In our never ending quest to help out our students, future, present, and past, the nerds are digging deep to identify the issues that are impacting today’s learners. One thing NerdWallet is committed to is making sure everyone has the tools to become financially literate and independent. This is especially hard for young adults, who typically don’t have the experience or financial resources to be financially literate or independent, and often must take on the highest amount of debt of any cohort because they face high unemployment, have the lowest earning potential, and need to pay for school. Well, we sat down this week with Jeffrey E. Hanson to get his perspective on financial management with respect to students. Dr. Hanson has a Ph.D. in Agricultural Economics and spent 7 years as the Director of Financial Aid on the Chicago campus of Northwestern University and 14 years as the Director of Borrower Education Services at Access Group, Inc., a nonprofit student loan provider. His current project, Jeffrey Hanson Education Services, provides financial literacy, borrower education, and debt management programming for students before, during, and after graduation.
Dr. Hanson has helped many, many students over the years with their finances and debt management, including over 2,000 just this last spring. He travels to different schools to give seminars and webinars (usually paid for by the university and never by the student). According to Hanson, “Students typically aren’t paying attention to how much they borrow.” “How much do they actually need?” Students should never compromise going to the school that is right for them and getting the higher education they want. Still, these young adults should always “minimize how much they borrow to attend the school that they want to attend.” Since students do not start paying off loans until after school and realistically cannot do much once the loan has been made, Hanson observes a tendency for people not to want to worry about these expanses until the time comes to repay the debt. They treat their loans almost as if they are sunk costs. This is not how student loans should be viewed though. “They are borrowing based on future income, and they should minimize their debt as much as possible.” Every dollar students spend costs them later, with interest.
The problem seems to be worse for graduate students. Graduate and professional school is typically more expensive than undergraduate education and these costs are usually piled on top of the undergrad bill. Hanson sees that these graduate students are often older and less inclined to live the more frugal student lifestyle of undergraduates, and this just augments their individual debt. “They need to live like poor, thrifty, frugal, cheap students,” These debts are no joke, and when you are looking at paying back six figures every dollar counts.
What students need
To be fair, there isn’t any shortage of ways for students and young adults to become informed. “There are lots of resources on the internet. Your website [NerdWallet.com] especially has great information for students to educate themselves,” says Hanson. “Still, people want face to face interaction. They want someone to go over their personal situation and explain their loans and their finances to them. They want that reassurance.” And who could blame them? Many current and former students have loans from different providers, and managing exactly when and where your money needs to be allocated to pay off debt can be a difficult task.
“Helping young adults to understand their portfolio of loans is crucial,” says Hanson. This can’t always be done with general guidance, however, which is why Hanson often also provides one-on-one counseling at the schools he visits. According to Hanson, there are currently 5 different repayment plans for federal student loans (including Income-Based Repayment plans), with a 6th option on the way. These options are extremely beneficial for students in the long, providing considerable flexibility in the repayment process. As such, they can help to keep interest and payments manageable. But, this flexibility can also make the loans themselves more complex and harder to understand. The need for concrete financial literacy becomes all the more important.
Universities are trying to help students the best that they can. They provide scholarships and financial aid, but another important way that schools can help students minimize their debt is to help them complete their program of study in four years. This lowers the amount that individuals have to borrow and gets them into the job market earning income. This isn’t always possible, especially for big state universities, many of whom do not have the funding to meet financial aid demand or to provide enough classes for students to earn their degrees without being locked out of classes and forced to stay on past the typical four-year track. To this end, “schools could do more to help students devise budget management plans or offer individual counseling.”
Students are also very distracted. There is not a lot of routine in higher education outside of a regular class schedule. Papers, exams, part-time jobs, research, interviews, independent work, applications, more exams… not to mention the regular social and familial commitments of any young adult. These all take time and can distract the student from what is most important – studying had and minimizing their debt. Sprinkle in athletics or volunteer work and you are just about booked up. Staying on top of your finances should fall into your everyday focus, but policy changes with regard to student loans might slip through the cracks. For example, earlier this year the government had a Special Direct Consolidation program that a number of students likely could have benefited from, but according to Hanson many of the students he has worked with were unaware of the program because they neglected to open the mail they received from loan servicers. It is important that you open all the mail you receive regarding your financial aid/loans so that you are aware of any actions you may need to take. Failing to do so can get you into trouble.
The government and universities are doing a lot to help today’s students. Student loan debt rages on, and prospects for young adults aren’t spectacular, but they are doing their part. Still, financial literacy and debt management continue to be areas of needed improvement for young adults. Online resources are a great way to learn more and capitalize on money saving opportunities. The personalized education services of people like Jeff Hanson are hugely helpful for students needing financial aid and an important addition to the educational resources that are available. There are a lot of financial hurdles in life, and understanding your finances is the first step to saving and becoming financially independent.