DEBT AS SOCIAL JUSTICE

words on justice.jpg Articles like this make me angry when they use a college education as the “carrot on a stick” that makes student loans a good thing:

“Student loan debt is also an investment in your future. Simply put, you will be more employable and earn more with a college degree.”

I believe this is a straw man. The argument for or against a college degree is irrelevant to the structural problems that student debt brings. I believe that student loan debt is a social problem, a social justice problem even, because it is most egregiously harmful to very specific segments of our society.

  • 1 out of 3 student loan borrowers don’t graduate. This immediate invalidates the ‘college is worth the debt’ argument. If as many as a third of borrowers aren’t graduating, they are stuck with debt they can’t get out of and no increased earning potential. There is myriad of reasons they might not be graduating, including being poorly trained for college, health, financial, family instability, substance abuse (yo Madison!), and more. More on that here.
  • If I default, the government will withhold low-income benefits. Because the government is the debt collector, if I default on my student loan debt the government will withhold my tax returns (including Earned Income Tax Credit and Social Security benefits). These social safety nets aren’t a big deal if I’m wealthy, but it’s devastating if I’m poor. Between the socio-economic classes (rich and poor), who is more likely to default?
  • The highly indebted are borrowing even more. We’ve discussed before that there is a bifurcation of healthy borrowers and unhealthy borrowers. The healthy borrowers borrowing is remaining level, but the unhealthy borrowers are borrowing even more than before. Some estimates put these borrowers at around 17% of all borrowers. In my experience, this sounds about right. We know that if you are female, of color, or an older student you are significantly more likely to be a highly indebted borrower.
  • Borrowing to make an “Investment” is extremely dangerous. Quoting a 15% financial rate of return is just lying if it doesn’t take into account borrowers who don’t graduate and the higher interest rates and fees on defaulted student loans. If you can’t bankrupt out of a ‘bad investment’, it can cause decades of pain for defaulted borrowers. High returns don’t mitigate risk. This is why the lottery is a bad investment. A potential 15% ROI doesn’t offset the inherent risks of student loan borrowing.

So to summarize, “it’s okay to have student loan debt!” as long as you’re intelligent (with an aptitude for intellectual studies, healthy family structures, and safety nets that allow you to graduate), are not poor, and are not a woman or minority.

There are a variety of potential improvements that could be made on the legislative level (realistic hard cap on borrowing, lower interest rates, larger Pell grants, allowing bankruptcy), but these are out of our ability to change right now.

Instead, let’s focus on personal behaviors I can change RIGHT NOW to reduce my risk of being a statistic. These include borrowing as little as possible, fully understanding my current situation and risks, and building healthy personal financial habits.

“I ruined my life”

Lives on Hold“Step by step, one law after another has been enacted by Congress to make student debt the worst kind of debt for Americans”

One of the things I informally track is overall attitudes toward borrowing, student loans, and higher education debt. I think this is important, because if there is a ‘bubble’ and the landscape of higher education (and paying for that education) dramatically changes, one of the major reasons will be because of a very public backlash.

We may not have a full fire, but there is a lot of smoke around this subject. The latest example:

http://www.consumerreports.org/student-loan-debt-crisis/lives-on-hold/

That article puts some of the blame on the private collection agencies, but I don’t think that is a real problem or a real solution.

Larry Burkett used to say ‘Debt isn’t a problem, its a symptom of a problem’. Collection agencies aren’t the problem, but a symptom of a larger institutional problem.

Article

Here is a long article published last week in the Boston Globe:Capture

LINK: The College Debt Crisis is Even Worse Than You Think.

 

It raises a lot of tough questions about the role college plays in escaping poverty. It’s a tough subject. I’m speaking tomorrow to 25 students on the risks minority students face when taking out student loan debt. In my talk I highlight ‘Layers of Risk‘, including the graph you see here. When you combine layers of risk, the stakes change. For example in the graph, you’re slightly more financially healthy as a black male then a white female – primarily because of the Gender Pay Gap. But when you add an additional layer of risk – being a black female, the numbers jump. Add additional layers of risk like being born into poverty and the numbers jump further.

Email me with thoughts or questions.

Seminary Debt Findings

Work SignTwo weeks ago, 67 theological schools gathered to share information, research, and findings on student financial well-being. Their shared data covered over 17k students and represented 27 different denominations. Some of the findings were divided into “Oh Dear” moments and “Aha!” moments.

