Kudos to WSJ for maintaining focus on the student debt crisis and offering its pages to voice various views. On Wednesday, August 10th, the Journal printed my Letter to the Editor — see the full letter below.
My view in short: families empowered with better information, tools and services AND the emotional demeanor to choose less expensive schools over “brand-name” schools can avoid excessive student debt. The educational outcome is likely to be excellent and their return on investment substantially better because they did not choose a higher cost, debt laden path.
What do you think?
To the Editor:
My career has been focused on helping families plan and pay for college: 20+ years as student loan investment banker, former CFO of First Marblehead Corporation (NYSE:FMD), school board member, education entrepreneur and, recently, the co-author of “Plan and Finance Your Family’s College Dreams.”
Sheila Bair hits a few of the high notes of the college financing crisis. The root problem: everyone’s to blame. The Congress has tinkered around the edges of a student loan program established in 1965 when it provided many students with low cost loans with caps that nearly covered 100% of education costs. The current Administration’s political response is to find ways to forgive student loans. Colleges have zero incentive to control costs. Some for-profit schools are bogus. Taxpayers appear oblivious to the fact that we pay for every defaulted and forgiven federal loan. Borrowers seemingly prefer the status of victim of greedy lenders and corrupt schools to educated consumer that no one forces to sign a loan note.
College affordability is within the grasp of all families starting with the acceptance of personal responsibility for the contracts signed. Loans should be the last resort, not the first alternative, to pay for college – no matter what the government or the schools say. Families should first use savings, financial aid, scholarships, current income and other “free money.” Then project the total amount of debt that might be needed. If it exceeds the projected first year salary after college, the school is not affordable. Finding a less expensive school, working for a year, living at home or taking any number of other actions is far preferable to being the next headlined poster child in the college financing crisis. This is a solvable problem that does not require a big government solution.
Parents are inspiring their kids to learn financial literacy with a simple message: save for college! It’s a worthwhile goal helping to build healthy financial habits for life and also to reduce the need for student loans in the future. Here are some ways that parents can help their children get on the right track early and stay the course.
Learn by doing: The number one way for students to begin saving early for college is to actually do it. The very act of taking money and putting it into a specific account for college savings is instrumental, not just for growing education funds but also learning a healthy financial habit for life. For early savers, it’s simply a matter of motivation.
Encourage financial literacy: Embrace financial literacy and learn about money: how to save it, how to spend it, and how to make it work for you. Even with digital money and payment platforms becoming more common, parents can begin to encourage their children to understand financial literacy by explaining about the different coins and dollar bills, and help them put money into a piggy bank or a savings account. As they mature, you might begin talking to older children about investments and different kinds of savings. The key is to have open conversation about personal finance, so that kids learn early that money is something to be managed properly. If that didn’t happen for you, it’s never too late to learn.
Learn to budget: This is a great exercise for students and parents. Take a week or two to record all of your purchases and see how much you spend. Record all of your income. Categorize your expenses and determine how much of your income can go into savings. Though “expenses” may be limited, kids should get into the habit of doing this so they can manage a personal budget as they mature. The 50/30/20 method of budgeting suggests breaking things into percentages in the categories of fixed costs, financial goals and flexible spending, but there are many ways to do this.
Put a percentage of gifts away: Gifts from birthdays and other holidays are great opportunities to boost college savings accounts. The trick is allocating it to savings before it is spent! Put a percentage of each gift into that account and watch the money grow. One of the most fundamental aspects of starting early is that thanks to interest, your money will be worth more years down the line when you need it.
Getting a job: The best way to increase income is to make money on a regular basis through work. A student’s first priority, especially in high school, needs to be their education, but flexible jobs give you the opportunity to earn money of your own. Babysitting is a great job for high schoolers, because it’s flexible and families often need babysitters on the weekends. When the kids go to bed, you often can do homework, accomplishing two things in one go. Other jobs that have weekend shifts include being a cashier at a grocery store or convenience store, working in a bakery, working as a golf caddy, or serving in a restaurant. Students with an entrepreneurial streak might start their own dog walking business or make things to sell.
Be consistent: Having a good plan in place is important, but what’s more important is putting that plan into action. If you plan to save $100 a month, continue to do that. It’s important to stick with it until it becomes second nature. You’ll be grateful that you did when you approach college and have a sizable savings account to help pay for it.
Parents and children work together: Financial literacy brings families together with a shared goal of greater prosperity. Parents can help set up the paperwork for a college savings plan while their children follow through with their consistent plan to earn and save money.
Keep parents or grandparents as 529 account holders: Make sure to maximize savings in relation to potential financial aid eligibility by making the parent (or even grandparent) the account holder of 529 savings. It turns out that savings in a student’s name can reduce financial aid eligibility, by increasing the family’s “Expected Family Contribution” Money in a child’s name (like in checking/savings accounts) is counted as a student asset on the FAFSA, with as much as 20% of it’s value weighed against financial aid eligibility. This presents an unfortunate situation when it comes to college savings and financial literacy; you want your child to learn about saving money, but you also want to get the best value for college savings. There are significant benefits to keeping the majority of college savings in the parent’s name. A 529 in the parent’s name counts as a parent asset, and is assesses 5.6% of its value against FAFSA eligibility, a lower rate than a student asset. This comes into play during the need analysis process, which shelters parents’ assets more than it does those of their children. There are a number of strategies that you can use to maximize your aid eligibility. For students who are saving for college, it could be helpful to have them save the money but put it into this account under the parent’s name. That way, you are maximizing the potential for aid.
