult student debt problems. Sadly, many of their stories are similar.
Take, for example, a former student of mine who was the first in his family to attend college. Although his mom and dad managed to scrape together some of the money he needed for school, most of it came from government and private sources. In the end, he accumulated more than $100,000 in debt, the majority from private lenders. And while the interest charged by the government is a manageable 6 percent, plus or minus, his private loans — which totaled more than $60,000 — averaged 12 percent. His private lender was unwilling to do more than grant forbearance for a limited period of time, which just postponed the pain instead of making payments more affordable.
And then there was the student I had last spring who was also the first in his family to attend college, but whose folks also had significant credit problems. For some unfathomable reason, they were directed to do all their borrowing in the high-interest-rate private market, when the student could easily have qualified for a federal subsidized loan, which, unlike a private loan, doesn't charge interest while the student is in school or while the loan is under forbearance (aka: a much cheaper loan).
This problem isn't isolated to my students: Student loans now account for a collective one trillion dollars in outstanding debt. In my opinion, there are four steps we could take to start alleviating the problems in our current system today.
1. Have high schools offer help
It's easy to point fingers and say, "These families should have done their homework," or, "They shouldn't have borrowed so much," but the fact is, many students and their families have no idea where to go or what to ask. In my view, as well as that of the many students and alums who contact me, this education in what student loans really mean should begin in the high school guidance counselor's office.
First, students and their counselors should have a meaningful discussion about the cost of college and options for borrowing money. And there are plenty of places to do your homework as a parent: The Department of Education's College Affordability and Transparency Center offers an online tool that gives parents and students a sense for costs and (just as important) tuition inflation rates — because college is a multiyear commitment. The National Center for Education Statistics' College Navigator provides even more detailed information about school choices. And then there is FinAid's impressively comprehensive site that compares and contrasts financing alternatives.
2. Teach students to seek out free money
Next, students should (but don't) know about the myriad scholarship and grant opportunities available. FinAid's sister site, FastWeb, along with others such as Collegescholarships.org, help parents and students search for the extra money they need to make college work.
A few semesters ago, one of my students told me about a strategy he implemented in high school: He decided to apply for every nickel-and-dime scholarship he could find because he knew his peers were elephant hunting. Sure, it meant a lot of extra letter writing and phone calls, but, in the end, he was able to cobble together more than $3,000 for his first year of school — more than enough to pay for his textbooks.
Finally, there are programs that let students test out of core college course requirements, so they can spend less time and tuition money rehashing the same material. For example, the College Board — the same fine folks who brought you the SAT exams — offers the College Level Examination Program (CLEP): Exams on 33 subjects accepted for credit by 2,900 colleges across the country.
This testing-out strategy seems to be, by far, the least promoted by the guidance counselors, for reasons I cannot understand. A little more than a year ago, I had occasion to speak to 100 undergrads at a large state-run university. I asked how many were aware of these exams. To my astonishment, only three students raised their hands. Three students! For a program that's been in place for more than 40 years! I know, because I was one of the first to take these tests when they were introduced.
3. Fix the college costs
While some of the blame for the trillion-dollar student loan mess in which we find ourselves today can be placed on the high schools, the colleges are also culpable.
The fact is, higher education's more-students-equal-more-revenues business model has proven unsustainable, as fewer and fewer potential students (or their employers) are able or willing to foot the bills.
In order to survive, the schools must not only address their internal cost structures — bricks and mortar, administration, tenure — which drive so much of the cost of higher education, they must also take a hard look at the relevance and delivery of their courses. I'm talking about curricula that will help students find good work or qualify for advancement, delivered in a manner that accommodates the way they want and need to learn. Had my grad-school program been available online at the time, I would have chosen that route in a heartbeat, because it would have permitted me to spend more time with my family. (Oh, and it's often more affordable.)
4. Lean on the lenders
Moreover, the lenders — government and private alike — continue to make too much money too easily available to borrowers without consideration for how they might repay it. Once those debts come due, private lenders' reluctance to reasonably restructure the debt to make payments more affordable only makes matters worse.
The various government payment-relief programs, which offer the option to lower payments and spread them out over 20 years or more, should be expanded to accept all student debt — federal, state and private alike. Only then would the monthly payments become more affordable for the millions of borrowers who truly want to honor their obligations.
At the same time, bankruptcy laws should be changed to permit the discharge of high-rate, private student loan debt. Once private lenders face the possibility of not being able to collect on these loans, they would be motivated to transfer these loans to the expanded government program.
Lastly, consumers must take responsibility for their financial literacy education. Because all the warning labels in the world won't mean a thing if you can't, or don't, read what they say.
Mitchell Weiss, a financial services industry executive and entrepreneur, is adjunct professor of finance at the University of Hartford, member of the board of the university's Barney School of Business, and co-founder of its Center for Personal Financial Responsibility, as well as the author of many books on saving for college.