Simpler, Smarter Student Loans

hi its Jill Schlesinger on today’s
episode we are talking about borrowing for college fundamentally structurally
speaking the system is in fact broken and so the question then becomes okay
well what do you do about it I think there are a few different
constituents that really matter here one remains the federal government one is
the private sector and then the the borrower themselves
welcome to the Jill on Money podcast we are presented by Marcus by Goldman Sachs
well you know it is coming up to a big deadline the deadline when families have
to determine which college and more importantly which colleges financial aid
package is best for them we’ve got two fantastic guests we’ve got David Klein
and Kelly peeler from common bond and they are gonna help us navigate a
treacherous landscape where it’s very difficult to determine what’s a grant
what’s alone what’s subsidized what’s not how much am I paying this is such an
important topic for both the young folks who are listening but also their parents
and grandparents so here is our deep dive into student loans with Kelly
peeler and David Klein you’re listening to Jill on money with Jill Schlesinger
Kelly peeler back on the show very exciting but now you’ve got a new title
and you’ve got some big news for us but you are here to talk about the college
loan financing prospect for all these families who are facing that is it a May
1st deadline essentially for most colleges yes so April 1st was was when
kind of like yeah oh my goodness I got into all my dream colleges that I wanted
to and and a lot of colleges because they want you to enroll will set
deadlines pretty early so they kind of only gave you like around a month
depending on the college so May 1st yes so if you’ve never heard me interviewed
Kelly before shame on you but let’s do a little bit of your background so Kelly
you went to college and then you were studying bubbles right right fine yeah I
studied the history of financial crisis during the housing crisis which was
interesting to say the least his lifetime lifetime and then you stumbled
upon the idea that potentially the next big crisis could be the student loan
crisis right yeah I worked at JPMorgan covering financial institutions and was
asked to make hundred to two hundred million dollar cross asset allocation
investment portfolios with a few clients who were interested in trying to short
the student loan market and that’s when I really started digging into the 1.5
trillion dollar student loan market that affects 44 million Americans and was
like oh wow this feels like a lot very similar to the housing crisis a lot of
similar leading indicators a lot of very confusing paperwork loans that have no
downward pricing pressure because they’re coming from the federal
government and really most importantly a change in consumer identity so people
right now think that to be an American and to have success is to go to college
similar to post housing crisis was to to be an American was own two or three
homes and so that’s when I was like wait a second I really want to try to think
about redesigning this entire process for the now 70 million people who are
considered Gen Z or the next wave of Millennials and and make it more
transparent and trusted and so you created a company called next gen vest
yep and the core concept that was underlying that was that you were or one
of was that you matched students with money mentors you know who are the money
mentors money mentors are trained college students so they themselves have
had loans they’ve probably done work study and they were looking for a way to
both help other students get trained so they’re probably interested in going to
financial services and make some money on this side and so we train money
mentors we put them through a whole training program and what they do is
they talk and coach students anywhere from 17 years old to kind of freshman
sophomore in college through the whole process so anything from finding
scholarships filling out the FAFSA negotiating their college tuition
understanding their financial aid packages picking the cheapest meal plan
and really kind of in a way that’s relatable to an 18 year old kid our
whole platform is over text message so you can get help at 11 p.m. on a Sunday
from someone who’s kind of like you and who’s been there before interesting that
you have younger people talking to younger people with that part of the
thesis here that you you know an old fart like me saying like did that sound
it’s better coming from someone who’s closer in age totally I mean this gen Z
or this the next wave of Millennials so these are the people who are spending
two hours a day on snapchat okay and how old are they right now those anywhere
from their teenagers teenagers and you know into college right now okay these
are it is totally talk different than you are I I’m a millennial so even
different than I am ever so early I basically feel like I could be your
mother so those kids they communicate differently yeah they love text they
love text they love memes they like emojis they like gifts they like putting
filters on everything and so money and especially student loans is really
really stressful time period for an 18 year old I mean they’re basically buying
a house right they’re signing up to buy a house $200,000 to go to college and
they’re doing it with not a ton of guidance they’re doing it where their
