Episode 36: Student Debt and Financial Planning

We are joined by Dr. Roger LaMarca, SUU's Executive Director of Enrollment Management, to discuss the risk-return ratio of student debt and ways to mitigate debt while getting an education.

Full Transcript

Steve Meredith: Hi again everyone, and welcome to Solutions for Higher Education, a podcast featuring Scott L Wyatt, the president of Southern Utah University in Cedar City, Utah. I'm your host, Steve Meredith, and joining me, as he always does, is President Wyatt. Hi, Scott.

Scott Wyatt: Hello, Steve. It's great to be here today.

Meredith: Good to see you. And today, we're going to talk about something that is both frightening, maybe important, but certainly, it's a part of every discussion that we have in higher education, and that is, "How do students pay for it?" And more often than not, that involves some level of student debt, and that's what we're going to talk about today. Student debt and whether or not there's a good risk-return ratio there. And we have an expert with us in the room to help us through that discussion. Why don't you introduce him?

Wyatt: Thank you very much. Yes, we have Dr. Roger LaMarca. Welcome, Roger.

Dr. Roger LaMarca: Thank you, President, it's a pleasure to be here.

Wyatt: You are our Executive Director of Enrollment Management here at Southern Utah University, right?

LaMarca: That is correct, yes.

Wyatt: So, on a daily basis or something like that, you're talking to students about starting school or getting back into school, how they're going to afford it, kind of ideas about debt, whether that's worth it or not.

LaMarca: Yeah, that's one of the most important questions a student asks us, and like you said, we have the opportunity to talk to students every day. We talk to traditional students who are coming straight out of high school, as well as we talk to a lot of non-traditional students who are thinking about coming back to SUU and finishing their degrees or earning graduate degrees. And the cost is always one of the major concerns. "How much is this going to cost me? How am I going to afford it when I'm' done? What are my options for paying for it? What can we do in order to keep the cost low?" And so, it's most likely the #1 concern that students have as they are looking at coming back to school.

Wyatt: It's one of those industries, higher education, that is labor-intensive. So, it costs money to do it.

LaMarca: Absolutely. And when you get some of these amazing faculty that we have here on campus, we have to be able to attract and bring in the best faculty that we can, and they're spending a lot of one-on-one time with students. They're talking to them in their classrooms, they're meeting with them after class, they're creating their assignments, they're working with them and getting feedback, and that development that takes place in an educational process, it takes a lot of time and a lot of effort and to have these high-quality faculty and these great facilities and these opportunities that we provide for students, it does have a high cost associated with it.

Wyatt: So, Steve, I…do you know the amount of debt nation-wide total?

Meredith: I think it's about 1.5 trillion dollars.

Wyatt: That sounds so big.

Meredith: Yep.

Wyatt: Of course, it is a big country. [Laughs]

Meredith: Well, that's right. And lots of college students.

Wyatt: And if you knew the total debt for cars, it's a big number too I'd guess.

Meredith: Right. And housing and so forth, sure.

Wyatt: And housing. Well, taking that big number down though, what is the average…Roger, what is the average student loan debt for a person in the United States?

LaMarca: So, right now the average is about $37,000 for a student graduating. And so, they go into the workforce with about $37,000 in debt today.

Wyatt: We're fortunate in Utah, though.

LaMarca: We really are.

Wyatt: It's…our Utah Legislature has invested more money in education. We have…we actually have the fourth lowest tuition, in Utah, of all of the states in the country. And when you look at tuition as a ratio of household income, Utah has the second lowest. So, when we say we're the fourth least expensive tuition, someone might say, "Yeah, but what's the ability to pay?" And when you compare it to household income, we're even better—second lowest. And that translates into lower debt for students in Utah than it would nationally. And it actually translates even lower at Southern Utah University than the average in Utah. Why don't you help us with some of these numbers?

LaMarca: Yeah, so as I mentioned, national average is around $37,000, however, when you look at the state of Utah, we are the number one in the country with an average student debt of $18,425.

Wyatt: Lowest state in the country?

LaMarca: Lowest state in the country, and we're about half of the national average. Actually, less than half than the national average. So, we're doing, like you said, our Legislature is investing so much money and so much effort into making this education affordable that Utah is doing a great job.

