When I ended my keynote presentation last week at New Hampshire Jump$tart’s MoneySmarts, I was asked several questions.  (Candidly, the Q & A portion of any seminar is highly enjoyable because it always varies significantly. You really never know what you’re going to be asked.)  With an audience of about 150 teachers – mostly of high school – I knew I had an intelligent and motivated audience.  To paraphrase the question one woman asked:

What do you say to the newly graduating college seniors who are overwhelmed with enormous student debt obligations and low starting salaries?

To the best of my memory, here was my response:

Of all the challenges twenty-somethings face, I believe that the increased student debt burden is both the scariest and the newest. By new, I mean that it is a phenomenon that this generation faces that previous generations of twenty-somethings did not. While college tuition has never been free for the average student, the rise in the cost of tuition has risen well above the rate of inflation for decades. It’s causing huge problems.

I contrast this to many other challenges that twenty-somethings face that are not new.  I point them out now because some people feel as though the entire “struggling college graduate” package is new – it’s not. Twenty-somethings have always wanted more than their entry level salaries could provide.  They’ve also felt they deserved more than their entry level salaries and may have even wondered if college was worth it, given how little they are earning.

But those are not new phenomena.

While I believe there should be a huge national initiative investigating and even pressuring universities to reduce the cost of education, I won’t go into that here for two reasons.  First, it’s an inherently political topic and I see no point in opening that can of worms. Second, I won’t go into that any further because it won’t help the people who have already graduated deal with their loans – and that’s who your question concerned.

Instead, today’s twenty-somethings need to focus on what they do control.

Yet, I’ll tell you, I’ve been on college campuses a few times since I graduated about 15 years ago.  Have you? Have you seen what the dorms look like now?  You can tell I’m not 70 years old but the difference in the 12 x 12 room I had with another guy and the suites I see today is striking. When I see pictures of other dorm room, I feel like I went to college in the Stone Age.  Even the cafeterias look like restaurants.  Not only does this increase the cost, but it also changes what feels tolerable and appropriate for new grads to “endure” when they graduate.

The most striking circumstance is their living arrangements.  Rent is a huge twenty-something expense. Often, it’s their largest, so it’s an area of focus.

Don’t worry, I’m not advocating for returning to Mom and Dad. I didn’t do that and I turned out fine – at least financially speaking.

But think about renting a somewhat beat-up small apartment – with another person living with you to share the rent.  If you’re coming from the type of college housing I was used to, such a place represented a minor step-up. In fact, my rent did go up – but only by fifty cents per month.  Today’s college graduates have a harder time doing what I did because the places they’re living – palaces compared to what used to pass as standard college housing – are so much better than the small beat-up apartments I just described.  Furthermore, they may never have had a roommate, so sharing an apartment – even though they’d have their own room – doesn’t seem like enough of an upgrade to their current situation.

Today’s college graduates should – like the rest of us – only focus on what they control.  Ten minutes after the graduation hats land on the ground is not the time to think about how their student loans might have been a lot more manageable had they gone to a less expensive school.  Instead, they should concentrate on what they can do to keep their expenses down during the next couple of years. If that means living at home, so be it – especially if there’s no job waiting. But far better, in my opinion, is to find a very affordable residence and share it.  It won’t get easier to keep your housing costs down as you get older – in fact, it gets more difficult. When you start a family, it’s awfully hard to downsize.  Start by living at the smallest place you can afford and be comfortable.  From there,  and you can increase your standard of living steadily, while giving yourself a fighting chance to aggressively pay off that debt and – one day – to save.

When I finished my answer to the question, the head of NH Jump$tart said, “Now you know why I want to adopt this guy. He gets it.”

It nearly made me blush.  What does my answer say to you?

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5 Comments to “My keynote response: What about all those student loans? Is saving possible?”

  1. Abigail says:

    Well, nothing personal, but I’m not ready to adopt you.

    I do think most new entrants in the job market need to be sure that they live below their means when possible, I think we’re missing one really big initiative besides new college grads: high school seniors.

    Given that education costs aren’t going down in the near future, 17 and 18 year olds need to seriously consider how deeply in debt they want to be when they graduate — especially given how often graduate school is necessary now.

    Show them entry-level wages of average professions and then the average debt payments on those salaries. Let them really understand how much they need to repay. A lot of people are shocked at their first bill because they didn’t realize it would be so expensive.

    That means these kids are signing for tens of thousands without any idea how much they’ll be paying monthly when it’s all over. That’s kind of terrifying, no?

  2. Michael says:

    @Abigail: Turns out I’m not eligible for adoption anyway, so no offense taken. I agree that it’s very scary that 18 year olds are making major financial decisions, often without anyone explaining the very existence of the implications.

    When I attended Finovate last year, I watched a presentation by PeopleCapital in which they demonstrated a tool which provided a sliding scale of likely annual incomes over a career for a certain major. While the tool was built primarily for the purpose of assessing the loan worthiness of the student, I recall thinking that it would be an incredibly useful starting point for a discussion about the cost of college education between an 18 year old and a parent.

  3. Michael, great post, and a great conversation.

    I agree most of the concerns are the same. Keep in mind, federal borrowers have new options for the amounts they are required to payback, which is not based on the amount of debt, but the amount of income a student earns. I’ve blogged about this topic at the Financial Planning Association’s website at: http://blog.fpaforfinancialplanning.org/

  4. Michael says:

    @Robert Schmansky: Thank you for your comment and kind words. Please stop by again!

  5. Jeremiah says:

    This is so true. My wife and I struggle with large amounts student loan debt and we are trying to tackle it aggressively as possible. You hit it on the head of the nail when saying one of the best ways to tackle debt is to control rent expenses.

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