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[0:05:00] ST: Now, you said you got out of debt with your wife. What are some of the things that you did to achieve that in such a short period of time? |
[0:05:05] AC: Well, I think what we did was not that really all that unusual. I talk about it and I kind of romanticize it to the groups that I speak to but ultimately, we lived on one income and it was hers at the time Scott. She was my sugar mama and so she was making about $400 more a month than I was and so with he... |
We paid utilities and groceries and all of the expenses you would normally have and then with my income, every dime of it went to blast away debt and we did that for a period of 24 or 25 months and blasted away over $45,000 in high interest debt and people will say, “Well, gosh wasn’t it difficult and did you scrimp an... |
I have always said that the NFD, the No Fun Diet, is not a great way to get out of debt because people generally six, seven, eight, 10 months in are like, “This is for the birds. I want to go do something”. We haven’t seen a movie in a year and ours wasn’t really like that. We budgeted money for fun. |
But we did things like when our friends all went out to eat and they would all order and appetizer each, an entrée each, drinks each, we’d split an appetizer, we’d split an entrée and we had maybe a glass of wine and our joke was we always came home and drank two buck shot when we got home. |
[0:06:34] ST: Trader Joe’s. |
[0:06:35] AC: Yeah and we’ve grown accustomed to that taste of wine but it was interesting, after those two years, then everything opened up and I think the challenge and what we really want to demonstrate in the film is that, if you pay no attention to how much you’ve borrowed over four years and you believe the false... |
I don’t know about you but after about three years of paying any payments, it’s like, “I just want this to go away.” And I can’t imagine 25 years of debt payments where you’re just holding on for dear life until you reach the age of 47 or whatever. If you graduated at 22 and its 25 years later, you finally paid that of... |
[0:07:44] ST: That’s true. From my own situation, I came out of college with student loans as well and for me, when the first couple of bills arrived, I saw how much it’s going to interest payments versus principal and that was my wakeup call saying, “Wow, the principle is not going down. I just sent in this big check ... |
So that’s when I got that rude awakening, started getting aggressive on my own student loans, it took me two and a half years to pay them off because I foolishly bought an automobile in the middle of that too, so I had even more loans than that but seeing that wasted money, that was the big driver for me. |
[0:08:22] AC: Yeah, oh absolutely. We had an interview in the film and it ended up not making the final cut but it was a young man who as a sophomore, he dropped out of college and he said, “We are talking about student loan payments and what happens when you don’t have your degree but you have the debt?” And he said, ... |
And mind you, his debt was $40 grand so he took on $20,000 in debt the first two years of school and then dropped out. He said, “I sent in $250 and they only cut it at $48 to my principal and I was sure they’d miscalculated something and that their accounting was off.” So he actually called into the servicer and said, ... |
Clearly, not even understanding what the cost of the interest was going to be on this debt and I think his situation is not dissimilar from most people. They take it on, you pay very little attention to how much interest you’ll pay over the length of time and ultimately that is one of the greatest consumers of your inc... |
[0:09:30] ST: Right. Let’s talk a little bit more about the movie. At the beginning, you’ve got a couple of students. They say their average payments are a thousand and $1,200, respectively, a month, average student loan rate, 6.8% on interest. A 511% increase in student loan rate since 1999. Explained what’s happened ... |
[0:09:58] AC: The easiest way to describe it Scott is we had the perfect storm. It wasn’t one thing and in the film, we talk about pointing fingers and who’s to blame and all of that and the blame really is multi-faceted. It’s all over the board. We had multiple things happen. The great recession happened, the housing ... |
When the housing market collapsed, people who had been tapping their home equity in order to pay for college stopped doing that and so the debt that they could take on which was readily available to them in the way of student loans, they went after and on top of that we had this huge boom of the for profit schools, the... |
I would say and I don’t know the exact percentage but it’s a fairly significant amount of the increase came from the likes of ITT Tech and DeVry and Phoenix and all these universities that were private for profit that went out and loaned money to people basically under the guise of, “Hey, if you get a degree from here,... |
I might be painting with a broad brush but they were selling hope. They were selling hope that if I do this and I make the right decision, then I’ll be rewarded on the other side. What most of those people didn’t have was a strong sense of financial literacy or awareness of what they were borrowing and what the overall... |
On top of that, tuition cost went out of control. We had an enormous rise on tuition costs on college campuses for a variety of reasons. Number one, there’s an arms race on campuses. They want better dorms, they want better food, they want new workout facilities and the running joke for me is, “I’m sure my kids will ch... |
Everyone is trying to win up each other and so that cost is passed along the students and then lastly and this is a university challenge is that, there has been administrative bloat and that is where the administrators on campus outnumber the professors. In some cases, five or seven to one and the universities maintain... |
