Episode 5- A Short Talk about Student Debt

A quick overview of the Student Debt crises and a possible solution. 

Transcript

Speaker 1: 0:05

[inaudible].

Speaker 2: 0:07

Welcome to the podcast, the common bridge with Richard helpy. Rich is a successful entrepreneur in the technology, health and finance space. He and his wife, Leslie, are also philanthropists with interest in civic and artistic endeavors, but with a primary focus on medically and educationally underserved children. My name is Brian Kruger, and from time to time I'll be the moderator and host of this podcast.

Speaker 3: 0:32

Yeah, Richard's good to see you. I'm glad you're on this side of the pond. Um, you know, you're back here again and I'm sure, I'm sure that was a good trip, right? Yeah, it was a great trip. Uh, my first time I've been to Spain, um, Catalonia actually, and we were able to leave, um, just between the two major protests, uh, given the, uh, court verdict of some of those, uh, that wanted to, um, have Catalonia via its, uh, its own, um, independent contrary. Okay. How's that going for them? Um, I, it looks like a stand still at this point. I'm not an expert on that, but, uh, happy to be back in the us. Have a great, before we left, you and I were talking a little bit about, uh, student debt and, um, well let's kind of launch with that. Uh, today you can try to get our arms around that. It seems like it's a monster out there that nobody is really wanting to solve. A student debt's a problem and, um, indeed it is a, uh, subprime crisis of major proportions. Um, and when you think about what subprime lending is, um, it's a loaning money to people that, uh, don't have the credit capacity to pay it back. And, uh, when you unwrap, uh, what a student loan is, it's money being lent to people that don't have assets because they are generally young people. Um, they don't have an income because they haven't started their work life. Uh, and they don't have much for credit history, if any at all, yet they are being loaned, uh, tens of thousand and at other times, uh, hundreds of thousands of dollars. And, and frankly, uh, Brian, I think there's a moral question in here, and I question the morality of institutions who take money from a young person with the implicit promise that they're going to help that young person's future. Um, when indeed they're very sophisticated, they know they're burdening a young person's future. Um, and it's, it's patently absurd that, you know, we have people, uh, coming out of college, um, uh, and they owe tens of thousands of dollars in student debt and instead of forming households instead of, uh, buying refrigerators and, uh, building their life, um, you know, the, I guess the stereotypical is they return home to pay off what is the equivalent of a mortgage. And remember mortgage is supposed to be a 25 or 30 year obligation and potentially own your own home free and clear. At some point there's an asset tied to it too. And we're, and we're, and we're saying, okay, we're going to take a 22 year old and they've got$60,000 worth of debt. Um, and they have to work that off first. And I just question the morality of it and what kind of credit history does a 22 year old have exactly. They, they don't, they never should have been lent them money in the first place. Uh, uh, so it is, it's a patently, um, you know, it calls into question a moral issue from a university or a college to do that. And look, I know the solutions are out there and this one's going to be a naughty one. Uh, because it is not just one issue. There are people who did complete their education without borrowing. That's very difficult to do these days. But you know, perhaps through a combination of savings and scholarship and M and a work they, they managed to get through. Um, yeah. Other people that did complete their education and paid back their student loans. And then you have people who didn't go to college because they didn't have the funding and they didn't want to go into debt. And how do we treat them fairly. And we have people who have a large debt but didn't go to the classes. And that is a really troubling aspect. And then we have of course, the people that did complete a degree or perhaps multiple degrees and they have a large financial burden on them at this point. And how do we unwrap all that? And so I don't know how we look back at that and I'd be open to discussing with people how we address each of those categories. But I think to STEM the tide you really have to say who benefits from the student loan. And it really is the college, the university, the trade school, whether it's public, private for profit, not for profit. They're the ones getting the money and the financial institution is getting a cake. They're right. Indeed. They're good. They're getting that. So if you start, if you start there with who's benefiting, um, you know, potentially one idea would be, you know, for every dollar of tuition that comes in, funded by student debt to a not-for-profit university, they lose a thousand dollars of tax free status. All right? They're supposed to be public institutions for the public good. And is it really public good to drive a young person into debt like that? My concern is when the math doesn't work, a student takes out$25,000 a year, over four years, and then comes out with a degree in teaching and not to disparage teaching. I was one at some point and they start out at$30,000 a year in charter schools will never pay him more than 40. How long does it take? The math doesn't work out very well for that person to pay back that loan and any good, the math never works. And again, when a young person is starting out, they're going to be on the lower end of the pay scale. You know, whether they're in the honorable profession of teaching, um, or if they're doing some other type of work. And so they're not going to have the resources. And it occurs to me that those