I think these findings are a huge deal. They represent a lot of what we’ve found and discussed on this blog. Here are their findings and some notes I’ve added:

 

The Bad News:

  1. Students can’t following same traditional pathways to occupational ministry

Denominational paths to ministry are changing. We have talked about these changing paths on this blog. In addition, financials have changed causing students to be more likely to need to work or have other financial support.

  1. Debt varies widely based on key risk indicators:
  • Marital status and Dependents
  • Gender
  • Race/ethnicity
  • Age

The financial risks are different for each of these categories of students, but the data is very clear that if a student has one or more of these ‘layers of risk’ they are far more likely to be heavily indebted. More data on that here.

  1. ‘One Size Fits All’ stewardship training doesn’t work.

There has been some research on this before, but my takeaway was students don’t change unless they have a ‘pain point’ which causes them to take action. More on that here:

  1. Students don’t feel impact of debt while they are IN school.

See this graphic:

Capture Student graph

 

Students don’t fully understand their current financial position or future. There is data that seems to indicate these numbers are better than they were 3 years ago, so that trend is encouraging.

  1. “There are significant psychological and cultural barriers that prevent students, seminaries, and congregations from addressing financial issues.”

There isn’t a ‘one size fits all’ solution because the problem is so complex and each student brings a very unique combination of financial resources, acumen, and risks.

  1. Very little or no connection between tuition cost and student debt

This doesn’t seem possible (and in fact there is data that shows that as an institution raises tuition student indebtedness goes up faster than tuition inflation) but a tremendous amount of research was done between various theological institutions and there was no connection between lower cost peer institutions and students graduating with less debt. WHY this is true is of some debate.

The Good:

  1. Financial Literacy programs can work if:
    1. Required
    2. One-on-One
    3. Connected to calling (because….)

This basically shows we need to connect students with a better “Why”. Why does it matter if I graduate with less debt? How will my ministry opportunities be different if I graduate with more debt? We need to do a better job connecting debt to ‘vocation and calling’.

  1. Speed Bumps

Educating students on projected (after graduation) payments and giving them a range of incomes can help reduce overall student borrowing.

  1. Student financial health requires Institutional cultural change

Because student debt touches so many area of a Seminary (Admissions, Enrollment, Financial Aid, Advancement, etc.), it is necessary to have everybody ‘pulling the same direction’. A unified vision of graduating financially healthy students is necessary from the President on down.

  1. Financially healthier pastors are better pastors

Post-graduation research is proving what we could have already guessed, “decreasing financial debt and increasing financial literacy for future pastors increases their ability to lead well.”

  1. Partnering together to help graduate financially healthy students is good for everybody.

There are a number of interconnected parties: The student, the church body, the Seminary, and more. This ‘partnering’ can be institutional (church and seminary, or denomination) or personal (spouse, roommates, friends of the student, etc.). When everyone works together toward a common goal, their relationships actually get stronger.

  1. 75% of students borrow less than $40k in seminary education.

While the number and percentages change a little between peer organizations, this seems to be a rough reality across the board. There is quite a bit of research and data showing that we have a bifurcated student body. The majority of students are graduating with relatively healthy quantities of debt, while significant portions are graduating with levels of debt that will significantly affect their quality of life after they graduate.

This complicates potential solutions because all students aren’t facing the same challenges.

CONCLUSION

This information was helpful for me – both in confirming findings as well as helping me shape future ways of communicating to our students. Hopefully you’ve found this information helpful as well. It is the result of a huge amount of money and effort – all with the goal of graduating financially healthy students into occupational ministry.

Thanks to the Lilly Foundation. They are the drivers, both via vision and financial support, of this research and data. The Association of Theological Schools gathered much of the data and presented it.

Roundup

Round-up

Debt Can Limit Your Ministry

http://www.desiringgod.org/articles/minimize-student-debt-maximize-christian-service

 

If You’re Into Rants (and I am), This is an Instant Classic:

https://www.facebook.com/daveramsey/videos/10153385625285886/

 

How Today’s Clergy Are Putting Their Faith in Management Training:

http://insight.kellogg.northwestern.edu/article/how-todays-clergy-are-putting-their-faith-in-management-training

 

The Gender Pay Gap Among Clergy is Worse Than the National Average:

http://tobingrant.religionnews.com/2016/01/12/gender-pay-gap-among-clergy-worse-than-national-average-a-first-look-at-the-new-national-data/

 

