Default Documentary: the Student Loan Interview

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I recently had an excellent exchange with Aurora Meneghello of Krotala Films behind Default: the Student Loan Documentary [Update: dead link removed]. A documentary covering student loans has been missing for a while, and I think this film will help shed some light on a very dark situation for many young people. If you've been wondering about this area, check out their site and join the movement - they are doing a great job by helping young people understand this important situation.

1. What caused you to produce a documentary on student loans? Do you think this issue is receiving enough attention?

We started working on this documentary 4 years ago when there was not much written in the press on the issue of student loans. I have student loans and at the time I was trying to learn more about my private student loans. It was starting to dawn on me that my school had provided very good information on federal loans, but not on private loans.

One day I saw an article about student debt on the front page of the San Francisco Chronicle and in it I read about StudentLoanJustice.org [Update: dead link removed]. When I read some of the stories posted on Alan Collinge’s site, I felt it was outrageous that I had never heard of this before (I am a bit of a news junkie). As I found more and more information, I talked to Serge (Serge Bakalian, co-writer and producer of Default: the Student Loan Documentary) who suggested making a film about the issue. A lot of our friends were graduating with student loan debt and they were completely unaware of their lack of rights. They also felt embarrassed and scared and wouldn’t talk about it, feeling ashamed about their debt. I remember calling a credit counseling service and asking whether they offered counseling to student loan borrowers. The person on the phone wondered why I was asking, since, she said, student loans are actually “good for you!”

So our intention from the start was to educate people on student loans: how they work, what happens when you cannot pay them back, etc. And to open a dialogue about debt, so that future students could find an alternative source of information, apart from their school’s financial aid office. We also wanted to break the taboo that one doesn’t talk about debt. This is a problem affecting millions of people directly and our entire economy indirectly. It’s not just a personal issue of financial literacy or responsibility, it is a systemic problem.

2. How can people get involved with your movement to inform others and seek solutions to this problem?

We have a very active Facebook page and Twitter feed where we post relevant content every day. And our website [Update: dead link removed] has a list of sites that can be helpful in learning about student loans and to get involved.

It’s important for people to act individually and in groups. You can get a better grip on your finances and share your story to help other students avoid debt. You can also pay attention as to what legislation is being considered in Congress, sign petitions, become more vocal in your community. Find a group of like-minded people, organize screenings, protests and talks. Different website and groups offer different approaches: choose what works best for you.

3. If a young person was considering college, how would you advise them?

First of all, I would ask them whether they need a degree to practice in their chosen career. I am a photographer and although I learned a lot in school, nobody ever asks me whether I have a degree. It’s all about the work I do. You will find this is the case in many professions. If that’s the case for your chosen career, avoid getting into debt: either find alternative ways to learn (see Anya Kamenetzs’s book DIYU) or choose a college that is less prestigious, is affordable and still gives you the education you need.

If you are looking into professions that require a degree, if you want to be a doctor, a lawyer, a teacher, then I would advise trying to get that degree incurring the least amount of debt possible. Again, watch out for quick but expensive degrees (especially at for profit colleges), or for very prestigious but very expensive schools. Check out how much you can expect to make in your first year, paying close attention to the average in your area and to the lowest possible salary in your field as well. Basically, stay away from overly optimistic estimates such as $160,000 out of law school. Also, find out what is required of you after you graduate. For example, if you want to be a Marriage and Family therapist in California, you have to put in 3,000 hours of supervised work, which are often unpaid. Are you ready for that commitment? Research and plan for the worst, while doing your best to succeed. Graduating with unmanageable debt might prevent you from taking the chances you need at the beginning of your career.

Being realistic doesn’t mean giving up your dreams. If you stare reality in the face, you will be better able to find ways to achieve your goals.

Let me also say that I think education is important in and of itself and it is very troubling to me that we think of universities only as monetary investment in a future career. So, no matter what you decide to do, read, learn, explore! Grow as a person by educating yourself. Nowadays we have more access to information than ever before. Don’t let the high price of college deter you. Why isn’t education free or low cost? I think this is another topic, but one where we all need to be actively engaged.

4. Final question: based on your interviews with college students and graduates, do you think the unquestioned zeitgeist of "attend college no matter the cost" is changing?

It’s always hard to generalize, but in the past four years, I have seen the topic of student loan debt explode in the press, thanks to the tireless work of activist and borrowers willing to speak up. The students who contacted us to screen our film and whom I have talked to are concerned and want to do something about the rising cost of tuition and the lack of consumer protections for their student loans. So I think at the college level things are definitely changing.

Unfortunately though, there is still enormous pressure on children and teenagers to go to college at any cost. Having a college degree is definitely an advantage, but might not be so if one graduates with insurmountable debt. So I would like to see more of this type of debate at the high school level. Finally, I personally feel no matter what job you have, you should be able to make a living wage. We need to think of ourselves as part of a community. Not everyone can be a lawyer or a CEO. Some will always need to serve a latte or to sell us a pair of jeans. Anya Kamenetz shows in our documentary how the advantage of having a college degree is such only because the income of those not having a college degree has actually deteriorated. We cannot make an expensive degree the only way to make a decent living. I think we need to look at the bigger economic picture and question why we pay some people so little for the work they do that they can barely survive.