young people that are taking out debt don't understand much the difference between a$15,000 debt and a 20,000 or$25,000 debt. It's just mind boggling numbers that they'll get to at some point. They've probably never done the math about, you know, I want to go into, you know, in this example teaching and how am I going to pay that back? Right. Um, it's, uh, again, I do believe it is a crisis. I do believe it is a subprime. I do believe that there is a solution out there. Um, and number one priority would be, um, arresting the growth of student debt. Um, the places that can do something about it, um, are the universities. So instead of an admissions counselor saying, look, let me hook you up with a, uh, a student loan application package, maybe they need to pause and say, we don't really want our students funded on loans. Uh, we want them to be looking for scholarship or sponsorship opportunities. Um, you know, something of that nature. Sure. And do you think it would help them? This is a little bit of a left turn on this, but um, I think when you and I are growing up, at least you had some sort of class in high school that talked about personal finance. And in a simple personal finance class might have a student take a look at that 20 or$25,000 loan and go wait a minute, that's going to take me forever to pay off with my teaching degree or what something else. The wall street journal had something a couple of weeks ago that I'm a dental student. A student in dental school had had, uh, accumulated a million dollars in student loan debt, a million dollars. First time they had seen that. But evidently dental school is more expensive than, than, than most of them. But still, that's alarming. That's incredibly alarming. Well, I think that's a great example of how wrong things are and that we need dentists, we need physicians. Um, we need computer scientists. Um, we need people that have graduated in the humanities and, um, we can't make the price point for people getting that qualification so far out of reach that we just don't have that. Yeah. And the answer of let's just give out loans and let the cost escalate I think is a little crazy. And if we look at discouraging universities, trade schools, graduate schools, medical, uh, from, uh, directing their students to student loans, if we get those intermediaries to have some skin in the game for bad debt, um, that's the beginning of fixing the forward problem. Um, and that they would be incented at that point to make the college more affordable, bring down the price point. And there are an infinite number of ways that that can be accomplished to make that education affordable. Um, also, again, as we look forward, we begin to think about what is a public good and what's a private good. And if we can come together as a society and say, you know, it is good to have dentists, you know, how should we be supporting education for dentists? Right? Um, similarly with, uh, physicians and, um, you know, during the Clinton administration, they cut the reimbursement for graduate medical education. So that raised the cost of educating a physician and consequently, um, you know, fewer people were able to go into that field. And plus there's, there's a large shortage now in family practice. Doctors, people are coming out of medical school are encouraged to go into specialties in hand surgery or something like that to make that money back quicker. Whereas a family physician and when you and I were growing up, that was a, that was a great profession and now it doesn't pay as much as it did. Um, well the, the, there are about the same number of physicians graduating today as are retiring. Um, the difference is that, uh, there are 75 hour a week, people retiring and, uh, 45 hours a week, people entering the field. Um, now we should have more efficiencies with, um, information exchange. Uh, we should have more efficiencies, um, with protocols and such. Um, I think people are more aware of needing to take care of their own health. Um, uh, but even with that, you two need to have a medical professional available to you. Um, or you know, the whole system collapses. This is sort of in your wheelhouse and I'm going to ask you out of this out of just pure curiosity, a couple of, uh, friends of mine, uh, in my community have retired early from their, uh, uh, their practice, their medical practice. And, uh, both of, uh, three of them have all said the same thing, that the, uh, um, filling out the insurance paperwork and the reimbursement paperwork became overwhelming. Uh, and they couldn't get their billable hours back. The math didn't make sense to them anymore, so they took down their shingle and retired and did it far earlier than they thought they would, uh, and retiring not into the sunset, but they'll go do something else now because it wasn't a good proposition for them. And that, that's one of the challenges as, um, you know, medical arts become more, um, uh, subject to, uh, management practices. And, uh, one of the things that was discovered with the mandates for electronic health records is that some of the older physicians said, you know, by the time the mandate gets to me, uh, I'm going to be retired, so I'm just not going to do it. Um, and others, uh, found that the time to manipulate the records and to implement them in the cost, um, didn't justify being in practice any longer. Um, and, and in terms of, um, uh, you know, the insurance and overhead burden, um, that is present in every single system. Um, there has to be, uh, you know, whether it's a national one size fits all program, there has to be justification for, um, services for the, for the spend. Uh, and also on the private side, um, that's not going to go away. Um, despite, you know, some of the, either naive, misleading or amusing things that we hear. Um, during the political campaigns.

Speaker 2: 13:00

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