source of truth is potentially their parents who could the cost of college
was totally different for parents so they’re not really totally knowledgeable
of how this goes maybe their college counselor who is trying to help five
hundred other kids mhm or trying to Google and read crappy blogs alright so
what we found in kind of our key insight was is that stressful money topics have
to be discussed or made more transparent by someone who you trust and that
happens to be for our user which are you know an 18 19 year-old kid someone who’s
already been there if someone who’s gone through the process and who has been
trained who can also talk to you in a relatable way and using a money mentor
was a free service right yeah just explain this before we get into like
what your next phase has been because that was free how can you provide such a
service for free or how were you able to the short answer is that
our broader vision was to really think about how do we redesign the whole
process of student loans so whether that was making our own loans at some time
maybe that was introducing a subscription service but we found a
partner and common bond that we really aligned with our broader mission and
vision who acquired us which was really exciting for our team so that we could
continue to offer the service for free and not be pressured to do anything that
would be against the actual interests of our end user and is it money
or yep it’s money – mentor com money – yeah okay and so how have
people stumbled upon you do you go and talk to guidance counselors or how do
you get the word out yes yes we do yes we go into high schools and do workshops
for free if you’re a parent or a student at you know a thousand person high
school we will come in and help your college counselor will host FAFSA nights
will host how to negotiate your tuition nights and then we’ll sign people up for
money mentors if they want additional help so a few weeks ago I did a segment
about college and student loans and we found this woman who had graduated
undergrad with pretty reasonable debt maybe say ten thousand bucks okay but it
was she was very interested in art history she really wanted to be like a
museum curator yeah she then went to grad school went downhill from there
anyway she ends up with a wonderful master’s from a nice school and about
let’s say 60 grand in debt when she got out of that program she could get a job
mm-hmm that actually paid $11 an hour Wow okay
so she which I’m also not surprised I know right it’s so hard yeah so now she
gets out of school she takes her $11 job she’s living in New York trying to like
great arts community right it was bad yeah so anyway long story
short is that flash-forward she ends up with paying 20 something thousand
dollars down on this debt and still has an outstanding loan balance now if 65 67
thousand dollars she went back and got a certificate in coding hmm moved back to
North Carolina got a great job yeah and tackling the debt good for her okay so
now we come out we doing that we’ve done the segment and I given my advice and so
I said well you know obviously we would like to have different conversations
before she assumed that that’d be great if she could have figured out that there
are actually no jobs in that industry and that they pay really crappy and yeah
this stuff right and then we were talking about broader advice and I
talked about negotiating yeah with schools right I got a very interesting
email from someone who said stop perpetuating the myth
this is she’s I work in college admissions yeah and she said and we
don’t negotiate ever and I said that maybe and so I wrote her back very nice
it may be true at your school yeah I know countless instances yeah of
negotiating yeah can you back me up on that 100% and we help students in the
past year and a half negotiate over three hundred thousand dollars in
tuition costs sometimes it is which doesn’t apply to every college for sure
right of course but like there’s some times where you say hey I got this offer
from this college and they’re giving me a $25,000 a year free money right a
grant grant and we’ll talk or merit scholarship or so scholarship right now
can you do something yeah and sometimes they say no but as you said sometimes
they say it’s like asking for you know raising your salary sometimes your boss
says no but it’s worth asking so one of the reasons that I wanted to bring you
in is that when I saw you recently because I was on the common bond campus
I like knowing at a campus it makes it sound bigger all right office I was in
the common bond office Hawk in my book that’s what I was really doing Kelly was
nice enough to sort of say hey come talk about your book at our company and as I
was there you put in front of me three different letters from three different
institutions to the same person right yes okay and so same same student and
what you were showing me was how different award letters can look
and I found this fascinating because all right so let’s go through and let’s just
say what an award letter is okay so good even that is a little bit misleading so
when you get into college yay celebration I got in then you get
your financial aid package so that’s basically your bill however colleges
deem this as your financial aid award letter which sounds like you’re getting
a prize but it’s basically your bill it’s it’s a breakdown of the cost of
tuition and then also like what you might get with scholarships grants and
