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Episode #2325
Cost of College Credit
Brown: By the time graduation rolls around the average student carries a mountain of debt from student loans and credit cards. A new report out of North Carolina is sounding the clarion call for reforms on the policy level. But also on the financial skills of college students. Meanwhile some college graduates are wondering was the education worth the cost? We’ll explore the issue of college students in debt, next on Black Issues Forum.
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Brown: Good afternoon, everyone and welcome to Black Issues Forum. I am Natalie Bullock Brown. The North Carolina Institute for Minority Economic Development recently published a report titled Removing the Millstone: Student Debt and the Growing Wealth Gap. Between 2001 and 2003 according to the report, the average college student in America graduated with approximately $22,000 in combined student loan and credit card debt. Black students accounted for 16% of the national student debt even though they make up only 12% of the student population. While the debt burden is hard on all students, white students are a little better situated to handle it due to a wealth cushion that is $80,000 more than blacks and Hispanics. Many minority youth in America are coming from households with a median net worth of only $7,000, a fraction of the net worth of white households. The Institute says in its report, “the lost net worth that is occurring in the black community is exacerbating the wealth gap, cutting off employment and homeownership opportunities, delaying marriages, stifling enterprise, funneling people into abusive predatory products and leading to financial ruin.” So what do we do? Well, don’t lose heart. There is hope. And we have an awesome panel of guests to help us talk about the issue and explore some of the options. Our first guest is Andrea Harris, President of the North Carolina Institute for Minority Economic Development, responsible for the report we referenced earlier. We also have with us Van Wilson, Associate Vice President in the Academic and Student Services Division at the North Carolina Community College System. And last, but not least, we welcome Frank Henderson, a financial professional with Navigon Financial who works with the students of several North Carolina colleges and universities talking to them about how to make the most of their time in college and how to prepare for life afterwards. Welcome, all of you, to Black Issues Forum.
All: Thank you.
Brown: Now I want to start off with you, Andrea, and talk a little bit about the report that your institute put forth and what are some of the key points that we need to understand about this mounting student debt and why it is so serious especially for black students.
Harris: Well, we put forth the report which people can access on our website Removing the Millstone because we think that this mounting student debt for all students, but particularly for students of color and especially African American students and Hispanic students, really will stifle wealth in our communities. Now when you recognize that we are talking about median wealth already of less than $7,000 per household for African Americans, we are talking about average student debt of $22,000. And our report uses 2001-2003 data so right now we are talking about African Americans students having an average student debt of $26,000 to $28,000. That affects your credit. So when they come out of school they come out of school first of all not being eligible to apply or for consideration for certain jobs, to start with. So whether they are in financial services, whether ___, whether in insurance, etcetera, and that will grow. Many employers are now looking at your credit report in determining whether or not to employ an individual that has problems with access to credit. The terms of student loans have changed over the years. So on one hand while interest rates, for example, were low, financial institutions found other means of increasing their profits, whether through all types of fees or the like. And everyone, particularly people who had challenges in accessing credit, including students, became targets. Now we don’t think of that but that’s just evidence, you can go onto any college campus at the first of the year and you will see people just marketing everything to students. Well, the problem also is that as we look at what’s happening with right now foreclosure, and how foreclosure is disproportionately affecting African Americans, and what that means to us, because most of our wealth is tied up in our homes, so as we lose that wealth and that wealth being minimal to start with, now we are talking about taking many of our best and brightest and strapping them with debt for 30 years.
By the time I was 50 I was a homeowner in my 30s. They will be 51 at a minimum before they finish paying their college debt. Now that will affect their ability to not only be entrepreneurs or homeowners or whatever, but servicing debt for that long and placing that kind of debt on young people, to me I think is all but criminal in America.
Brown: Well, one of the things I believe I read in the executive summary of the report is that a lot of consumer protections that we have enjoyed in the past are being taken away. So, Van, how are—I mean, we see in the lending industry there is not that much regulation on what sort of products can be marketed to anyone, really. And then it sounds like the same thing is happening with student debt or student loans. So what can students do? I mean, how can they navigate their way through this sea of all these different possible traps, really, to keep them financially indebted?
