Statistics are just statistics until you meet someone who is one of those statistics. And that’s when you really understand an issue.
Recently I met a fellow — I’ll call him Charlie — who told me a heartbreaking story about his daughter and new son-in-law. I share their story because their experience is not unique. They are representative of a larger, simmering financial issue in America.
Last week Charlie’s daughter got married. It was a beautiful wedding on a perfect summer day — but it almost didn’t happen. Not because there was any problem in the relationship. In fact, Charlie’s daughter and her new husband had known each other since childhood. They had met while in summer camp, at eight years old. The problem was the son-in-law’s student loan debt. At $140,000, it was a crushing load and so large, in fact, that the boy broke off the relationship a few years back, saying that he didn’t want to burden his girlfriend with his financial problems.
The debt was staggering, with much of it at interest rates of more than 10%. In Charlie’s words, “there was no possible way he was ever going to pay off this debt. It blocked his ability to move forward. He was very depressed about it.”
This story has a happy ending because Charlie was in a position to step in and personally refinance the debt for his future son-in-law. But, not everyone can do that, and it caused a lot of heartache along the way.
As you may know, student loan debt now exceeds credit card debt and is growing rapidly. The average graduate today is saddled with $37,000 of debt, and for many people that number is much larger.
However, and importantly, college still provides a positive return on investment (ROI). College graduates earn more and have much lower rates of unemployment. So, the right college education can be worth the money. But, just because the ROI is positive doesn’t mean that college is in any way a good deal. To the contrary, in my opinion, it is extremely overpriced.
As consumers, we should be outraged at how colleges manage their budgets. At Boston College, for example, the football coach earns nearly $2.4 million, and the basketball coach earns $1.4 million. Other employees earn several hundred thousand dollars each. Remember, this is a school. And it’s not just expensive employees that are driving up costs; the school is expanding its campus rapidly. A few years back, BC purchased property from the Boston Archdiocese for $170 million. And then they spent another $100 million on improvements, including an addition to the already-enormous Italianate palazzo on the property. Reportedly, they needed more room for their art museum. More recently, when a local synagogue wanted to sell, BC stepped in to purchase it for $20 million. Meanwhile, tuition, room and board total $68,000.
You can see why families like Charlie’s are unhappy. In recounting his story, Charlie wondered out loud, “I don’t know how banks allowed this.” How could they allow an 18-year-old to take on so much debt? The answer should make us, as consumers, even more outraged: About 20 years ago the bankruptcy laws were changed such that student loan debt could not be “discharged,” except in the most extreme cases. That’s why banks are willing to load up young people with so much debt. They know that they will practically never be able to escape it.
Unfortunately, the entire system is broken for now. I suspect that eventually the issue will become so impossible to ignore that someone — maybe Washington, maybe forward-thinking colleges — will take action. In the meantime, if you have a child or grandchild approaching college, you should be sure to do your research. There are meaningful steps that you can take to better position yourself for financial aid. Here’s the reality: Colleges want to drain your bank account. You need to fight back, and you can. I will address these strategies in a future article. In the meantime, please feel free to reach out to me if you would like to discuss your family’s specific situation.
Unfortunately, as Charlie’s family found out, many colleges have no respect for consumers’ wallets or for their well-being. They don’t care about the far-reaching negative impact that they are having on young people’s lives. True, the IRS classifies colleges as non-profits, but that masks what they are truly all about. I have highlighted Boston College in this discussion, but this is not an isolated case. Many schools engage in similar types of behavior, and at some places it’s even more hair-raising. Duke, for example, pays one of its coaches more than $4 million. Until they change, however, you need to be as pro-active in protecting your family’s finances from the bursar’s office as they are in cranking up their expenses and tuition.