Wyatt: And then, what is the average debt for a student that graduates from Southern Utah University?

LaMarca: So, we're very proud of that number because we're actually lower than the Utah average, which is $16,824. So, students how come to SUU are actually getting one of the lowest in the state, which…of a state that is the lowest of the nation. So, it's one of the lowest debt for students when they graduate anywhere in the country.

Wyatt: And most students are able to get through school without any debt.

LaMarca: Yeah.

Wyatt: So, like 39% in Utah, something like that, is that the right number?

LaMarca: Yeah, 38% of students in the state of Utah graduate with debt, but what's really interesting is the opposite of that. Which means that 61% of students graduate without debt. And that's a very exciting number.

Wyatt: But those that do graduate with debt, it's only $16,000 to help them through what could be a four-year degree but for many students, they spend five years or so getting through it. We actually had an analysis of this done. So, you know, when you take the trillions of dollars that you were talking about and then you bring it down to the states and then to the individual, all of the sudden, the debt doesn't seem quite as bad. In fact, $16,000 is pretty good. But then, when you look at it in terms of the ability to pay it back, there's an organization called LendEDU and they rank schools. And LendEDU takes the ratio of the early income—average income—of the students that graduate from each school and the average debt of those that graduated from each school and then make that a ratio and rank all of the schools across the country. And Southern Utah University…the debt and early income salary puts us in the top 10% of all the schools that they rank. That's not a bad deal.

LaMarca: No, that's a wonderful deal because it means that our students are graduating with a low amount of debt and then they're going into the workforce and making money and having good careers. And that's what we hope that this education can help these students do is build a career for themselves long-term and open up opportunities for them to support their families and live the lifestyles that they like. And being ranked in the top 10% is a very exciting number.

Wyatt: We actually had somebody in our engineering school do an analysis of this, and so, what he did was he took the average high school graduate salary…so, assume the person graduates from high school and goes right out into the workforce—what is the average salary that that person can expect in year one, year two, year three, on through their career? And then took that same person going to college and assuming that for four years, that person makes nothing and borrows all of the cost of going to school. How many years does it take to pay off that debt and have the income—from going to school after paying off the debt—equal and then expand beyond just graduating from high school? Is that clear enough?

LaMarca: Yeah.

Wyatt: Did I say that clearly?

Meredith: Yeah. [All laugh] Makes sense to me.

Wyatt: "When is the investment paid off and I'm not earning more money than if I'd have just went out and got a job after high school?" Seven years.

LaMarca: Wow.

Wyatt: I know people that borrow that much money for a car.

Meredith: Yeah.

Wyatt: Like a six-year car loan. And at the end of the six years, they have a six-year-old car. But, if you have no other way of paying for college and borrow the money and assume that it's going to be paid back in about seven years, then you can go buy a lot of cars. [Laughs]

LaMarca: What a great investment. I mean, if you think about seven years to then be able to live the rest of your life and have that better lifestyle and that better situation for your family, what a great opportunity. That's amazing.

Wyatt: Now, I do hear horror stories about people with student loan debts, so, we're talking about averages. And I know people that go to law school or go to medical school and graduate with $100,000 or $200,000. Some of these specialized programs and I think that…or go to an expensive private school. There's a lot of schools where the tuition for one year is $50,000 plus expensive housing. And you know, a few graduate with a degree in…pick my degree, philosophy.

Meredith: OK.

Wyatt: I have two degrees, two bachelor's degrees, two bachelor majors, but graduated with philosophy. If you get that from a really expensive school, you could graduate with $200,000 worth of debt and then…

Meredith: And the degree in philosophy.

Wyatt: And a degree in philosophy. Which for me, prepared me very well for graduate school. But, if a person doesn't have a clear path as to where they're going, then that would be scary.

LaMarca: Yeah. And one of the things that we know to be true is that students often don't know what they want to do with their careers when they start college, and so one of the best things that they can do is 1) choose a school that's going to give them opportunities to learn and grow and figure out what they like 2) spend some time in high school or while you're in college taking a lot of different avenues, researching a lot of different strategies, finding one that works for you. But in the end, like you said, it prepared you for graduate school and gave you opportunities to go and do other great things. And so, even though you may not know right at the beginning, fi you take that time and you learn, and you work through that process, it will prepare you for those next processes and get you ready to take on great careers and great opportunities. And with a student debt loan average for $16,000, we're only talking a few thousand dollars a year for these students to be able to learn and grow and develop and get their education and prepare themselves for graduate school. And like you said, it pays off in seven years. So, what a great investment and what a good turnaround.