But that is another story ...

4 Strange Ways To Save Money

How 4 Echo Boomers Bucked Trends and Amassed A Huge Pile of Cash

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Note that the following four examples have names changed of actual Echo Boomers. These Echo Boomers belonged in the affluent group of Echo Boomers, so from a marketing and financial perspective, these Echo Boomers reflect the values of wealthy Echo Boomers.

Since many Echo Boomers face major financial hurdles and the economy isn't improving, I decided to post some stories of succesful Echo Boomers and how they've managed to save extra cash while still enjoying life in the way they want. Of course, any person of any generation can look at these stories and consider their value for their financial plan. If you know someone is struggling and may be helped by such stories, send it to them.

A Home Fit For ... Ten

Jessica lives in California, where a house can easily rent for over a thousand dollars a month. But Jessica only made five thousand a month after taxes and didn't want to watch 20% of her income evaporate into thin air. She also had other goals than living expensese: she was saving for a master's degree, an eventual wedding, and a home to call her own.

"At first, I was stuck," she told me. "I am from the Midwest where I could rent a place for $300, and that was a nice place. The first place I was shown in California cost $800 and it was about one-third of the size of my Midwest places."

With many goals, an economy with prices rising, and an expensive location, what did Jessica do? She moved in with nine other girls in a five bedroom home.

"People respond exactly like you did - YOU HAVE NINE ROOMMATES?" she laughed. "I should probably win an award or something." And Jessica does: the home's monthly rent, including bills, cost $2000 a month. But divide that by ten people and her total cost is only $200 a month - 4% of her post tax income.

And Jessica, like many other Echo Boomers, loves to experience a strong social environment, but it does come with its downside. "Let's just say," Jessica laughed, "that there are times when a girl needs some privacy and well, with nine other girls, it's hard to find that."

Chill With The Doers

David dislikes spending on stuff. He watches people buy a bunch of junk that they never use only to continue doing it ad infinitum. But David has one weakness: trying new things.

"It's easy to save money when your cost for event A in dollars is low, but high in time," David said to me, as we discussed his savings' goals. "When you think about it, you need a lot of time to spend money, otherwise, it's just money growing." David's secret involves a group of friends who like to enjoy new challenges. The added bonus is that, unlike David, most of his friends were poorer than him, so everything cost little money (while David admits that when it comes to experiences he doesn't mind spending a few extra dollars).

David's life involves doing many different things when he has time away from work, but never enough time to spend his cash. Within a decade, David will opt for early retirement and continue to do crazy things with his friends. As he said toward the end of our conversation, "A $100,000 will last longer than I intend to live if I'm only spending a $1,000 a year." I think that he's wrong though - this guy will easily live to 180.

No Man Is An Island ... Well Except That Man, and That Man, Oh, and That Man, Oh and That Man Over There ...

Jeremy excelled at everything since he was a young kid. But whether he was "too smart for his own good" or was tired of pleasing everyone, he finally had enough and exited civilization.

"I built an underground home on a 1000-acre property," Jeremy told me. Unlike the other Echo Boomers in my study, I actually knew Jeremy from a friend - he had been an engineer for a while, amassed a huge pile of cash and left for his own land (his financial data are not included in my study as that would not be random; his story, however, is interesting). However, Jeremy accomplished a task that I thoroughly interested me: he built an underground home and completely generated his own electricity. "When I first built the home, it consumed about $10 a month in electricity. Now it consumes $0 a month. So much for inflation," Jeremy bragged.

But what made Jeremy exit civilization in the first place? "I realized that as I was around more people, I was less happy. Their fears became my fears, their hopes became my hopes and in order for me to stop it, I had to get away. But getting away a few weeks out of the year wasn't enough; I needed to exit for longer." Jeremy built his house and planned it for self-sufficiency with a property that produces food, water and a few other important commodities.

And Jeremy said something I won't forget for a long time, "I can live without happiness, and hope and even success. But I cannot live without peace. And I have that here on my own."

Saving Money While Spending $500,000

The economy collapsed. Home prices fell. Everything went on sale as merchants were desperate for dollars.

Enter Jared.

Jared hates frugality. He won't read your frugal blog, your frugal book, or buy your frugal videos. Why? "I came from poverty and there's nothing more 'frugal' than poor." We can agree or disagree with Jared here, but he surprised me in our conversation as he doesn't spend foolishly.

Jared amassed over a half of million in cash (in the study, the top spot is held by an Echo Boomer with $400,000 and you'll see why Jared doesn't hold the top spot). When the economy collasped, Jared saw everything he wanted to buy with seriously discounted prices plus desperate sales people. Jared wanted that silver convertible at a steep discounted price. He got it. Jared wanted a large home with hardwood floors and granite countertops. He got it. Jared wanted nice possessions, like a TV, hot tub and fancy lighting to fill his new house without sparing any desire. He got it.

