Discussing student loan debt – up front

By Rebecca Harmon

In my university faculty days I developed a lesson to help students understand the perspective of lower-ranking/lower-paid workers. Each year it opened a lot of eyes for students who came from relative privilege, or who were never aware of the mechanics of salary and budgets. I’m not sharing because I think this is particularly brilliant (it’s not bad, but not sure it’s brilliant), but because I think an exercise like this, required before a student borrows a single dollar toward any post-secondary training, could prevent a lot of the student loan heartache that we see across education sectors.

In striving to avoid the “death-by-power-point” class format, it was not unusual for me to begin my classes with an open-format discussion. The students had just finished reading the human resources chapter on benefits and taxes giving me the perfect setup to discuss budgeting (this works best if they aren’t prepared for the exercise).

I asked them to build a typical monthly expense budget, and I wrote on the white board as the class debated the expenses that included rent, utilities, transportation, entertainment, cable/internet, cell phone, student loans and credit cards. Once we agreed on the number and amount of the expenses I totaled them and handed out job descriptions from a local employer who publishes pay ranges. The jobs were a selection of roles they would work with and eventually supervise throughout their careers.

I broke them into small groups and had them calculate the full-time salaries of each position, teaching them about the hours represented in a single FTE, the cost of health insurance at this institution and estimated taxes. We also included a “holding area” for deductions like parking.

Once they calculated the annual salaries and figured the net, or take-home pay, each group divided the amount by 12 to see how much was left each month and then compared it to the budget we had created as a group.

Without fail, the amount of money coming in the door each month fell woefully short of the expense budget the class had built. We talked about how the budget might need to change to work with the salary; how having kids changed things and how they might feel if Mom or Dad was making that kind of money and how they hoped a young manager would treat them. We also talked about motivating employees and how financial scenarios like this one might impact the ability to motivate people.

It was an exercise in awareness, aimed at generating respect for the people who won’t garnish the salaries many of them were about to walk into after graduation, but it also gave them food for thought about their own salaries and budgets.

Now, back to the student loan heartache I mentioned earlier.

The student loan debt debacle is widely reported, and fingers continue to wildly point back and forth across the political spectrum and between education sectors. Much of the outrage against the for-profit sector accuses them of intentionally targeting unsophisticated education consumers who believe that a college degree – any degree – at any cost is always a good investment. I won’t argue this point (not now, anyway) but I do believe that no matter how unsophisticated someone may be about college, most people understand the mechanics of a basic budget – especially if you show them the numbers in simple black and white.

What if we channeled that energy into the development of a simple budget worksheet and exercise, and required students to meet with independent financial counselors before they could enroll at any college and use federal or state financial aid?

Let’s consider, for instance, a prospective, non-traditional student who plans to spend $42,000 to complete an associate’s degree in medical assisting at a for-profit institution (this is not out of the norm). Prior to meeting with the independent financial counselor, our fictitious student must complete a budget worksheet that she will bring with her. The counselor will review the form and ask questions to make sure she has an accurate picture of her current financial situation.

Next, the counselor finds the salary data for medical assistants. The prospective student sees that the median income for a medical assistant in Pittsburgh, PA is just over $31,000 and that the first decile and quartile salary estimates are $26,331 and $28,352 respectively. The counselor explains that most new graduates will work in positions that pay closer to the lower figures and not the median.

Now it’s time to calculate how much student loan money she’ll have to pay back beginning 6 months after graduation.

With Pell Grants just under $6,000 a year for a full award, our student will need to come up with at least $30,000. For the purposes of this scenario, we’ll assume she needs to borrow it. Using widely available financial aid calculators, the counselor plugs in the estimated loan amounts for the student and shows her that borrowing $30,000 over a period of 10 years at a rate of 6.8% will cost her about $345 a month.

As the student’s eyebrows go up (or not), the counselor explains that student loans cannot be ignored, or wiped out in bankruptcy and that not paying them can lock you out of certain jobs, ruin your credit and will follow you, literally, to your grave, garnishing even your social security payments.

The student considers this information and the counselor returns the conversation to the budget they discussed initially. Using a new form, they plug in the updated numbers – using salary and loan payment figures – to see what her new life will look like, reminding her that while the loans are guaranteed to be a part of the new budget scenario, there is no guarantee of the new job and salary.

I have a high degree of confidence that most students, if shown the numbers for the loans as well as the salary by an independent (no school sales personnel with fancy “education” titles) counselor in the context of their own budgets, would make better decisions for themselves.

Rebecca Harmon is an experienced educator and health care professional with clinical laboratory and health information management expertise. She has served in faculty and administrative roles in U.S. community college and university (public, research) settings. Ms. Harmon is passionate about empowering students to make good decisions about college by ensuring they have access to complete information – especially financial information – before enrolling.

Cover image courtesy NCSU Libraries’ Digital Collections: Rare and Unique Materials