The Racial Wealth Gap:  Why A Typical White Household has 16 Times the Wealth of A Black One:

http://www.forbes.com/sites/laurashin/2015/03/26/the-racial-wealth-gap-why-a-typical-white-household-has-16-times-the-wealth-of-a-black-one/#2715e4857a0b3c072abb6c5b

 

Change is Hard:

http://ssir.org/articles/entry/leading_change_through_adaptive_design

 

Does Technology Reduce the Cost of Teaching? (HT @goldiestandard)

https://twitter.com/BryanAlexander/status/692004362382479360

Out of student loans and tree-house homes we all would take the latter

Twenty_One_PilotsI heard this super-catchy song on the radio this week. Twenty One Pilots is a young band and their first hit Stressed Out includes the following lyrics:

Out of student loans and tree-house homes we all would take the latter

Wish we could turn back time, to the good old days
When our momma sang us to sleep but now we’re stressed out

We used to play pretend, give each other different names
We would build a rocket ship and then we’d fly it far away
Used to dream of outer space but now they’re laughing at our face
Saying, “Wake up, you need to make money”

Wish we could turn back time, to the good old days
When our momma sang us to sleep but now we’re stressed out

I don’t want to imply meaning where it doesn’t exist, but when things like student loans begin creeping into pop culture, it means something.

Is the Public Service Loan Forgiveness plan a good idea?

PSLF When I’ve asked students “What is one question I can research or answer for you?”, the topic of student loan forgiveness has come up several times.

While I’ve addressed student loan forgiveness in the past, I haven’t specifically addressed a variation of this: the Public Service Loan Forgiveness (PSLF) plan.

While the traditional loan forgiveness plan takes twenty years and the remaining balance is taxable, under the PSLF plan the balance is forgiven in ten years and isn’t taxable. Given that the primary requirement is working for a 501c3, this seems like an obvious route to go for many going into non-profit work – specifically to those in Seminary going into church work or counseling.

Unfortunately, the PSLF isn’t quite that simple. In fact, if you’re going into missions or occupation ministry it is probably a non-starter. You can download some FAQ’s here, or research more here, but basically there are three main guidelines:

  • Make 120 ‘qualified’ payments
  • Be Employed Full time the entire 10 years
  • Working at “public service” organization

The consideration of these three conditions is very important. One of the great problems of debt is that when it becomes a way of life, the inherent risk isn’t realized until another variable changes. Debt isn’t a problem until you lose your job, have a health emergency, interest rates change, your bank goes out of business, the value of your asset goes down, or any other number of unknown circumstances. Or as Warren Buffett said, “You never know who is skinny dipping until the tide goes out.”

So as we look at these three conditions, keep in the forefront of our minds the risk of time – can we maintain these conditions for 10 years?

Make 120 Qualified Payments

A ‘Qualified’ payment is one that:

You make WHILE employed. You can’t make a qualified payment if you’re laid off, have a couple months between jobs, retire early, are on unemployment, become disabled, etc.

Must be 120 separate payments. You can’t prepay the loan payments, make several payments at the same time, or in any other way ‘jump ahead’ in the plan.

All payments must be on-time. You have to make all the payments within 15 days of the due date or they don’t count as a qualified payment.

Be Employed Full Time

If you aren’t employed as a full time employee, the payments don’t count as a ‘qualified’ payment. This includes any time you might be between jobs, your company goes out of business, you take some time off to have children, or any other reason you might be out of the workplace.

Working at a “Public Service” organization

This includes most 501c3 and all government organizations. This might not be an issue if you plan on being a public school teacher, or work as a counselor for the county Family Services. These jobs are longer career tracks in more stable environments.

But for most non-profit work this is a mess. The turnover rate in non-profit work is high. Non-profits can close or go under if they lose funding. These positions also chronically underpay, so it may be likely that you’re offered a position in a for-profit field at a significant salary increase.

If you plan on working in a church, there is a clause specifically to prevent most church employment jobs. The rules for churches are clearly explained:

Question: I am employed full-time by a qualifying not-for-profit organization that engages in religious activities. Does my employment qualify for PSLF?
Answer: It depends on how much of your job is related to religious activities. When determining full-time public service employment you may not include time spent on participating in religious instruction, worship services, or any form of proselytizing

This basically makes this program unavailable for anyone working in a church or most para-church ministries – including ANY ministry based in another country.