He also signed up for lifetime memberships at places where most guys wouldn't step a foot in (salons, special fitness clubs, et cetera). "I'd say that I received a $1.5 million dollar value by only spending a half a million," Jared said. "The key was timing." Jared has a point: one might be tempted to call him a materialist, but even if that's true, his desire fell in line with his financial sagacity.

Of course, writing his story without adding that he didn't liquidate any retirement assets might paint a different picture. "Oh yeah, I still have six figures in retirement accounts - I wouldn't empty those." He went on to admit that he's done all the spending he wants (except some travel). He can save the rest of his income without worrying about needing new stuff for a while, or wait until the next recession sets everything on sale again.

"The best way to save money is to spend it," Jeremy said. "You know, when the time is right."

Seeing Makes It Easier To Believe

If some of these seem far-fetched, they're not. Creative living often arises from limitations.

Another example from a young Echo Boomer [updated link], Ian, shows purchasing unwanted land and building his own home. Notice how Ian shares some of the same patterns with other male Echo Boomers. Some commenters on his GetRichSlowly entry ask questions about how he'll get married, how he'll socialize, or why would he live in the middle of nowhere. Yet for many readers of The Echo Boom Bomb, none of you feel surprised by what he's doing because I've predicted already that many of the successful male Echo Boomers will not marry.

When Will the Higher Education Bubble Pop?

Note that this article has been updated to also include some of the private discussions with thought leaders in the past. You can read my final overview of my research into the Millennial generation along with what I predicted and what happened as they matured at this link. While I still speak about Echo Boomers and iGenZ privately, I seldom add new articles to this specific blogspot site. If you're reaching out about a speaking engagement, you can contact me at the research firm SqlinSix.

4 Signs To Keep An Eye Out For

[Update: dead image]

While an education bubble exists, it won't pop [update: replacing with the softer term of "pop"] until a combination of a few of these things occur first:

1. Bankruptcy laws change for student loans. If students can discharge their loans through bankruptcy, lenders will be reluctant to lend money to students for school. At this present time, students have no bankruptcy options for their loans (except in heteroclite circumstances), so lenders see little incentive to stop lending. This does not apply to forgiveness programs, as student loans being forgiven will still encourage lenders to lend since they're getting free money from whoever is forgiving the loans (private or public entities).

2. The perception of education changes. Echo Boomers were inculcated with "get a degree" messages from everywhere. As Echo Boomers mature and make less money than they expected, they will communicate their disappointment with education to the next generation. Unless Echo Boomers look back on education with rose color glasses, the next generation will hold a different outlook on education than their parents.

3. A major recession returns to the United States. If a major recession returned to the United States, and students were unable to pay back their loans (ie: the principal balances kept growing), this event could trigger a collapse in the education bubble. Lenders would fail to receive their money they lent and would struggle with educational institutions over funds.

The problem with this point: the Federal Reserve might bail out these lenders, continuing the cycle of borrowing money for school (like we see for housing). This sets the stage for an even larger collapse (like we're seeing with housing). The collapse could be the currency. Or it could be something else that's even worse.

At some point, central banks around the world will stop favoring dollars. You cannot keep handing institutions money that creates inflation and maintain the value of the currency. For instance, I observed that after the 2008-2009 (which will someday be viewed as highly inflationary because asset inflation is still inflation), both Russia and China significantly reduced "dollar" based business in different ways. Russia bought gold. China started purchasing materials' producers, ports and other hard assets while only adding a fraction to the US dollar (think of a 90-10 approach, where it seems like they're addinng dollars, but they're actually buying real assets).

In other words, there's a limit to bail outs.

4. Students become overwhelmed by negative news. The education bubble could pop tomorrow if students suddenly became depressed about their prospects and stopped attending school. Ironically, in this case only, students might receive much better prices later if every student in higher education boycotted educational institutions (won't happen because American parents don't think like this). However, if students stop believing that their education is serving them, what's the incentive for continuing to pay?

If any of this occurs soon, the major problem is the actual student loans. Many homeowners "strategically defaulted" when they realized their house was wasting their money. Why wouldn't students just drop out of society if their student loans were high enough? Of course, if these things occur, tax payers will be on the line, just like they were during the housing bubble.

Private Discussions - Updated and Shared Later

Privately, among home schooled groups, I have advised parents to stop sending their children to American colleges. In addition to poor quality education, many in media have written about a kangaroo court system. I won't dive into details in this article, but I speak about this with home schooled groups with details shared by attorneys who are often called into these situations.

Historically, prosperity hides and prevents genius - many philosophers have noted derivatives of this view. American colleges have received an abundance of income, but have students been better off? In addition, are students intellectually superior to the people who graduated in the past? The latter question is more subjective, but when you start to consider costs and result, many parents admit they don't think the cost is worth it.

This is not the case in non American universities. For one, admissions standards are extremely difficult. Two, students often have little time except to study and learn. Third, if the student is also applying a new language (Mandarin Chinese, Spanish, etc), they have the added benefit of double learning. Finally, many non American universities are cheaper. I highlight many examples in my presentation where students can get a 4 to 5 year degree for less than $10,000!