I recently had a chance to interview Adam Carroll about America’s looming student loan debt crisis (it’s already here). If you’re not familar with Adam’s work, he is a professional speaker, has published multiple books and is a self-described financial literacy junkie.
I recently found Adam through one of his recent projects – Broke Busted & Disgusted, a documentary about the evergrowing student loan debt crisis and the impacts on the millennial generation and beyond. If you have an hour, I highly recommend checking out the movie.
I’m honored today to be joined by Adam.
TFG: What initially sparked your interest in personal finance literacy and specifically the increasingly important issue of student loan debt?
Adam: My interest in financial literacy was sparked by a mentor I met in my very early 20’s. He recommended several books to me and I took him up on every one of them. This guy was a multi-millionaire with a wealth of experience and I was going to do whatever he told me to do. The student loan issue became a passion of mine after presenting to hundreds of colleges and universities where students had no idea how much they’d borrowed or how much their payments were going to be. I felt like something had to be done and a documentary on the topic seemed like a logical step in the right direction!
TFG: I loved the term that one union worker in the film alluded to, “learn as you earn.” When I was in high school, I remember tons of pamphlets & fliers about going to college, but not so much when it came to trade schools & apprenticeships. What can we do to make sure young people aren’t feeling pressured into feeling like they HAVE to go to college to be successful in life?
Adam: This is such an important question. First off, parents need to realize that the economics of college have changed dramatically. It’s not possible to work to pay your way through school like many of them probably did. 75% of today’s full-time students work over 30 hours a week in addition to full class loads and STILL borrow to make ends meet. We have to change the societal norm that EVERY 18 year old should be in a four year school. Whether students pursue an apprenticeship, a 2 year program, a certificate, a gap year, or just plain old work experience, we have to celebrate the fact that they’re making decisions that will ultimately lead them down whatever path was meant for them.
TFG: Can you envision an America where financial literacy classes are required for college curriculum, or better yet high school and junior high?
Adam: Not only can I imagine it, I dream about it in technicolor. In my mind I can see exactly how to get young people super enthused to learn about money and being money savvy. Several schools in my area are using various methods to make this a reality and the results are astoundingly successful. The challenge today is getting the Department of Education, both locally and nationally to understand that teaching money should be one of the TOP priorities. Our country is dependent on the next generation being financially viable. Millions of 20-somethings that are hundreds of billions in debt is NOT the answer.
TFG: The film showed a graphic that 48% of students expected their parents to help with loan payments after graduation, but only 16% of parents expected to help with payments. It seems like there is a breakdown of communication in families across the country. What can they do to fix this?
Adam: Well, first and foremost, families need to be having the college conversation much earlier than they do currently. I’d venture to guess that the majority of families start thinking about and discussing paying for college right before a student enrolls. At that point the financial aid office is doing the majority of the educating, and as helpful as they are, families are leaving those appointments having signed up for a decade or more of debt repayments. Parents and kids need to have very honest conversations about what’s possible and what isn’t. At 18, these kids don’t know what’s good for them or not — tens of thousands of dollars in debt isn’t.
TFG: Student debt hit $1 trillion in the United States in March 2012, was around $1.3 trillion in 2015, and according to the student loan debt clock is rapidly approaching $1.4 trillion. Do you envision the student debt problem ballooning to the point where it could negatively impact the real estate market over a long period of time?
Adam: I think we’re there. In the coming months and years, we’ll see student debt borrowers not qualify for mortgages, car loans, and in some cases an apartment due to non-payment of student debt. When 1 in 4 loans are predicted to be in default in 2016 (according to the Congressional Budget Office), this will absolutely bleed over into our general economy. As of right now, we have no idea what kind of ramifications and repercussions could be felt.
TFG: College tuitions continue to skyrocket at record levels year over year. How do you feel about the government backing all student loans, including the private loans that banks give to students?
Adam: I’m diametrically opposed to the government backing student loans as if there is a big checkbook in the sky to guarantee all of these. In my opinion, if you are pursuing an education degree that will pay around $40,000 a year, you shouldn’t be able to borrow more than a certain amount (like around your annual starting salary). Right now there are Russian Literature majors graduating from private schools with well over $100k in governmentally guaranteed loans. How is it we can’t seem to set the ridiculousness in this situation?
TFG: What are your thoughts on programs like Pay as You Earn & Income-Based Repayment? Do you feel these are sustainable government programs or band-aids for our student loan debt problem?
Adam: I think they are helpful to a certain extent, like a tourniquet is helpful when you’ve cut your hand off (TFG here – love this, ha). There is talk, at length, of making college more affordable but the way we do it is by spreading the payments out over 25 years. While we may make it more “affordable”, it actually makes it more expensive. I think the Department of Education has a vested interest in making sure that colleges and universities have a steady stream of applicants and students. Their loans make it exceptionally easy to pursue a degree, even if it’s not the best possible scenario for the student.
TFG: I think it’s fairly reasonable to say the system is at least somewhat broken. Imagine you are emperor of the student loan debt crisis and can make any changes you’d like. How do you handle getting the situation under control?
Adam: I, as emperor of the student loan debt crisis, do hereby declare that for starters we are going to reduce the interest rate charged on student loans because it’s insane that the government will lend banks money at .25% while it lends students money at 6.8% or higher. I also declare that you can no longer borrow unlimited funds for college, but instead it’s based on an equation that will ultimately keep you from borrowing too much relative to your earning power. If you borrow more than the governmentally guaranteed amounts (relative to income) then the risk that’s assumed by lenders is their own. Any of these amounts may be bankrupted as the free market will regulate accordingly. Interest rates will be high on these loans, as they should be. So borrow accordingly…
TFG: Now onto something a little more fun: Monopoly! I loved your idea of playing the game with your kids as a social experiment with real cold hard cash. Do you have any other innovative financial literacy ideas for parents with young kids?
Adam: My kids are investing in the stock market on a monthly basis and we make a bit of a game of it. They like to see which companies are paying dividends, which companies have a high EPS, which ones are tanking and why. It’s exceptionally rewarding to see them take an interest in it. We also require that our children have an emergency savings account. By the time they were 5 they had to have at least $300 in their account. By the age of 7 it was $400, and by 9 they have to have $500. My 8 year old currently has the most at over $900 in his emergency fund. He likes to see his bank statement when it comes each month. Anything he thinks he’d like to save at this point I’m encouraging him to put towards his investment account. Right now he’s buying Microsoft stock because he loves Minecraft!
TFG: Thanks so much for stopping by! I really enjoyed the film and I will have to check out your book, Winning The Money Game.
Adam: Thanks for having me! I encourage you to check out my other book as well: 30 Days To $1K. It’s a chapter a day book for a month that will help you put away at least $1,000 in an emergency fund.
TFG, here back at you. Big thanks to Adam for taking some time and providing his insight on the student loan debt crisis! I’m curious to hear other opinions on our current student loan debt situation in America and methods to fixing it. For me, Adam’s words hit home. I think one of the biggest fundamental problems is that 18 year-olds are given a “blank check” to borrow as much money as they need to obtain their education. We have to be smarter than this.