The Student Loan Problem Nobody Talks About
Student loan debt can follow borrowers for decades, even when they’re consistently making payments. So what’s keeping so many people stuck? Howard Dvorkin, CPA breaks down the role interest plays in student loan debt, why balances can be so difficult to bring down, and how lower interest rates could give borrowers a clearer path toward repayment.
Video Transcript
Speakers: Sydney (host) and Howard Dvorkin (Debt.com chairman/founder)
Cleaned from auto-generated captions: timestamps removed, speaker names corrected ("Dvorkin"), and broken sentences reassembled. No content added or removed.
Cold open (teaser)
People need a break. They see a light at the end of the tunnel.
Hope.
Well, the whole system really needs to be looked at. Interest is a trap, and it turns into a life sentence.
Interview
Sydney: Welcome back to Dvorkin on Debt, where we discuss all things money related with our resident money expert, Howard Dvorkin. How are you doing?
Howard: I'm doing great, Sydney.
Sydney: You ready to talk about student loans?
Howard: Student loans is a big topic, and it's affecting 43 million borrowers right now.
Sydney: When it comes to student loan forgiveness, do you think that we're arguing about the wrong problem?
Howard: Yeah, absolutely. We should be arguing about math, not forgiveness. Interest rates are being charged to student borrowers between 6.5% and 9%. So at what point does interest stop becoming fair and start becoming a barrier?
Sydney: When you're sitting there paying for a decade and you're not seeing them go anywhere, you still owe essentially the same money you started out borrowing.
Howard: That's a problem, and it doesn't instill confidence that you're going to get out of debt somehow. That is challenging psychologically. The problem you've got is the compounding of interest makes it punitive to pay back your student loans, and that is challenging for a lot of people. Forgiving the debt isn't fair either, because you're having the wrong people paying for the student debt. And also, you've got to get control of the institutions, the schools that are charging tuition. They're always raising their tuition because the money is there. They think, "Oh, our students will just go borrow more." That's also screwed up. So the whole system really needs to be looked at.
Sydney: So do you think that lowering interest could actually increase the chances of people repaying their debt?
Howard: Absolutely, Sydney. If people see that their bills are actually going down, they will pay back the money. They see a light at the end of the tunnel.
Sydney: Hope.
Howard: Hope. Hope is a powerful stimulus. The government shouldn't be a high interest rate lender. And if you think about a credit card company charging huge interest rates, this isn't much different, because these student loans can last for decades, and the compounding effect is tremendous. People need to see a way out of debt and see progress, and they're not seeing it. It's a really difficult subject, but the thing we need to start with is simple math. People need a break. The government shouldn't be making money on these borrowers, a lot of whom started at 18 years old. What does a person know about taking out a loan when they're in their teens?
Sydney: Speaking of the government, if we lower the interest by 2%, won't that cost the federal government billions?
Howard: It may cost a little, because they're not earning, but it'll be far better off than all these people defaulting. What we're talking about is just not charging the interest. I had a little something to do with the legislation that's out there. Actually, I helped draft the legislation, and it's a good bill to lower the interest rate to a fixed rate of 2%. Which is tremendous. But Congress is stuck arguing about nonsense when this would actually help families throughout the United States a tremendous amount.
Sydney: A tremendous amount.
Howard: And the compounding effects of interest is a trap. It turns into a life sentence.
Sydney: So what should parents and students do who are facing tuition gaps this fall? What should they do right now?
Howard: Well, first of all, they need to choose, or help the child choose, a career or a major that they can actually get a job and get employment from. I know a big degree is sports management. It does produce skills, but it's very tough to find a job doing that. They also need to take advantage of all the grants and scholarship offers that are out there. There's so many.
Sydney: There are.
Howard: And also, there's a big difference between a federal student loan and a private student loan. Federal student loans have a lot of flexibility out there with regards to repayment, and there's some forgiveness if you do certain things, like if you're working for a nonprofit or government. After 10 years of continuous service, the actual bill is wiped out, which is a great savings versus a private student loan, which typically has a higher interest rate. That is a very big challenge, and people really don't understand it. You need to look at these private student loans as a last resort, not a first.
Sydney: And if you are looking for any more information on student loans, student loan forgiveness, or the interest cut, please visit our website at Debt.com, and we'll see you next time.
