A growing number of professional publications aimed at financial advisors plus consumer and news mediums are spotlighting the growing problem of student loan debt. Match those up with increased concern over the potential for robotics and artificial intelligence to disrupt careers and job prospects, and an obvious challenge emerges regarding education and financing choices, career planning, retirement planning, and the quest for financial independence.
The explosion in student debt has become a horror story and a threat to the economy, a complex financial planning dilemma for students, parents, even grandparents. We hear of graduates grappling with crippling loan debt, but now “older Americans are being crushed by a mountain of student loans—their children’s and their own.” (Wall Street Journal, 2/2/19).
It seems that older workers have used loans to go back to school to bolster job and career prospects. Plus, since the 2008 financial debacle, more lenders have mandated that parents, or grandparents, co-sign loans.
The Journal reported, “Between 2010 and 2017 people in their 60s, like most other age groups, accelerated borrowing in nearly every category.” As advisors, we know the ideal is to reach one’s targeted retirement age, better defined as the point when you wish to be financially independent, free of consumer and mortgage debt. It’s not likely that grandma is working in a hamburger joint because she likes the food! Statistics concerning student debt across the age spectrum are alarming.
Part of the problem is a lack of education in schools as to how money works. A recent blog from MoneyCulture.org noted that students are complaining after-the-fact that, amazingly, they didn’t know they “had to pay back the loan”; “the minimum payment will never pay off the loan”; “I had no idea how much interest they were going to charge me.”
The same blog detailed a story about a recent graduate with $70,000 in student debt and a new teaching job. Her take-home pay is $2,000 per month and her loan payment just jumped to $775 per month due to rising interest costs on variable rate loans.
Do the math. After loan payments, she has $1,225 a month to live on. A search on apartments.com for a nice, not necessarily top-of-the-line, two bedroom apartment in mid-town Atlanta, as an example, runs about $1,100 per month. With a roommate, her share is $550 per month. Over 66 percent of her net monthly pay is out the door for debt and rent payments. That doesn’t leave much for car payments, food, non-food necessities, and fun.
No wonder so many young people are living at home, a continued drain on The Bank of Mom and Dad.
Now comes the growing threat of robotics and artificial intelligence (AI) to alter the job market and the skills needed. For a person facing a 40 year plus working life, there will be a constant challenge to upgrade skills and stay relevant. College counselors must do a better job of educating students and parents as to the realities of economics, how loans work and their liabilities, a rational analysis of financing options and job prospects, including salary and benefit potential matched against liabilities, along with cost-of-living data for where the graduate desires to live and work.
Even a loan-financed Ph.D in Pie-in-the-Sky may be a bad bet when it comes to the quest for financial independence.
Financial advisors are burnishing their counseling skills, or working with outside consultants, to use diagnostics like Kolbe or Gallup Clifton Strengths Finder to help students identify innate talents and skills, their “internal MO,” how they naturally do things so as to target educational choices, schools, majors, and careers having the greatest likelihood of success, both from a purpose- and value-driven point of view combined with realistic financial objectives.
A growing number of colleges and universities are using Clifton Strengths Finder as a tool to improve student academic success, including graduating in four years and not changing majors. Yes, loans have to be paid back, and interest rates are in a rising trend. The growing mountain of debt and debtors across the age spectrum is like an iceberg in Antarctica. What you see is just the top. What’s “under water” is gargantuan and scary!
Lewis Walker, CFP®, is a financial life planning strategist at Capital Insight Group; 770-441-3553. Securities and advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis Walker is a registered representative and investment adviser representative of SFA which otherwise is unaffiliated with Capital Insight Group. He is a Gallup Certified Clifton Strengths Coach and a Certified Exit Planning Advisor (CEPA®).