The Compound and Friends - The Student Debt "Crisis" (Tadas with Andrew Thrasher)

Episode Date: July 9, 2019

“Student debt has negatively impacted many American’s lives, but it’s not a crisis that I believe warrants an expansion of the government balance sheet to the tune of multiple trillions of dollars. Like anytime the government puts their thumb on the proverbial scale, actions have repercussions and should be carefully weighted ahead of time.” Andrew Thrasher (@andrewthrasher) blogs at Thrasher Analytics is an active participant on Financial Twitter. Tadas got Andrew on the phone to talk about a recent post of his entitled “Student Loans Are Not a National Crisis” where he writes about the many issues surrounding recent talk about modifying or outright cancelling student loan debt in America. You can read more at Anrew’s blog Thrasher Analytics: http://www.athrasher.com/student-loans-are-not-a-national-crisis/ 1-click play or subscribe on your favorite podcast app   Subscribe to the mini podcast on iTunes or Spotify   Enable our Alexa skill here - "Alexa, play the Compound show!"   Talk to us about your portfolio or financial plan here: https://ritholtzwealth.com/   Obviously nothing on this channel should be considered as personalized financial advice just for you or a solicitation to buy or sell any securities. Please see this 3,000 word terms & conditions disclaimer: https://thereformedbroker.com/terms-and-conditions/ Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, Andrew. How are you? Doing well. How are you doing? Hey, I'm good. I'm on the line with Andrew Thrasher, who is a portfolio manager for Financial Enhancement Group, an asset management firm located here in central Indiana. And he's the founder of Thrasher Analytics as well. I asked Andrew on today to talk about a recent blog post of his entitled Student Loans Are Not a National Crisis. Student loans have become a hot button issue, especially on the presidential campaign trail of late. I think everyone recognizes that student loans are a big issue coming in at some $1.5 trillion, but how to deal with them is another question altogether. Andrew, the topic of student loans isn't something you typically write about. What prompted you to take on the issue? It's definitely a break away from my normal more market related topics that i focus on

on my blog um like you said it's something that's kind of come into the the main uh view of of media with with it being part of the presidential election and it's something i started kind of researching and just had an interest in and seeing how much um debt really is it really that big of an issue and kind of what were some of the solutions for it? I work for a financial planning firm. And so it's definitely a topic we have with clients who are trying to do some college planning. And so something that kind of had the debt and sat on it because I thought it'd be more controversial. And it really wasn't. The response from the post has been very positive, which is great to see. Student loan debt is definitely, it's an issue.

which is great to see. Student loan debt is definitely an issue, and so I think it's something that a lot of people come in contact with, as most people that go to college. College funding is expensive. About two-thirds of the country goes to college or has a college degree. However, only 15 percent, and what I talk about in my article, only 15% really have college debt. The number itself, as you said earlier, the over $1.5 trillion sounds like a really big number. But households on average have almost $14 trillion in debt. And so we kind of look at it in perspective. perspective. The delinquency rate of that debt's been going down. So that's a good thing to see, meaning that the number of people that are not paying their debt that are gone delinquent has been on the decline. And so it's a very sticky topic, something that you and I kind of started off before we started recording about. There's a lot of different facets to student loan debt. If they were to forgive it, is it going to be retroactive? If you've already paid off your debt, will that be forgiven some way? Or how do you really handle it? And so I think the main focus, the main takeaway that I

have with student loan debt is it really is, I think it's more of a planning topic to really educate not only the students, but the parents on what that debt means, because it's different than maybe credit card debt. It doesn't have because it's different than maybe credit card debt. It doesn't have the same bankruptcy provisions that maybe a credit card debt would or a car loan would. So I think we really need to have the conversation, educate the students when they're signing on these big loans, what that means, and all the implications of maybe funding a 529 with parents and having that conversation early on. So they can, if their finances allow, start planning for some college savings. Yeah, no, there is certainly a lot of different moving parts, especially when it comes to financial planning.