Wyatt: Yeah. And a lot of times, student loans…I know when I've had some student loan debt when I graduated forever ago, it was like amortized over ten years. So, $16,000 paid out over ten years at a very low interest rate while you're making a lot more money than you would have otherwise, that's really not too bad.

LaMarca: No, it's really not. And one of the things, too. You mentioned that there are universities where you might graduate with $100,000 or $200,000 in debt, and when you start calculating that payment, you're thinking, "Wow, that's beyond what anybody could afford." But one of the things to keep in mind is that there are options for these students. And so, we hear these horror stories, we hear these students who can't afford to pay their student debt, but one of the things that they need to know is that there are options. If they speak to their lenders, there are probably income-based payment plans that can reduce their costs and make sure that they're not being overburdened. If they work for government entities, there's opportunities for loan forgiveness. If they work for special agencies, there's loan forgiveness. There's a number of businesses today that are offering tuition reimbursement and opportunities to pay for their classes and their education while they're working and sometimes even after they're done, especially for graduate programs. We talk to a lot of graduate students who are recently graduated, started their first career, and now, they're working for somebody who's willing to pay for their master's degree. And so, that creates a lot of opportunities for that as well. So, there's great opportunities out there. If you have one of these horror stories, make some phone calls, look at some options, find some resources for you, and SUU is here to help. We talk to so many students about their options and what they can do to make sure that they're not ending up as one of these horror stories.

Wyatt: Yeah, well, and I…the horror story piece reminds me of when I went to law school. Which was a long time ago, Steve.

Meredith: Yeah.

Wyatt: We're about the same age.

Meredith: Why do you always drag me into these, "That was a long time ago" conversations? That's what I want to know. [Laughs]

Wyatt: We're kind of about the same age.

Meredith: Everybody doesn't have to know that all the time. Yes, I am a little older than you.

Wyatt: Well, you know, if they were here, what they would see…

Meredith: [Laughs]

Wyatt: I mean, if somebody was in the room, not just listening to us, what they would see is Roger LaMarca with very colorful hair.

Meredith: Right. He is demonstrably younger.

Wyatt: Yeah, I mean, the hair's got the color that one would expect hair to have.

Meredith: That's right.

Wyatt: You and I? It's kind of an arctic platinum.

Meredith: Yep. That's a very artistic way, yeah.

Wyatt: Yeah, I like that. Arctic platinum. Anyway, the hair that's still there for me anyway is arctic platinum.

Meredith: [Laughs]

Wyatt: But, I remember going to law school and graduating with a little bit of debt and I had a friend that went to an Ivy League law school and graduated with a lot of debt. And he was really proud to have been admitted and have that degree. But when I was on my…he was like three years ahead of me, so he was out of law school or getting close to coming out of law school at the time that I was starting, and he said to me—and I was going to the University of Utah which is a state school and much less expensive, so much, much less debt—and he said to me that, I would have far more options after graduation than he would graduating from Harvard for one simple reason. And that is that his debt was so high, that he had to work in a big firm in the big city to make enough money to pay his debt back, whereas I was able to choose a whole variety of places. A lot of students that I graduated with went and worked with really big firms in big cities and made a lot of money and some of them worked in mid-sized firms, and some, like me, went to a small town and worked in a firm of three guys. And he pointed out what was kind of obvious, and that is, you go to a very expensive school and get a lot of debt and your options are limited because you have to make a lot of money. And if you can't make it, then you're in trouble. But I had a lot of options for me. So, this might sound slightly self-serving, maybe I intend it to sound that way, but when a person goes to college, they…unless they've got somebody that's giving them the money to go, it's always helpful to think, "Well, what school is affordable?" And "Where can I go that won't get too much debt but will also give me a ton of opportunities?" And like this LendEDU shows, SUU is a fantastic bargain.