The idea of getting students to start saving for college early isn’t just about growing their contribution to their education savings, though that’s important. It’s also about children learning to manage their money and starting off strong so that they can grow up to be independent adults. It’s important because having them pay for a portion of their college costs gives them more ownership over the process because they’re investing their own money. Financial literacy is a skill for life; by starting young, children are are set up for financial success early.
I was honored to attend the2016 Annual Conference on Financial Education and EIFLE Awards ceremony at the Caribe Royal in Orlando (Waterfall Pic Above). The event featured educators from the U.S., Mexico and Canada dedicated to financial literacy, here are just a few of the highlights from this great experience!
People Care: There were so many great financial literacy leaders at the conference sharing their stories of inspiration. There were authors, teachers, program managers, parents, students, economists, Ph. D’s, financial planners and regulators all in attendance. The one thing they had in common? They care about the people they serve and want to see improvements in the world of financial literacy.
Personal Finance is complicated, educators simplify: Often times financial literacy is lost on students when it becomes too complicated and difficult to relate to real life. In truth, financial literacy can apply to everyone in many ways, but it’s not seen as important until it’s recognized as relevant. Financial literacy teachers take a complex idea and make it easy for early learners to understand and appreciate the importance. Additionally, we learned from behavioral finance educators that people can take action to improve their own financial circumstances through a combination of great knowledge learned in the classroom combined with real life “learning moments” that pop up every day. Personal experience is the toughest teacher since it gives the test first and the lesson last, but when it comes to financial literacy curriculum, we can always learn from the experiences of great educators.
A greater mission and purpose:
Financial literacy is a huge topic, but after participating in many of the presentations, a greater narrative became clear. Attendees and presenters alike share a common purpose in helping their communities face financial challenges of all kinds. They all matter! Many organizations whether non-profits or for-profits see the advancement of financial literacy as a greater calling, whereby working together creates the synergy to improve an economy, allowing “all boats to rise on a common tide.” John Hupalo, CEO of Invite Education shared his personal insight on the issues facing financial literacy for college attendance, citing the motivation displayed by Felix Baumgartner’s record breaking free-fall. The success of being able to “Land on your feet” is something that all college students should not only strive for, but ultimately achieve as a result of their college experience. Financial literacy leading up to college will help parents prepare their children by teaching them how to make smart choices as they choose a college. This process will lay the foundation for financial success after graduation. College is just the first successful step forward for many in pursuit of career and life goals. By providing a baseline of financial literacy to tackle this big question, we all have much to gain.
The Future is Now!
People are helping people with financial literacy and using technology to reduce the barriers of service. I was fascinated by the diverse number of attendees sharing their unique ideas and experiences. It’s realized that technology plays a critical role in simplifying the educational process, but too often we allow it to become a distraction. When we see students plugged into their smart phones, it’s just another sign of the modern times. Financial literacy is more important now than ever and is transitioning into the digital era not with fancy bells and whistles, but rather with clear messaging, consistency and intelligent targeting of audiences most in need of help. Once teachers work to build relationships with students and prove relevancy of their content, the next step is embracing common technology to continue follow up with more valuable lessons into the future. Financial literacy is a step-by-step process where students can continue to learn throughout their life no matter how technology will change in the future!
“The Annual Conference on Financial Education provides professional development opportunities for individuals who work with financial literacy education. In addition to being a critical networking event for financial educators, the Conference offers attendees the opportunity to learn about current trends, develop funding strategies and advance the cause of financial education.”
The event presents an excellent venue for financial educators to share their knowledge and insight on critical financial literacy topics, teaching, engagement and community outreach methods. The conference helps promote the effective delivery of consumer financial products, services and education by hosting this national event bringing professionals together in a positive learning environment. Guests are encouraged to engage and share their experiences while meeting and networking with industry leaders.
John Hupalo, CEO of Invite Education is providing a special presentation “Using Technology to Empower Families to Make Better College Financing Decisions” tapping into his experience in education finance beginning as a student at Boston University, as a Congressional staff member, as CFO of a student lending provider, and most importantly, as a parent. Today we see that higher education is now more critical than ever, but also even more expensive. John shares his experience to demonstrate how far technology has come to help families make smarter decisions about their college financing by looking at the big picture outcomes while understanding each student’s educational needs along their journey.
Looking forward to an exciting and educational experience at the 2016 Annual Conference on Financial Literacy!
You’ve done everything right by your community. From financial literacy outreach to free seminars, to helpful learning materials assisting students on their way to college.
But what happens to all that work when it’s time to convert it to new members/customers and associated products? Turns out it’s tough to measure. Let’s face it, it takes an incredible amount of energy to provide great financial literacy knowledge to the public, but as any teacher knows, every student follows their own learning path. What’s interesting about financial literacy is that while anyone can learn it in in the classroom, not everyone will apply it in their life. That is until they face a challenge where financial literacy is needed, and suddenly it becomes a major point of focus. It’s at that moment the old saying “When the student is ready, the teacher will appear” becomes realized. Except today, that new teacher is available online 24/7 through virtually all digital devices.
How do you keep up with that?
You provide a scholarship: It’s still a great idea representing the noble goal of education. It always draws immediate attention, especially when providing financial literacy to the greater public. The problem is simply supply and demand. Only a handful, if not just one student will qualify for your scholarship. What about all the other students that still plan to pursue higher education?
YouInvite Education: It’s simple. Students deserve a better college planning experience, and you can deliver. When offering scholarships to your local community, take the opportunity to provide more. Invite Education offers comprehensive tools that cover testing, admissions, college savings and financial aid along with a scholarship search engine to locate even more funding. Continue to help all students pursue their college dreams beyond your scholarship program for positive community engagement.