Like you said, talking about, you know, trying to get saving for it as soon as possible. And then, you know, when that day comes to the degree to which, you know, the amount of debt that you're willing to take on and, you know, the how it is that you're willing to pay for them. You know, a lot of this is really sort of a generational issue. I mean, I think as the cost of college has increased, I don't want to say exponentially, but certainly at a rate much higher than the CPI, You know, I think you've seen, you know, the most recent generations are facing this issue in a more sort of acute way. And I think, you know, that's part of the issue as well. It's almost a question of sort of intergenerational

equity. And I think that's another aspect of it that I think is, you know, part of what people are talking about. It very much is. And there's the part of the conversation I think that often gets left out is the debt to trade off. Unlike when you buy a car and you're kind of you're taking on potential debt for a depreciating asset, the debt you're taking on for student loans is really for an appreciating asset in the sense that traditionally a college education leads to higher incomes. Bloomberg actually just this week had out an article focusing more on MBAs, those getting postgraduate degrees, and the average MBA debt was within the six figures. However, the average salary for an MBA, I believe the article cited,

was about $130,000. And so when you're taking on that debt, you're also there's an expectation that you'll have a higher income to be able to pay for it. And the survey that they were citing showed that a lot of the MBA students kind of knew what they were getting into and were understanding to take on that debt. It was kind of a way to climb that corporate ladder. And we're happy with the kind of the nation that brought with it. So I think it's just, it's really, what's unfortunate is the students that take on the debt and don't understand what they're doing and the implications they're putting themselves in. And maybe kind of what options there are. That's another topic I cover in my papers, that there's a lot of scholarships and a lot of grants that are available to them that just aren't being taken advantage of.

Simply filling out a FAFSA or just looking online for different opportunities that you may be able to get some quote unquote free money with just maybe a little bit of work to make to make that debt load maybe not be as burdensome as it could be. not be as burdensome as it could be. Yeah, from a planning perspective, I think there's, you know, part, some of this is also a part, you know, like you said, is almost being kind of a smart shopper. You know, you talk about, you talk about grants and, you know, scholarships and other things like that. And there's another aspect to it where I know of a lot of kids who are, you know, instead of, you know, are either going, taking, you know, some of their intro classes at community colleges or at other local colleges that aren't as expensive as, you know, your, you know, some of your state schools or some of your private institutions and trying to drive down the overall cost of a degree while still getting, you know, the benefits of of that diploma. And I think, like you said, there are a lot of different, you know, there's a lot of moving parts involved. Yeah, like the average community college is $3,600 compared to out-of-state tuition, which averages $26,000. So like you said,

if you're a smart shopper, get maybe, use the different options available to you, get some of your maybe core curriculum knocked out at a community college and then transfer to in-state tuition, which can be in the five thousand and sixteen thousand dollar range. Not everyone has to go out of state. If it is something that that maybe you're you have an in-state option, that's great. Like here, you and I both are in Indiana. We have a lot of great universities here that Purdue, by a stretch, Purdue, that's where I went, but they've frozen their tuition for, I believe, eight years now. And so there's a lot of, if you really put in the work, you find the scholarships, the grants, you look at in-state opportunities, you can really help whittle down the potential

debt a student will be taking on. But it's something they have to go do before they go to college after the fact there's not a lot of levers left for them to be able to pull outside just chipping away at whatever debt they did accumulate. Yeah, I think one of the most compelling things that arguments that I've read, you know, kind of leading up to our talk is that, you know, it's great to I think it's, you know, it's an important discussion for us to have about student loans, but all of this talk doesn't really affect the high cost of college going forward. I mean, I think there's kind of two sides of the coin, and I think that's a part of the discussion that's really missing in all of this. I fully agree. Over the weekend, I got a lot of different feedback

on Twitter and people kind of giving their suggestions, and some were really good and just kind of looking at maybe we need more kind of oversight of the endowments and what some of the universities are doing, and maybe a little bit more oversight on that side to really control the costs and maybe increase the financial responsibility of the universities and really kind of attack the problem. Because it's a problem. It's not a crisis from all sides. Educate the public, work on the pricing. And for future durations, we can make it so college education can be obtainable by all for those that want to go down that path. Yeah, you know, I think we've talked about a lot of different aspects of the issue here. And I guess maybe to wrap up, I guess from a planning perspective, for somebody who is, you know, looking out a couple, you know, a few years ahead to

when they go to college, is, does any of this debate or discussion really change how anybody should approach the decision about taking out student loans? Should it make them more wary of taking out loans or should it make them more comfortable taking them out given the potential for some sort of action down the road? Yeah, I think information is power. So really understand what is it you're trying to accomplish with a college degree, understand the trade-offs of the debt you're taking on to accomplish that goal, and then see what opportunities are available to you, what options are available to you to make that debt burden a little bit less large from grants and scholarships and different options available. And then definitely for parents to be able to plan ahead with 529s

and some of the tax advantages that those can provide and other college saving options and accounts. There's different things that can be done to limit the debt taken on. And I think that's the main take-home point is it's not just a forced, everyone needs to take on $50,000 worth of debt to get a college degree.

There's some other options available to you. Andrew, this was a great discussion. I appreciate you jumping on the line and we'll talk to you again soon. All right. Thank you very much. Thanks.