different loans which are somehow bucketed in there and sometimes subtract
it from the total cost but it is what we’re looking at is one students options
or bills to go to three different colleges and they’re called financial
aid award all right so I’m just gonna pick let’s just pick this one we won’t
say what university is yeah all right so now we’re looking at let’s call what’s
amadee you and pop tuition and fees yep 38,000 868 mm-hmm room and board
fifteen grand total $54,000 and then of course by the way they say indirect
costs not reflected on bill books and supplies transportation miscellaneous
miscellaneous the Missal and by the way this is it’s such a low number it’s
ridiculous it is there’s no way that that’s the number okay so now let’s go
down and now we have the total estimated cost of attendance both direct and
indirect they say it’s 56 grand and it says your financial aid package is based
on this figure here is the financial aid award package and there are two
semesters there’s fall there spring which let me just point out this is only
for one year so most students go to college for four call it five years on
average they might do an extra year right so you’re you’re only getting a
bill for one year and the reason why I say that’s important is because the cost
of higher education has consistently gone up tuition prices have consistently
gone up every year for the past 30 years so it’s really hard to plan ahead and
make a decision if you’re only seeing the cost for one year okay so there’s a
lot of stuff in here right we have the Dean scholarship
which I guess is a scholarship meaning that you get it that’s your money and
it’s not taxable and that’s that yes not a scholarship plain old scholarship you
don’t know about and then you got another thing that’s an award which is
also don’t have to pay about don’t have to pay it back
yep then there’s a space and doesn’t say anything else here just a space
subsidized Stafford loan 1750 unsubsidized Stafford loan a thousand
federal work-study a thousand and then federal Parent PLUS loan and then you
you look down and if you don’t read this carefully and we don’t decipher all of
this hmm we see 28,000 291 is what you think you’re getting yep so the total
that’s like the total line that’s the total line for this semester and then
the same for the second semester and there’s the total which miraculously is
56 thousand dollars okay so right but what’s interesting is when you look at
that when you look at this first glance what’s happening is 11 12 13 14 so
there’s basically 15 about half of what they say is your reward per semester is
in fact alone yeah and the other half is in fact a scholarship yep you know just
walked in David David Klein hold on a second hold on pick up that microphone
where the hell have you been courtesy of the New York City MTA system
I’m 15 minutes late to this podcast just calm down
take a breath take some water we’ll do a proper intro in a second all right okay
all right so now half of this scholarship half of this is loan so a
couple things that could pop out for me that’s not clear mm-hmm it is really not
it’s true that it is it says loan loan work study and then loan but there’s no
interest rate there and there’s no term right and there doesn’t say there’s
nothing that says hey if this is gonna be paid back in ten years and this is
what your monthly amount you’ll be when you graduate right all that we have at
the loan eligibility and they have like little loan stuff here with nothing I
accept I reject right so you’ve literally click
a button that’s like except without knowing interest rate without knowing
monthly payment afterwards without really knowing the terms I find this
mind-blowing mm-hmm why so one of the things you pointed out to me when we
first met a few years ago maybe a longer than that but it’s been a while we’ve
known each other was that there was no standard format
yes for reporting this why not just because it’s not mandated by the
Department of Education so every college has their own little financial not
little sometimes massive financial aid office and they determine how they want
to communicate with students about their own financial aid process so all the
letters aren’t even sent out on the same day so what happens a lot of times is
that parents if you have divorced parents one parent might get one letter
another pair might get another letter you put them under their bed you lose
the letters you don’t know how where all these things are they’re in different
formats so kind of long story short this is a very confusing and opaque process
so what should this kid do right now yeah great question so well we’ve
actually introduced to help students solve this problem is the first major
problem which is let’s actually compare your options apples to apples so right
now you’re looking at like apples oranges Tomatoes you’re looking at
different ways of evaluating each different opportunity that you might
have and so what we do is a student can text us these award letters and we will
put them in an apples-to-apples comparison so that they actually see
okay for across all of my colleges how much am i taking out in total loans how
much I’m getting in total scholarships what will be my work city across all of
them so we lay it out really clearly so that they can say literally what do I
have to pay and what do I have to oh we’ll be right back to talk more about