LaMarca: It is and let me share some interesting data in line with what you're saying here. 44% of college students say that they had to cut back in living expenses. So, when they're graduated, they're saying they had to cut back with living expenses 44%. 28% said they had to put of major goals, like buying a house, 37% said that they had to put off saving for retirement. And so, it's exactly that. If you're taking out these huge amounts of loans and you're paying for these very expensive educations, it's going to delay your ability to do other things. But, like the research shows, SUU has one of the lowest in the country, Utah has one of the lowest in the country, and that just creates more opportunities for our students once they're done to go and do more because they have less debt to deal with.

Wyatt: So, if part of your strategy is to borrow some money to get through school, that's a great investment, so long as the student chooses a school where the debt isn't outrageous. And the debt at places like Southern Utah University, and many of our peer-institutions that are regional, public universities where the tax payers and state legislatures are supporting the school, those are great investments.

LaMarca: They really are, and it's such a great opportunity. Not only to experience a lower cost education, but to see what these kids do on campus and to see the experiences they have and the interactions they have with the faculty and the study abroad programs and all the other things they can do and yet we're doing it with one of the lowest costs in the country. It's amazing.

Wyatt: Yeah, the most recent data that we have is that a student…the average person who graduates from college with a bachelor's degree will make more than a million dollars over her life or his life than a person who starts working right out of high school.

Meredith: A million dollars more, right?

Wyatt: A million dollars more, yeah. A million dollars more than if that person had just graduated from high school and got a job. $16,000 is an investment to make a million dollars more.

LaMarca: What a great return.

Wyatt: That is…there's a lot of people that would throw that investment and say this is a great deal.

Meredith: Yeah. Roger and I were talking about this earlier today, and we don't usually mention third-party organizations here, but I thought…there's a series of articles in Consumer Reports Magazine about this very issue and they have a particular article called "The Money Talk." What are ten questions that students and their parents—whoever is going to be responsible for paying—should ask before they go to a university. And I recommend that article. It's well-written, it's well-researched, but it essentially says this same thing. It can be a really good way to pay yourself so that you can go through school, just don't overdo it. Weigh the likelihood of being able to pay it back before you go into it.

Wyatt: Well, and then when you're borrowing, remember you're borrowing money.

Meredith: Yeah.

LaMarca: That's right.

Wyatt: So, Roger, one of those numbers you threw out was that student's standard of living went down.

LaMarca: Yeah, amazing. 44% said that their standard of living went down after graduation.

Wyatt: What that means is that they were eating too many pizzas during college on student loan debt.

LaMarca: Not enough Ramen.

Meredith: Now they're doing Ramen.

LaMarca: That's right. [All laugh]

Wyatt: High-priced. So, those students were apparently spending more money than what they should have spent, and they were using their loans to do that.

LaMarca: Yeah, and…

Wyatt: If you can just manage yourself and be careful, then the student loan debt would even be less.

LaMarca: And that's an important piece. If you take, for example, the average graduate debt, it's $57,000, it's very, very high. And so, students have access to a lot of money if they choose to. And they can, they can potentially borrow a lot more than they need and then end up owing a lot more when they're done. Luckily, our programs here at SUU are quite a bit less than they, they are only around $15,000 to $20,000 for our graduate programs depending on the program, and so, our students should be graduating with a lot less. But, if  a student wanted to, they could borrow way more than they needed, live way high on the hog for a few years, and then spend a long time paying it back.

Meredith: That's right.

Wyatt: [Laughs]

LaMarca: So, be careful and make good financial decisions.

Wyatt: Yeah. Sounds good. I remember when I graduated, my standard of living didn't go down, but I felt like it should go up and didn't go up as fast as I wanted it to. [All laugh]

LaMarca: There may be one or two other college students out there who felt that way.

Meredith: Right.

Wyatt: We want what our parents had.

LaMarca: Yeah.

Wyatt: Instantly. And it just takes a little time.

LaMarca: It does.

Wyatt: Invest in ourselves. It's the greatest investment we can make.

LaMarca: Absolutely.

Wyatt: And do it smart.

LaMarca: Yeah.

Meredith: You've been listening to Solutions for Higher Education, a podcast featuring Scott L Wyatt, the president of Southern Utah University in Cedar City, Utah. We have had Dr. Roger LaMarca as our in-studio guest today, and today's talk has been about student debt. We are delighted that Roger joined us, we're delighted that you joined us. Thanks again for listening, we'll be back again soon. Bye bye.