An email from one of our partner institutions summarized this well:

“Recently I’ve been hearing more and more about loan forgiveness after 10 years if you work for a non-profit, and it seems that the general impression out there is that this will apply to our students working in churches, which are 501(c)3 non-profit organizations.

 This didn’t sound right to our financial aid officer or me, so we tracked it down.  The short answer is NO, M.Div. graduates will not qualify for loan forgiveness unless they work at a completely secular organization for 10 years (and then what is the point of an M.Div.?). ”

OTHER PROBLEMS:

In addition to the litany of issues listed above, there are a couple of other issues that I see:

You have to make less than the ‘regular’ payment

The ‘standard’ repayment plan for a student loan is a 10 year repayment plan. So to have a balance left at the end of that period, you have to have applied and been approved for reduced payments through the Pay-As-You-Earn or Income Based Repayment plans. These plans often have payments lower than the interest accruing, so the balance on your student loans can actually GO UP over time. This essentially makes you dependent on loan forgiveness as your only way out of debt. The problem with this is:

You have no job flexibility

If you have student loans with interest accruing faster than you’re paying it, rising balances that you legally can’t bankrupt out of, and you’re forced to work for the government for a minimum of 10 years this is starting to sound like indentured servitude. At least those in ancient Israel that sold themselves into slavery were supposed to be freed every seven years.

You can’t consolidate during the 10 years

This isn’t a huge deal, but it is a consideration.

It’s possible the government could change the rules

This may be unlikely, but it’s a lot of eggs to put in the basket of two administrations from now.

By nature of the program, extra payments are extremely discouraged.

If your eggs are in this basket, any extra principle payments essentially feel like throwing money away. You can’t finish earlier than 120 payments and 10 years.

No partial forgiveness

If you follow the program flawlessly for 9 years and some circumstance changes that doesn’t allow you to finish the program there is no ‘meet in the middle’. You just don’t qualify.

It discourages making money

Because minimum payments are based on income, if you make ‘too much money’ you will be required to make a payment that is more in line with the Standard Repayment. I’m not a big fan of setting up systems that penalize success.

It encourages high levels of borrowing

If students are considering this as their primary (and truly only) route to loan repayment, they are far more likely to borrow significantly more than the cost of their tuition.

Conclusion

For these reasons, the reasons I had previously outlined, and my belief that God values freedom, I don’t recommend pursing this as your loan repayment plan. If you find yourself in a position (say as a school teacher) that you enjoy, don’t plan on leaving, and that qualifies for the PSLF, I don’t see any ethical problem in taking advantage of the program. In that situation, I would recommend aggressively saving money in a separate savings account so that if the situation arose where you were unable to finish the 10 years/120 payments, you could write a check and pay off the balance.

Mark Cuban on Student Loan Reform

Dec 26, 2013; Dallas, TX, USA; Dallas Mavericks owner Mark Cuban reacts to a call during the game against the San Antonio Spurs at the American Airlines Center. The Spurs defeated the Mavericks 116-107. Mandatory Credit: Jerome Miron-USA TODAY Sports

Mark Cuban (who is an investor in an alternative education model) recently made some remarks on issues he had with Hillary Clinton’s student debt proposal. While he addresses the Clinton plan, there are a couple of points he makes that more directly apply to us that I thought were worth highlighting:

1.)  Not all higher educations should be measured on a straight Return on Investment.

Many careers are really important to our culture, and often those occupations (teachers, clergy, social workers, musicians, etc.) aren’t built on financial models that pay well. Cuban’s point that “not everyone should be a STEM student” is important to educators as well as those interested in going into occupational ministry.

We should have an education model that doesn’t penalize those that want to go into lower paying occupations.

2.)  Easy money is what causes dramatic rises in prices

I saw this first hand working in the mortgage and real estate industry in the mid-2000s. Lowered lending standards (created by large amounts of unused capital) allowed lots of buyers and capital into the market that changed the supply/demand ratio – driving up prices to unsustainable levels.

The key in this type of market (which higher education is currently in) is to use tremendous personal restraint.  You need to know that the government, your financial aid office, or the culture at large (media, friends and family, etc.) won’t give you reliable lending guidelines or limits.

3.)  Keeping administrative costs low is critical to your schools sustainability

As a plug here, I believe Denver Seminary has done a wonderful job at this. The campus is run debt free with a critical eye on cash flow, future financial challenges, and keeping costs low and in control.

I’m glad big thinkers are addressing these issues in the public forum.