Wilson: Sure. One of the first comments I would like to make is that let’s not lose focus on the value of an education. I want to make sure that I go on record by saying that although there is a cost associated and that cost may be growing and escalating, still there is an intrinsic and tangible value to having, pursuing an education. One of the challenges for us, I think, in higher education is that we have to find opportunities to help our students make better, informed decisions. It is very easy I think to go through the lending process because lenders have made it relatively seamless. But to help students understand the ramifications and the implications of borrowing $12,000, $15,000, $22,000 or $29,000. On average for every $1,000 borrowed you are talking about over a ten year period of repayment of about $12 a month. So you are talking about students who are walking away from college, paying $270, $300 a month towards a college loan, which may have an impact on their quality of life. So I think one of the things that we do through loan counseling is work with students to help them better understand what the long term implications are of taking college loans.
Brown: Well, let me just stay with you for a minute and ask, if someone, even with that sort of counseling, I guess, at the beginning of a college career, if you come out of school with, let’s say, $40,000, $50,000 worth of debt and you are not projected to make more than maybe $30,000 in your first year out of college, I mean, how do you navigate that?
Wilson: Sure, again, I think it goes back to making informed decisions. There are, for example, some career planning tools that help students understand what their earning potential might be based on their career of choice. And to use that in tangent with your lending potential might be one way of addressing that. The other thing that I think we must do is to make sure that students are utilizing these resources for their intent. That the educational dollars that are being borrowed are, indeed, being invested towards tuition fees, technology to support their education as opposed to other kinds of things. So I think those are kind of two ways that we can use to help our students better understand the process.
Brown: Right. Frank, we got to get you in here. Since you did not take the traditional route to the career that you have, you didn’t finish college.
Henderson: No.
Brown: What do you say to what has just been discussed as far as the value of education, but weighing that with the cost of it and the potential debt.
Henderson: Well, when I look at it I think one of the most important things we as America can offer young people coming up is an education, is the ability to level the playing field, to be able to say, “If I am the type of person that I want to work somewhere and I want to work for a company and I want to have a 401K and I want to have all of those types of things, I need to have an education because the BA’s, the BS’s, help me to be able to walk into the door meeting the minimum requirements for just the job interview.” The other side of it is is that with the client that I sit down with, when they have $20,000, $30,000, $40,000 worth of debt it makes it really, really hard for them to gain traction and momentum in building wealth in our country. So what I like to try to see them do is if you are going to go that route, all right, if you are going to go that route and like you said, I didn’t go that route because when I was young no one, I don’t know what it is, maybe my ears were closed up, I don’t know. Nobody talked to me about going to school. I had a son that you met today when I was a senior in high school so I just automatically went to work. And I knew that I always liked to sell, so let me just go sell. So I went to Sears. I started selling tires and I kind of climbed up that way. But, you know, the bottom line is it is hard for people coming out of college right now to gain traction and to move forward in the world. And it is delaying people from getting married and having children and in building wealth and purchasing homes. It’s hurting them really bad. But I think it comes down to one things, we got to hold people accountable for their greed.
Brown: That’s a new concept.
Henderson: Think about it. Think about it. The education that people are getting, it is the same stuff. It is the same books.
Brown: Okay.
Henderson: It’s the same courses, it is the same professors.
Brown: So when you say—
Henderson: A lot of money keep going up.
Brown: Are you saying that the tuition is going up?
Henderson: The tuition is going up. Like for instance if inflation is 3-4% a year, how do you justify 12-13% tuition costs each year?
Brown: We need to get a college president on or a president of the college ___.
Henderson: So it is greed. So ultimately if you want to talk about criminal and stuff being evil, the root of all evil, love of money. [LAUGHTER]
Brown: Well, I want to get—I know you have ____, Andrea.