the student loan crisis in the United States after this quick break
this is chill on money hi I’m Jill Schlesinger host of the Jill on money
podcast I’m also a certified financial planner and a CBS News business analyst
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Goldman Sachs Bank USA member FDIC and now we’re back with Kelly peeler and
David Clyde they’re from common bond and we’re talking about the student loan
crisis in America let’s bring in David Klein now David hello the tardy David
welcome to the broadcast Center here in CBS you must live in some far away place
you just look so mt8 it’s this far out borough called Brooklyn don’t go there
so now Kelley has identified this great program that is essentially helping kids
with these decisions today and David you are the CEO of common bond which
acquired Kelley’s company but first of all what is your background why did you
get into this let’s talk about like what’s the mission of common bond why
the hell did you get into this paper the mission of common bond is to lower the
cost of higher education in the US and the reason I got into the business is
very personal I went back to business school I didn’t pay my way a hundred
percent with student loans and my options at the time really stunk the
rates were unnecessarily high to Kelley’s point the process
was complex as well as the Kelly’s point the service was really poor my ability
to just understand my options to pay for school were very limited and I pretty
much had to create that system for myself and I realize other people were
just like that and I thought you know there’s got to be a better way and I
went back to business school with the express purpose of starting a company
and running it before graduating I come from a family of entrepreneurs I always
knew that’s what I wanted to do and so there was this perfect storm of the
personal pain point needing to borrow to go to school and it was a stinky process
what do you mean what these entrepreneurial family members of yours
couldn’t afford your education they wanted you to sink or swing on swim on
your own you know I got some loans in undergrad but they were clear they would
help out during undergrad and that for grad school I I’d be on my own you know
I I feel in retrospect blessed that that was the case had it not been the case I
wouldn’t have felt the the pain associated with student debt in the u.s.
right now and wouldn’t have gone on this journey of starting comments just to
just to interrupt David David actually negotiated his own
undergraduate tuition really I did tell us that story so you know tuition is
very expensive even 20 years ago it was it was expensive not as expensive as it
was today but still expensive I got some student loans at the time to cover some
of the difference my parents helped out some I did work study and to Kelly’s
point I decided to negotiate my tuition my junior year and the reason I wanted
to negotiate my tuition is because one it was very high
two I had spent two years on campus being what I would call a good corporate
citizen I was in student government unity member a community member I think
we say corporate citizen I guess we didn’t call it that yeah a very strong
and active community did you play well as the it was the Northeast so crew I
can’t you can’t tell right now you’re looking you’re looking at somebody who’s
who’s 20 pounds lighter than he wants all right all right no one quite gets a
coxswain maybe now is growing I was wrong I was recruited to
row really I said no I said is that that sport where everybody is basically the
same and there were no stars they said yes I said how much did you get in
reduction of your operation what I remember is about $20,000 holy smokes
that’s amazing that’s I mean over two years yeah but that’s incredible and the
interesting thing about David’s story is that I’ve actively been trying to tell
people hey at least try to negotiate your tuition we can help you other
people can help you of course like you mentioned earlier in the show a
university can say no but the kind of primetime that we focus is when you’ve
gotten your first offers when you’re about to go to college what Deva did is
is I think a really important thing to note is that you kind of always can be
negotiating and pushing back on the price of tuition
alright so David there is a trillion and a half dollars of student loan debt and
if I go to common bond hold on I have it right here on my handy-dandy computer
you have a lot of different loans and opportunities to refinance so let’s talk
about the the refinancing first a lot of people will ask me I just spoke to
somebody about this and they said I have fifty five thousand dollars in
outstanding student loan debt it’s five and a quarter percent over the last year
I’ve made the little bit more than the minimum payment and my outstanding
balance went up by a thousand dollars so it seems to me that we’re doing a pretty
good job explaining to people how to pay down loans how does common bond approach
the refinancing process sure what we do is we say hey most of you have a federal
government loan that federal government loan comes with effectively one interest
rate no matter your credit no matter your future prospects and so it’s a
highly inefficient pricing scheme and so what we do is we take a look at every
individual borrower we collect all of their data we underwrite past credit
future prospects and then we provide a lower rate for those who are eligible