But in reality, it’s not doing anything to the benefit of the student per say in terms of their education because they’re spending in some cases less on professors by hiring ad junks and that kind of thing. So there is a lot of factors that went into this explosion of student debt. |
[0:12:51] ST: I read something interesting and you kind of touched on it briefly, that lender saw an opportunity to say, “Hey, we can get students, we can get parents on the hook and these loans can’t be discharged in bankruptcy, its guaranteed money.” And the schools came along and said, “This is great, we can jack up... |
[0:13:21] AC: Well, I think it’s true. I don’t think that the universities would readily line up to say, “Yeah, we did that.” The closest to that in the film is the President of Perdue and — Mitch Daniels is his name. He was the Governor of Indiana for a time, and Mitch is making some very drastic changes at Purdue. Hi... |
They’ve adjusted their tuition based on what they like their spending to be and he said, “This isn’t fair to families. We need to adjust our spending to what the family’s budgets are.” And he made the comment. It was actually a university president from the University of Iowa who went on to prestigious east coast schoo... |
This gentleman was known for having said that, “Universities will raise all the money they can and spend all the money they raise,” and it’s fairly accurate. A university is not going to try and limit the cost because the more they spend, the more enticing or intriguing the school is to someone. I mean we have this per... |
[0:14:37] ST: In the film, there are a lot of shocking statistics. One that stood out for me was that 80% of students changed their degree and that stuck out to me because I changed my degree in my second semester for a foolish reason because my roommate changed his degree so I did the same thing. Which made no sense l... |
What advise do you have for people that are going to school and they may end up changing their degree or they’re not sure about what do they want to do in school but they’ve heard for their entire lives, “Hey, you’re going to college, you’re going to college.” |
[0:15:09] AC: Yeah, well we taught in the film that taking a gap year is a great thing and there’s a lot of parents out there who will listen to this that will cringe at that because they think, “Not my kid. If they take a gap year, they’ll never go back.” And in all reality, taking a gap year for most students whether... |
So they’ve tacked on another $10, $15, $20,000 sometimes $40,000 in debt from that last year. Those who do take a gap year, an overwhelming majority of them go out, they work, they realize how hard they actually have to work to make $30 grand a year and they come back to school with a more intense focus on their studie... |
But instead, you get serious about the career choice and the path you’re on. I think a gap year is one option. I think another one and again, this isn’t going to be very popular but societally we’ve said, “You graduate high school and you go on to college”, that’s the next expected step. If you ask any high school teac... |
I did a TED Talk at the University of Wisconsin, Milwaukee and I likened it to telling an 18 year old to go pick out a home and you can tell them, “Pick out any home you want. It doesn’t matter how big or how small, just pick one that’s comfortable for you and you don’t have to worry about qualifying for a loan at all.... |
The fine print on this contract is, the home is yours no matter what. You cannot sell it, you cannot trade it, if you bought a four bedroom home in a gated community and you needed a one bedroom condo, too bad,” and this is the student loan environment. So we’re asking 18 year olds to make a lifetime decision when most... |
So I think and again, it may not be popular but I think 18 year olds need to get a little life experience before they go on and chose a major whether that’s at 18 or by taking a gap here at 19 or 20 and just saying, “I’m going to go out and work for a while and I want to see what I like and what I don’t and then I’m go... |
[0:17:45] ST: How easy is it for an 18 or 19 year old to get a loan today and how much can they get? |
[0:17:52] AC: Well, great question. First of all, they can get up to the guaranteed Stafford loan amount, which depends on what year and school you are. So you get X amount as a freshman, X amount as a sophomore and then it maxes out as a junior and senior. As a junior and senior, a student that has no job can borrow u... |
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So over the course of their four year career, they would be able to borrow at least in the $20 to $22 or $23,000 range, that’s without having to include a parent. If they’re going for private loans, a student has to make over $21,000 before they can borrow money privately without a co- signer. So parents today are very... |
So the student more or less is going to come out of that $20 to $25 grand mark if they’re parents are agreeing to co-signing anything, they’re probably going to be pushing $40 if they’re going to a traditional state school from a tuition standpoint. |
[0:19:07] ST: In the film, you discuss the impacts that the student loan debt crisis is having on our economy. Can you talk about that a little bit on what impact is this having on kids, their parents, housing and all that stuff? |
[0:19:22] AC: Yeah, well let’s start with senior citizens. There’s 47 million borrowers in America right now. Out of those 47 million, they borrowed a grand sum total of $1.3 trillion. That number goes up by $3,500 a second. There are 65 year olds and higher that have student debt today that they had basically written ... |
Out of those 47 million, there have been reported as many as 4 million senior citizens who are on social security who are having their social security checks garnished to pay back the student loans, so that’s the ultimate extreme. This is the first generation that’s coming out of school that is predicted to still be pa... |