Harris: I don’t disagree with him. I think it is greed and I think the financial industry has been quite greedy. I think the financial community has been greedy but I also think that our nation has allowed that industry to go unchecked. I think that if this country is to be competitive, particularly as we recognize that if we are to be competitive, period, and maintain or even offer the promise of a certain level of quality of life to citizens of this country, we must be globally competitive. Being globally competitive means you must have competitive intelligence. It means you must invest in education. Now whether that education is at a community college level, whether you are talking about that as a step to higher education or to three or four years of undergraduate education, whether you are talking about trades and vocational skills because we got to find a way to focus on vocational skills, training in our community to rebuild that base, we need to rebuild that base in our country. But more importantly though, you know, if we can bail out major corporations, if we can bail out Bear Stearns then you cannot explain to me why you would take a child, a child, and say, “It will cost you X amount of dollars to get an education whether—you know, when you are talking about even the community college system, going to community college costs less than it costs to go to other four year institutions or to go to undergraduate school or for graduate school somewhere else. But, still, when you look there and you look at the average amount of student loan debt, which is about $4,900 that is more than the overall cost of tuition. So why is the debt greater than the tuition? Why is the debt greater which gets to the part of his point, even in other institutions that it is, that it costs. You know, I say, how many times can you pay for a dorm room? You know, why didn’t the cost of room and board go down some way because you paid for this dorm how many times? Somewhere there has to be some evening out of this. But also we recognize that higher education just like public education will always need to be subsidized. And you cannot take care of that cost through increasing tuition. But at the same time we have to find a way to change the values in this country and the investment in this country. Give one example, bankruptcy. You know, under the bankruptcy laws of this country, the two instances in particular that are not acceptable for consideration in bankruptcy court, they are child support and student loans. Now you cannot help, I don’t understand how you could say to someone you are not eligible, you know, it is against the law for you to go in and get a drink, but I am going to give you X amount of dollars worth of debt. And then at the same time when I give you, issue this debt to you in the fall or the winter of each semester, I am going to factor in all these other costs so you might get a check that students call a refund, and I want these schools to change that language and let these students know that is not a refund, this is your net loan proceed.
Brown: So don’t go and spend it.
Harris: So don’t go spend it. You might need to give it back to them. But what is happening is our students can’t live, going to school costs so much so that what you find them, the reason that the student loans are so much higher than the tuition of the community college and other places, is because students use this money to live. You know, they use the money to live and we are not taking care of the other costs. I think it ought to be a right of every American to go to school and this country ought to invest in that education and no child, if we have loans and those loans should have terms, like 1%, give us the same kind of terms that you give to third world countries. And if you give it to another country and can’t give it to your students then I think that is un-American.
Wilson: One of the things that I did want to mention, too, is that maybe it is time to reframe what getting an education means. One of the concepts that we deal with is the whole concept of going to college. But I think now there are so many other venues by which one can receive a formal education. For example, one of the things that is unique in North Carolina under the leadership of Governor Easley and funding through the General Assembly and the legislature is that students in public school can receive the first two years of their college education at no cost. Now these programs are relatively new, LEO, Learn and Earn Online, Learn and Earn as well as early college and middle college high schools that provide an opportunity for students to simultaneously complete their high school degrees while also earning their two year associate degrees. So this was another venue kind of to rethink what it means to go to college. And a way that perhaps if used correctly can cut the cost of a four year education significantly.
Brown: And do you think that especially given the recession that we are supposed to be in and that I believe we are truly in, that we are really going to have to rethink not only education but it seems to me that a lot of the things that Andrea was talking about, that we are just at the point where these things need to be put in place. There are certain reforms that have to happen. Otherwise people are not going to be able to live. And I just want your comment on that.
Wilson: I would agree. And I do think the other piece that we are challenged with is also what does, how would this impact access? The other thing that I would like to add in addition to access, we also need to be concerned with success. So that there is a continuum that as I go through this process that there is some tangible outcome on the other side that would help me manage financially the debt burden that I am incurring as a college student. So my concern is that we make sure that access is not impacted or not having programs, don’t become a barrier to our students as well as colleges continue to look at ways of helping support student success throughout the process. And that also includes financial counseling. One of the questions that I ask my colleagues was is that where did you learn about financial management? How did you learn about credit and balancing checkbooks? And their responses was, I learned on my own and I made a lot of mistakes along the way. And some of those mistakes I am still dealing with. So I think that, again, one of the things that we can do in our colleges and universities is to really be more diligent in terms of making sure that students do understand that, again, I liked your term that this is an advance on a loan. This is not a refund from some—
Harris: You didn’t overpay. [LAUGHTER]
Brown: Right. A windfall that you are getting. Frank, let’s talk about, and we have begun to talk about this, but any solutions, what do you tell the clients that come to you especially when they are dealing with student loan debt? Or even before, when you go to college, let me back up, when you go to colleges and you talk to current college students, what do you tell them so they can avoid some of this?