and so when we provide that lower rate we’re saving people many times hundreds
of dollars every month thousands tens of thousands over time so when you do that
just we’re clear you then do not have the
ability to use some of the government’s products like the public school loan
forgiveness program you forego that and you also forego their income based
repayment right right so there are certain we’re very clear about this with
our borrowers and our applicants from the very start we say if you have a
federal government loan it comes with certain protections that only the
federal government can offer like income based repayment where you pay no more
than ten to fifteen percent of your income on an even die with that loan
ladies and gentlemen yeah and what people don’t tell you actually is
whatever benefit you do get in that program or public service loan
forgiveness if your loan is forgiven after 10 years in the public sector you
actually get taxed on all of the benefit that was forgiven so if you have a
hundred thousand dollar loan and all of its forgiven your tax that you’re then
ordinary income tax bracket Oh in one fell swoop
mm-hmm interesting I didn’t know that yes not a lot of people do but we’re
very clear that because for some people income based repayment or public service
loan forgiveness even with the tax treatment is still better and so we’re
very clear about that it just so happens there are a lot of people who don’t need
that and instead can save a lot of money in return and so we help those people
out so Kelly talk about this in terms of the money Mentor Program as well like
how do you wrap in the idea upfront mm-hmm about how the debt that you are
assuming could limit your options in the future how do your money mentors talk
about that it is within our best interest and
common bonds best interests to ultimately make people more creditworthy
right so if you have if we can help a student negotiate their tuition they’ll
theoretically have lower loans which means that they might be able to
refinance later on or be a better credit later on because they’re doing something
like taking a job or improving their credit score as opposed to worrying
about their undergraduate student loans David when you look at this trillion and
a half dollars what could be done realistically not with Betsy DeVos as
Secretary of Education okay but in a perfect world what would happen with the
federal student loan program to make it operate more more feasibly like in the
healthy way that is probably a more complex question than
you might fully appreciate when I hear that question I think it has to do with
one just the structural elements of student loan program in the United
States right now the fact that the federal government represents over
ninety percent of all student debt a lot of the pipes underneath the surface a
lot of technology underneath the service and the service seen underneath the
program is all farmed out to a bunch of vendors who don’t exactly have the best
history of putting a customer’s interest first to be fair to them as well they’re
working within a context and operating sphere that is highly constrained and so
that’s where you get a lot of these headline issues of customers not being
treated right it’s because fundamentally structurally speaking the system is in
fact broken and so the question then becomes okay well what do you do about
it I think there are a few different constituents that really matter here one
remains federal government one is the private sector private sector in two
forms one private sector to offer better products and services and to private
sector employers of many people in this country who have student debt there’s
something for both to do and then the the borrower themselves I think
everybody has a role to play I’ll just give you one example of something we’re
not doing today but could there is a bill in the house right now in a
companion bill in the Senate that would allow any company to pay down their
employees student debt tax-free for the company and for the employee I love that
I do too it’s a no-brainer it’s a no-brainer and you actually have
a hundred and fifteen co-sponsors in the house from both sides of the aisle you
have twenty co-sponsors in the Senate from both sides of the aisle you know
it’s no secret that it’s difficult to get things passed in DC even when it is
a political and economic no-brainer but we are active right now in DC with folks
on the hill as well as the executive branch to try and get something done to
allow for employers to play a role in lowering the student debt burden in the
United States and to do it in a way that’s tax advantaged so that not only
does the company benefit from a common story perspective but the employee
benefits because they’re not paying ordinary income tax on the benefit
they’re getting they’re paying down their loan two years faster on average
and saving about ten thousand dollars that’s awesome I think you can sign a
petition right yeah so right now we have an active
campaign it’s called debt-free tax free and if
you sign the petition which basically says hey I support the bills in the
Congress right now to enable beneficial tax treatment for employer contribution
to employees we in the summer are going to go to the hill and hand-deliver all
of those signatures to the influential folks on the hill who can make something
happen Kelly the fastest-growing segment of