So if you can imagine graduating from college today, being in your late 40’s and sometimes pushing 50 or in your mid-50’s, having children that are getting ready to go to school and you are just now retiring your student loan debt. That’s what this generation is embarking upon. For the students today that are coming ou... |
The government has made it “affordable” and I’m making air quotes on “affordable” because the whole talk of making college affordable means, “How do we make their payments so small that they can afford it once they graduate but we do nothing about lowering the average cost of attendance?” It’s all about making the paym... |
So the affordable payments are usually 11 to 13% of someone’s take home pay. In reality, today’s 20 some things have debt payments that are somewhere near 20 or 30% of their take home pay on average and so what we’re finding is, there’s this crowding out effect. They’re spending all these money on student loan repaymen... |
They’re taking jobs because they have bills to pay and some of those jobs have nothing to do with their major and not necessarily what they went to school to do. So we’re seeing this prolonged adolescence with young people today and this increased amount of challenge among parents who are sometimes faced with the debts... |
[0:21:55] ST: Exactly, right. There’s a great story in the film about Justin, an individual who paid off $30,000 in 12 months, which I thought it was incredible that he managed to do that on using a service like Task Rabbit. Can you talk about a little bit about his story? |
[0:22:13] AC: So yeah, that’s a really interesting story. Justin, he was actually directed to us from a friend who said, “You’ve got to hear this kid’s story.” Because we were talking about — the comments that we get from people are, “What do I do about this massive debt?” And we’d ask them, “How much do you have?” And... |
When we met Justin and we said, “Justin, how much did you have originally?” He said, “I have $30 grand, I let it go for six months,” or eight months. I can’t remember how much it was, “And it went up to 32,000” that’s how much interest it include in that amount of time and Justin said, “I didn’t think of myself as havi... |
He said, “I actually thought about it in the sense that I had negative $32,000,” and he said, “You know, I calculated how much would I have to make over 12 months to knock the whole thing out in a year,” and Justin’s story is pretty interesting. He moved to New York City, arguably one of the most expensive cities in th... |
He had $600 in his pocket, he had no jobs lined up and he got on Taskrabbit.com and he started applying for all of these menial random jobs like furniture assembly and data entry and user testing, things like that. Justin said his barometer was he wouldn’t do a job unless he made at least $50 a gig and he would do some... |
[0:23:54] ST: Eight months, that’s incredible. That’s hard core inspiration right there from somebody who just wants to crush it. |
[0:23:59] AC: Absolutely and further proof too Scott, in today’s day and age, a lot of people say, “Well my job only pays X,” and there is a kid that went out and busted his hump to make the kind of money that he made which if you do the math, it’s about $4 grand a month that he was sending into his student loans. Now,... |
[0:24:24] ST: Sure. |
[0:24:25] AC: We was getting the 10 for $10 Totino’s party pizza deal and so I doubt that he was being super healthy but he did say, “I knew how much I had to spend every day on food and I would budget that and I knew that I was on this mission.” The cool part of Justin’s story which we didn’t get to tell on the film w... |
[0:25:02] ST: Is that how you felt when you had all your debts paid off? |
[0:25:04] AC: It is an amazing, amazing feeling as you well know to go from sending in, in our case it was $2,800 a month that went into our debts for 25 months. When we emerged on the other side of that, when you have $2,800 in discretionary money every month, you feel like a millionaire all of a sudden. We start buyi... |
[0:25:34] ST: I grew up in a small town about 10 to 20% of the students once we hit 9th grade, they transferred out to a technical high school and make them learn trades like auto work, electrical, plumbing and welding. It’s not an opportunity available to most high schoolers. In the film, you have some union workers i... |
[0:25:57] AC: It’s not and we were really lucky. We got contacted by the sheet metal workers union and they said, “We got wind of your film,” we raise money on the Indiegogo so we crowd funded the whole film and they contacted us and said, “We love this message. We want to be a part of it,” and it was out of the blue f... |
They sat down with us and ran us through their situation with apprenticeships. Their guys, they do work for four years and they work for well above minimum wage, they put in long days and long hours. They’re working 40, 50, 60 hours a week sometimes but over the course of four years, they are also getting their educati... |
At the end of four years, they come out with an associate’s degree, they have no debt and at the end of that four year period, they are guaranteed a job and that job guarantees them they’ll be making at least $60,000 a year and when they went through that math with us, it was kind of like, “We have to feature this in t... |
There is still that little bit of the blue collar, “we look down on those jobs”. But I don’t know where you’re at Scott but in my area, we have a smaller city not too far from us. They have $2 billion worth of construction going on right now and they are struggling to find welders and struggling to find plumbers and st... |
