With student loan payments set to resume starting October 1, the average U.S. borrower is expected to be making an average payment of $500 per month. Soon-to-be graduates are now carefully considering their career paths and job options in order to better prioritize paying off their student loan debt.
Wells Fargo Head of Advice & Planning Michael Liersch and Linda Nicholas, NYU's School of Professional Studies Student Financial Services Director, sit down with Yahoo Finance Live to discuss borrowers' longer-term financial sustainability of paying off student loans and whether this type of debt is worth taking on.
"Sometimes there's this "golden ticket" effect that people have," Liersch explains. "Where they think they're going to invest in themselves and then after they invest in themselves, they're going to somehow have this outsized earning potential. And I think we need to reframe that here in the United States of America."
"Oftentimes, we see that schools with a higher tuition sticker price offer more in terms of scholarships and financial aid than a lower or moderately priced institution," Nicholas says on the financial aid packages colleges can offer. "So, I think it's easy to pit different schools against one another, but I think that... if [students are] interested in a program [and] if they see a program as a successful, well-known, reputable program, apply and then compare the financial aid offer."
JULIE HYMAN: We're on the final day of our week-long special on student loans. The federal payments have been paused for the last three years due to the pandemic. Now, borrowers are about to start paying again beginning in October. The monthly student loan bill comes in at an average of $500, according to the Department of Education. That's a big chunk of change for any graduate, and it may have many seniors questioning is a degree worth it.
Here to explore that question and the options out there to navigate the world of debt is our next panel, Michael Liersch, Fargo head of advice and planning, and Linda Nicholas, Professional Studies Student Financial services director at NYU. Thank you guys both so much for being here. Linda, I want to start with you because implicit in all of this discussion is how much debt you should be taking on in the first place when you go into college here. And so I wonder how should people even be thinking about this. It's the it's the one kind of debt that you can sort of get a student loan relatively easily.
LINDA NICHOLAS: Right, definitely. I think these are important questions that families are asking now when they're looking at the potential of taking on student loan debt. What's the long-term return on investment? And that's what folks are asking. You know, what are the earning potentials for the degree track that I'm on?
And when you're comparing colleges, I think this is where the conversation begins, not just looking at the sticker price of a college but comparing financial aid packages, looking at the institutional prestige there, the network that they have, the alumni network, and the job opportunities that exist. And there's so many great statistics students can look at, whether it's graduation rates at the colleges that are a great indicator of student success at those institutions, if it's the median income of their graduates and the employment rate six months after graduation. And all these statistics are readily available on the US Department of Education's College Scorecard, so I definitely encourage all students to explore this when you're looking at the investment you're making for your education.
- So Michael, I want to ask you this question. There used to be this kind of phrasing that said there's good debt and there's bad debt. Is student loans still good debt, if you will?
MICHAEL LIERSCH: Well, when we think of what good debt means, you have to think about what is the purpose of the debt, just like if you were to borrow for buying a home, so a mortgage. And student loan debt is one of the most common debts outside of mortgages, and so we often think of that as an investment in our home just like we should think of student loan debt as an investment in ourselves. So, the real question to ask isn't whether it's good or bad debt. It's whether I can pay it back and whether it will be sustainable after I invest in myself.
And sometimes there's this golden ticket effect that people have right where they think they're going to invest in themselves, and then after they invest in themselves, they're going to somehow have this outsized earning potential. And I think we need to reframe that here in the United States of America. There's a lot of reasons to get an education and invest in yourself. Maybe to really consider one is you could change your career, or you could even have that career in the first place. The second is that you really give yourself that foundation to maybe get a graduate degree if you don't have one yet or to invest in yourself in the workplace.
So we really need to move away from that golden ticket effect and think of this as debt that we need to consider as sustainable. It's not good or bad. It is what it is because if we want to get that foundation, we need to do it. And so we're investing in ourselves in a way that will give us that sustainability throughout our lifetimes.
JULIE HYMAN: And Linda, when we're trying to figure out that sustainability, I mean, with apologies to someone who works at NYU, are we also overvaluing certain institutions of learning here, the ones with the highest ticket?
LINDA NICHOLAS: Wonderful question. And I think it's great that families are starting to think more critically about the institutions that they're sending their children to. You're looking at the sticker price, but oftentimes, we see that schools with a higher tuition sticker price offer more in terms of scholarships and financial aid than a lower or moderately priced institution. So I think it's easy to fit different schools against one another, but I think that students if they're interested in a program, if they see a program as a successful, well-known, reputable program, apply and then compare the financial aid offer.
So it's easy to get hung up on the sticker price, but the scholarships often vary greatly as well.
- So Michael, I want to ask you give us three tips about how-- because often people come into this without this talk about talking to a financial advisor most kids are not in the families who need this are not talking to a financial advisor. They're in it, right? They've already taken on the debt, and the people who are about to have to start repaying again. What would you prioritize in terms of dealing with this kind of debt and also how much debt one should take on.
MICHAEL LIERSCH: So the first thing I would do is go to studentaid.gov. It literally has all the information one would need to consider whether they want to take on debt, including if you take on debt, there's required financial counseling ahead of time that describes interest rates to you all the way to if you already have that debt your repayment options and there are income-driven repayment plans for example, a new one called Save S-A-V-E that actually may lower your payment. So, really, the first tip go to studentaid.gov and see what your options are.
The second one is when you think of what your minimum payment is going to be potentially if you're starting to take on that debt or after you've taken it on, really find that out very discreetly what is that minimum payment you are going to have and compare that to the potential salary or the salary you have and say, is there a match or a mismatch. And a third tip or a category, which is what are my essential needs with respect to my income? Where do I need to pay for things?
So we talked about a mortgage. We talked about rent. We talked about dependents, family members that are depending on us to feed them, versus what's more discretionary. And when we think about things that are discretionary, I think a lot of times, human beings confuse essential and discretionary items. And so, with those discretionary items, how do we become much more intentional?
JULIE HYMAN: And Linda, just really quickly here, what changes do we need to see in this system?
LINDA NICHOLAS: Oh, my goodness, well, thankfully--
JULIE HYMAN: Sorry, we don't have a lot of time. We don't have a lot yet.
LINDA NICHOLAS: The FAFSA is experiencing this overhaul and simplification for the upcoming academic year, which we're really all excited to see how that reshapes the college financing landscape. So I think that's great. Anyone who's ever taken out a student loan knows that the system is Byzantine and complex, and we could definitely use some improvement there to help students navigate what's already a fraught process. So I'm hopeful we'll see more changes to come.
- All right, great. To put a pin in it, yes, very succinct. All right, thank you, Linda Nicholas from NYU and Michael Liersch from Wells Fargo. We appreciate both of you.