student loan borrowers are over the age of 60 so I know they don’t have the
total the raw dollars aren’t as big but they are the fastest-growing talked a
little bit about these PLUS loans how should families be approaching this yeah
so Parent PLUS loans are for parents on behalf of their student and you have to
have a good credit score so or at least a decent credit score and obviously that
kind of changes over time but but yeah it’s more if you if you think about
loans in terms of expensive or being expensive it’s more expensive than the
subsidized and unsubsidized loans David do you actually allow for the
refinancing of parent loans as well we do and do you find that that’s a big
need I mean you’ve got a lot I guess you have a lot of competition for that
because parents have more access to the credit markets they do technically
speaking not many people though understand that they can refinance their
parent PLUS loans whose interest rates are insanely high so when we look at
what’s happening now are you feeling are you feeling good about this if I think
about it from the consumers perspective both at a macro level and a micro level
I’ll start micro first very personal we know that more people are taking on more
student debt what we also know increasingly especially given a fed
study that was released in q1 of this year is that that is starting to impact
individuals ability or willingness to do things like take out a mortgage and buy
a house or buy a car and so to the extent this student debt train isn’t
kind of taken control of in some capacity this will likely continue to
put stress on people on a micro level as well as continue to put stress on the
economy at a time out to a level it goes back to your other
question around what can we do about this one of the things that I addressed
in my answer had to do with the financing cost of education but the base
of everything is the actual cost of education and if you look at tuition
increases and you compare that to normal inflation it’s very different and even
when you compare it to inflation in things like healthcare it’s right up
there and in some years is actually growing faster than healthcare costs
this all has to end and they’re not gonna end well is it Kelly optimistic or
pessimistic right now but so I’m but I’m on a macro level pessimistic on a micro
level to David’s point on the user level I’m optimistic and the reason why I say
optimistic is because Gen Z our user so the next wave of Millennials are
starting to treat college like their consumers of a college education
experience and that’s very different than how millenials treated their
college experience which was to say great I got into Princeton have to go
now you see people taking gap years you see people negotiating their tuition
more that they’re treating it like it’s an actual service which it technically
is and of course you know that all these colleges could lower the cost of tuition
immediately just admit more people or like start your online division and
let’s move on like why are we making letting this whole thing get that get
out of control so I think part of what’s happening is that you have some colleges
and universities that charge a lot and the data will say it’s actually worth it
but then you have an another set of colleges and universities that charge a
lot and the data says it’s not worth it and so I think everybody can agree that
no one individual should be saddled with more debt than their life will allow
them to pay back and so the question is how do you prevent that from happening
and I think there are a few interesting things that that we can do it’s still in
conversational stages right now it leads to some pretty tough choices that people
including politicians are gonna have to make around given the number of colleges
and universities we have in this country is there okay if we have less over time
because if we go to a world where the school is held a little bit more account
how many people they not only graduate but get employed and are therefore
responsible for some of the delinquencies and defaults that happen
from their students when they’re not getting employed that likely leads to a
world in which some colleges and universities shut down that also leads
to a world in which maybe the number of people that are going to a four-year
college today shouldn’t be as high maybe vocational
school has a role in a larger role than it currently is what you’re saying
earlier before yeah and I think these are really interesting and important
conversations for us to have let’s have you guys come back when it is FAFSA
season yes we will be so happy if you just come back and keep educating us so
Kelly and David thank you so much for joining us thank you thank you to our
guests Kelly peeler and David Klein their
company is common bond and we’ll link to it on our show notes we drop new
episodes of Jill on money every Tuesday and Thursday if you have a financial
question we would love to hear from you the email address is ask Jill at Jill on and you can download and subscribe to
the show anywhere you get your podcasts Apple Google Play stitcher
wherever our music is composed by Joel Goodman mark D’Alessio is our executive
producer we’re distributed by cadence 13 and the
show is presented by Marcus by Goldman Sachs see you next week you

One comment on “Simpler, Smarter Student Loans”

  1. pratheep kumar says:

    Thanks helped 🙂

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