The Unlikely Group That Has the Power to Solve the Student Loan Debt Crisis

We’ve talked about the staggering figure before: Americans owe $1.2 trillion in student loans. But one of the most compelling facts about this bubble, a recent government report found, is that this crushing debt doesn’t just affect the young. Senior citizens are also saddled with this financial burden — but they may also be the remedy to this crisis.
According to a Government Accountability Office (GAO) report, the federal student loan debt for Americans 65 and older has continued to rise from $2.8 billion in 2005 to a whopping $18.2 billion in 2013. Due to (frankly unreasonable) interest rates, an increasing population of older Americans can’t make their loan repayments: 4 percent of seniors now have student loan debt compared to only 1 percent six years ago.
About 80 percent of these seniors hold debt from their own education (versus college loans taken out for a child). Take Rosemary Anderson of Watsonville, Calif. The 57-year-old tells the Associated Press that the $64,000 debt she amassed from her undergraduate and graduate studies in her 30s has more than doubled to $126,000. Even though she has worked all her life, she could be in her 80s by the time she pays it all off. Unfortunately, if she doesn’t make the payments, she might default or see her Social Security benefits garnished by creditors. As a result, she might not have enough money to retire when the time comes. 

MORE: Ask the Experts: How Can We Keep From Drowning in College Debt?

Anderson is not alone. “As the baby boomers continue to move into retirement, the number of older Americans with defaulted loans will only continue to increase,” the GAO says. “This creates the potential for an unpleasant surprise for some, as their benefits are offset and they face the possibility of a less secure retirement.”

However, there might be a silver-haired solution. As Education Dive puts it, “seniors vote, and most successful politicians cater to seniors.”
A vast majority of seniors turn out to vote in each election (much higher than any other age group), which means that they also have significant political clout. Many senior citizens are also fiercely protective of the Social Security payments they receive from the federal government. So as more people see their money taken away due to unscrupulous lenders and predatory interest rates, they will demand reform. Politicians know they can’t upset this large voting bloc.
The public has been increasingly angry about mounting student debt, but there has been little government action to solve this enormously expensive problem (Sen. Elizabeth Warren’s bill to refinance student loans died on the senate floor in June). But when a growing sector of these politically powerful Americans are feeling the burden of student loans, they’ll take their sentiments to the polls.
If senior citizens are the ones who will ultimately push lawmakers to take action on student loan reform, let’s get out the vote — even more than usual.
DON’T MISS: When Seniors Have Nowhere Else to Turn, This Nonprofit Protects Them
 

With School Debt Skyrocketing, This College is Using Email to Teach Their Students Financial Literacy

When most students take out loan after loan to pay for college, they probably have no idea how much higher ed is actually costing them. Well, until the bills start to arrive four years later.
A college education is expensive but it’s unfair to allow students who aren’t even in their 20s to make such a large financial decision — especially if they don’t understand how to handle money. In a 2012 study, about 29,000 American 15-year-olds took a test that measured their ability to manage money and make sound financial decisions, and only one in 10 earned a top score. Meanwhile, 17.8 percent didn’t even have what is considered a basic understanding of financial literacy.
This is very expensive problem — and one of the reasons why the national student loan crisis has ballooned to a staggering $1.2 trillion. (On average, student loan debt is $29,400 per borrower.)
However, one school has come up with a brilliant — and surprisingly simple — solution. Since the 2012-2013 school year, Indiana University has sent students across its seven campuses a few letters via email about the loans they’ll be taking out for the next year, Bloomberg reports.
MORE: The Average College Graduate Has a Whopping $30,000 in Debt. How One Startup Is Helping Them Pay It Back
The idea is this: If you warn a student once in awhile about how much he or she owes, they’ll realize the financial commitment they’ve made, and perhaps learn how to borrow more responsibly.
Nursing student Natalie Cahill, 22, decided to search for more scholarships after seeing her debt letter from the school. “When you take out loans for the year, you just see a smaller number than the grand total,” Cahill told Bloomberg. “Seeing the letter definitely put things into perspective.”
So far, the plan to boost financial literacy is working wonderfully. Federal Stafford loan disbursements to the university have reportedly dropped 11 percent, or $31 million, compared to the national 2 percent drop.
“We are having more contact with the student where they can say ‘I don’t want this,’ or ‘I want less,’” Jim Kennedy, the associate vice president and director of financial aid Indiana told Bloomberg. “If they know at all times their debt, and the repayment, it helps with a lot of planning.”
Until financial literacy 101 hits every college campus, Indiana’s efforts to teach its students fiscal responsibility gets an A+ from us.
DON’T MISS: Ask the Experts: How Can We Keep From Drowning in College Debt?

This Venture Capital Firm Bets on College Students

In this country, we used to talk about ballooning credit-card debt. Now the bigger money worry? Student-loan debt.
As more students graduate with a crippling amount of it (the total amount of student loan debt now tops $1.2 trillion, according to the Consumer Financial Protection Bureau), Silicon Valley is rethinking the way in which we ask people to pay for college.
As it currently stands, borrowers carry all of the risk while the government lender is only responsible to make up for unpaid balances through taxpayers around two decades later. Private lenders are only responsible for paying a collection agency to chase the unpaid balance and schools receive tuition regardless, all the while a borrower could go into default and ruin their credit for the rest of their lives. And for low-income students, this risk is even greater.
Instead of placing the entire burden on students, financial executives at venture capital firm 13th Avenue Funding believe that education loans should be perceived as equity, placing bets on a student’s potential achievements and earnings.
Two years ago, the New York-based firm offered four students at Santa Barbara’s two-year Allan Hancock College $15,000 for tuition to become a part of a “cohort” before transferring to a four-year institution to earn their bachelor’s degree. The students leave college without the possibility of defaulting and are expected to pay a small percentage of their salary each month if they make more than $18,000 a year post-grad. If they should surpass an annual income of $25,000, they’re required to pay back five percent of their income for the next 15 years.
Granted, borrowers do run the risk of paying back more than they received — but the money is used to cover other members of the cohort who are unable to repay the loan. And any additional remittances are used to fund new scholarships for future cohorts.

“It’s pooled venture capital,” said Casey Jennings, chief operating officer for 13th Avenue. “It’s sharing risk.”

The 2012 experiment, which is the first of its kind in the United States, was backed by four of the VC firm’s founders as well as two board members. The firm put together enough money to support a second cohort of seven students last year and hopes the model will be successful enough to continue.

While the idea is unique, it’s actually similar to that of investing in any small tech startup in Silicon Valley. You run the risk of failing — more often than not — but the chance of success can be worth it. The challenge therein lies with convincing higher education professionals to take the gamble on the concept of “income sharing” agreements.

“It’s really painful,” Jennings said. He continues to meet with college administrators to make them the “investors,” but has found no school wants to be the first to take a chance. “We talked to a bunch of colleges. They’re like, ‘It’s interesting, but come back when you get another college.’ “

If the 2012 experiment succeeds, it shows that students — especially those with low-incomes — can be an untapped market for investments. When it comes to funding those low-income students, Jennings added, “the payback for getting that group to go to college is unfathomable.”

After all, having a more diverse group of college graduates is something that you can’t put a price tag on.

MORE: Ask the Experts: How Can We Keep From Drowning in College Debt?