This guy said, “People who are in those trades could name their own price right now and yet we still send kids in droves to school to learn psychology and physiology and come out making $35,000 a year in a call center and all they want to do is make a living, right?” And there are ways to do that but don’t require tens... |
[0:27:59] ST: That was interesting to me, in the film those apprenticeship programs, they are making money from day one as they are taking on those jobs and learning from those master skills men and arguably over their lifetime, depending on what trade you pick up, you will make more than someone who attends college de... |
Around here, it’s a lot of oil and gas which the industry is down right now but if you’re willing to move to where the jobs are, welding is always one of those huge jobs if you can travel. Welders bank money and as you mentioned, plumbers, electricians, they’re all in short supply in the service industry. Those jobs, p... |
[0:28:49]AC: Yeah and here’s one of the interesting things that we found out in the interviews with them was, to your point, people are retiring. There are folks that have been in this industry for 40 and 50 years, they started companies and now they’re going, “I don’t know who I’m going to pass this to.” And so we met... |
The company was doing five or $6 million a year and this guys were literary walked into an ownership situation, buying it basically from contract from the owner and the owner said, “Listen, I’m looking for talent who can take this over and pay me out over the next 20 years as I fade into the sunset?” This is happening ... |
So these guys starting year one at 18 are immediately funding a pension so they’re getting guaranteed payouts by the time they retire no matter what. There’s not a lot of companies that are doing guaranteed payout anymore. |
[0:29:59] ST: Yeah, certainly something that people should consider when they’re looking for their career paths. |
[0:30:04] AC: Absolutely. |
[0:30:05] ST: You mentioned in the film, “If you must borrow, borrow responsibly.” How do you define that? |
[0:30:10] AC: Oh man, great question. We talked to a number of financial aid advisers about it and me being a budget guy and a money conscious guy, I think the rule of thumb is, you never borrow more than what you’re starting salary is going to be. So if you know that you’re going into education and you know the starti... |
[0:30:39] ST: Total or each year? |
[0:30:41] AC: Total. |
[0:30:42] ST: Okay. |
[0:30:43] AC: Total and so what that requires is you figure out ways to be a little smarter and about how you’re paying for school whether that means you’re applying for scholarships in mass or you’re taking work study or in my kid’s school, they have an amazing program where you can take classes at the local community... |
Many of the kids who graduate from our local high school come out with 30 credits. That’s one full year in college so they only have three years left to go which if you’re going to a state school, it might shave $20 grand off the total amount borrowed. It’s about being creative and about understanding the options and k... |
I think parents treat it as, “This is a must. My kids will go. I don’t care what it costs,” but as you saw in the film, we have several people who said, “It was the best four years of my life. I wouldn’t trade it for anything,” but at what price? |
[0:31:44] ST: Right. Would you classify the student loan crisis as a bubble and if so, when is it going to burst or has it burst already? |
[0:31:50] AC: I think it’s a huge bubble. I think we’ve seen bursts already that have been insulated by either the government or some sort of backdoor deals. In fact, I talked to an attorney in the student loan world who was telling me about one particular servicer that was selling a lot of their loans on the open mark... |
So when the loans basically were found out that they weren’t performing and the money that they’d been collecting to protect against the default, sort of an insurance policy, that money have been squandered and used by the company. So another servicer stepped in and bought those loans for 10 cents on the dollar and I t... |
[0:32:46] ST: I think so. |
[0:32:48] AC: This is new, it’s out right now on theatres. It’s all about the housing market and the guys who shorted the housing market and I think that if someone is smart enough to short the student loan market right now, they will make a fortune because there are so many similarities. The subprime market tanked or ... |
We’re at $1.3 trillion in student loans right now. When the default rate got to be to an extent where people start to notice it, that’s when things started tumbling in the housing market. Well, the congressional budget office is predicting that one in four student loans will go into default in 2016. So we’re seeing thi... |
[0:33:52] ST: Adam, thank you so much for joining me on the show today. Adam is the writer for Broke, Busted and Disgusted: The true cost of college. Adam, where can people go to find out more information about you? |
[0:34:01] AC: They can check me out online at Adamspeaks.com. That’s my personal site and if you want more info, on the film you can go to brokebusteddisgusted.com. |
[0:34:13] ST: Awesome and I will have those links on the show notes so that people can visit those. Thank you so much for joining me on the show, I appreciate you taking your time. |
[0:34:20] AC: Scott thanks for what you do, I appreciate it. |
[0:34:23] ST: If you’re a parent, a grandparent, if you have friends with kids or you are a person considering college, you must watch that documentary and learn the ins and outs of student loans. It is critical to your financial future. |
That’s it for this episode. I’m your host, Scott Alan Turner. Rockstar Katie is my producer. All the links mentioned in the show are available on the show notes on Scottalanturner.com. Today’s episode is powered by Ben & Jerry’s ice cream. Thanks for listening. |
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