Henderson: I tell them that you are working in a system where you have these people that, you know, your professors, your teachers, the administrators, the provosts and the dean, they all got to get a check. That’s why your tuition goes up. That’s why your money goes there. But if you are going to play this game called get my degree, then you need to work it 100%. Meaning, you don’t need to go to school, take a couple hours of class, get out of class, go home, lay around in the bed, chill out with your friends, sit around, party, drink, binge, do all that stuff, if you are going to be a student, and I told my son this, you need to Kanye West it. He’s like, “What do you mean?” I mean, put on a t-shirt, put on a jeans, put on a backpack and be a student.
Brown: Do the work.
Henderson: Get your 4.0. Because when you play that game, when you get your 4.0 they give you scholarship money. That’s money you ain’t got to pay back. You ain’t got to pay that money back. So if you going to play that game, then play it 100%.
Brown: Absolutely.
Henderson: See what I mean?
Brown: Right.
Henderson: So I even have students or clients that they didn’t spend all of that money. So they put that money aside. So they got it in money market accounts growing. So if when they get out of school they go through a tough time they will use a little bit of that. But while they don’t have to use it, they don’t use it. So I teach them that kind of thing. But the main thing I teach them is, no matter who you owe, pay yourself first. Let’s build some wealth. Because the bottom line is, if the people start calling about your student loan and you got to choose between your student loan and you got to have somewhere to live, you need to have somewhere to live because those people don’t have anywhere to live. So pay yourself first above all else, pay yourself first. That’s where I start.
Brown: I want to talk a little bit about college cost reduction and access act which is referenced in the Institute’s report, can you just summarize what the act talks about and why it was important for the Institute to promote that?
Harris: We promoted it though it didn’t give us all we wanted. We wanted even more. But what that act does is, one, at least it is an acknowledgement that at the federal level and within the congress there is some recognition that this issue of student loans and student debt is a major issue in America. So what it basically allowed beginning I think in October of ’07, it allows individuals with student debt to start applying, to make application and it is just about signing up, and if you work in certain places, like if you work in the non-profit sector or in the public sector or you are teaching etcetera, working in hospitals or for government, you can apply and you can make, as long you make 120 consecutive payments. So when you look at that, you are talking about paying for ten years, ten year payments. You are basically paying the principal. Then they will forgive your interest. That’s the bottom line of what happens. Most people don’t know that. And most people will say, you know, 120 consecutive payments, that is ten years. Right, they don’t realize you really going to be paying this note for 30 years now. So this is significant. It is not retroactive. That is one of the first questions we get. Well, you know, for people who have already graduated, can I go back? I been paying on my student loan for four or five years. No, it is not retroactive. But you need to go ahead and go online and sign up. And, again, people want to access that they can go on our website and access the report and it is in the report so that they can go ahead and get that now. I still think that they need to be, it needs to be a little bit more done. And people also, in addition to that act, have seen that a number of colleges now have positioned themselves to say that there will be no students who leave their institutions with debt. But also recognize that those are very, very wealthy institutions, so that when you start to looking at what’s happening at Harvard and Yale and Princeton and Duke and even Davidson, I mean, these are institutions that have significant endowments. So while I think they are very committed to students they are not solely driven by a commitment to students. At the rate at which you are making money you might lose your tax status as a charitable institution because you have so much money. So, you know, there are other motivations there that may be driven by the IRS as opposed to just a commitment to students. But that’s there but we still think that there needs to be something where at least there—a next step could be that there is a match, maybe a two to one match with regard to Pell grants, that Pell grants should be increased significantly. Student work study money should be increased significantly but students should not leave school with anywhere near this level of debt. And we ought to make a conscious effort to cut the cost of going to college. I mean, a very conscious effort to cut that cost by at least 50% in the next three to four years.
Brown: I’m sorry. I really am sorry because this is, there is so much more we could talk about but we have run out of time. So I want to thank all of you for being here. Thanks to Andrea Harris, Van Wilson and Frank Henderson for taking time out of their busy schedules to share with us today. If you would like to get in touch with our guests or obtain a transcript of today’s show, visit us online at unctv.org/bif. And when you visit be sure to give us your comments and program suggestions. You can also call us on the BIFline at 919-549-7167. Be sure to meet us right back here each Sunday afternoon at 4:30. For Black Issues Forum, I am Natalie Bullock Brown, reminding you to be encouraged no matter what. Peace and blessings.
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