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Student Debt Crisis Solutions

One of the Most Complex (and Expensive) Financial Decisions in Life is the First That Many People Make

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By Angela Ceresnie, CEO of Climb, and Charlie Javice, Founder and CEO of Frank

The current higher education purchase process is even more complicated than buying a house, nearly as expensive, and prospective students go into the process without the proper tools to make an educated decision. It’s like buying a house without an appraisal — and it doesn’t have to be that way.

Over the coming months, thousands of high school seniors will be deciding what to do after graduation, whether that means going to work, attending a four-year university, attending a community college, volunteering, or attending a career training program. Equally as important, those same students will be committing to an investment in those decisions.

On average, learners attending career training programs will be committing $7,900, students attending community colleges $10,300, and learners attending four-year institutions $142,880. For four-year degrees in particular, this is likely the second-most expensive purchase many people will make in their lifetime, after a home purchase — and it’s also the first financial decision for many 18-year-olds. None of these investments are small, and the majority of them are made fairly blind as to what the outcome will be on the other side.

$7,900

for career training programs

$10,300

for community
colleges

$142,880

for four-year institutions

This is our first complexity: How much is too much to spend for an education?

Unfortunately the answer isn’t straightforward: It depends on your goals.

As an example, if a learner’s goal is to get a specific career through education, then there is a return-on-investment (ROI) calculation that could be done. Review the expected salary of the career path over a number of years and compare it to the cost of the education. Payscale has a clear breakdown of past ROI results for many universities. But of course, results will vary based on major, graduation rates, and ultimately an individual’s commitment to successfully pursuing a career path.

“But what about the value of the college experience?”

The blurry value of the “college experience” is in part what has led to the student debt crisis. College tuition has grown 300% over the past 20 years, and the outcomes of a bachelor’s degree has diminished over that same time period. In fact, 10% of college graduates are underemployed — up from 6.5% in 2000.

Before investing in the “college experience,” it’s important to ask: what is it? Is this the only way I can get that kind of experience? And when you remove the value of this factor, how much is the actual education worth? We saw during 2020 that 93% of college students believed their education should be discounted when it was moved to be fully online. Indicating that the actual value of the education is perceived to be less without the full “college experience” that requires in person interaction.

percent of college students believe education should be discounted if moved fully online.

Once learners get past the stage of determining whether the program is the right investment, there is an entirely new challenge: How to pay for it?

It seems like it should be pretty straightforward, right? Well… it’s not. This second complication is due to the fact that we’ve created a series of band-aid solutions to solve a symptom of a greater issue: College is too expensive for most Americans.

Rather than addressing that issue at the root and creating upstream solutions, we have addressed the symptoms through grants, scholarships, government loans, private loans, parent loans, income share agreements, payment plans, recurring billing, retail installment contracts, and the list goes on.

This creates a huge point of friction in the enrollment process, and the excessive number of options to choose from creates even more confusion for students looking to get an education and better their lives.

Students miss out on $40BN a year of government aid — that’s a staggering missed opportunity. The Gates Foundation reports that it takes more than 13 hours on average to complete aid applications, and that the government apps have two-star ratings, which is clearly dismal. It’s so dismal, private companies have stepped in to streamline the process and create a better experience. Getting financial aid should be a pleasant, quick, and seamless experience. One company in particular, Frank, aims to make it just that — imagine a government process designed by Apple rather than bureaucracy. Frank streamlines all aid from A–Z, so students don’t need to give their information to every single portal over and over again. And it has built-in reminders and lots of “cheerleading” messages to build confidence for families.

As this administration considers solutions to the student debt crisis, it is our hope that in addition to the cancellation of existing overwhelming debt, they consider solutions to address these two problems:

College is too expensive without being tied to outcomes, and the systems to help students pay are far too complex.

Frank does not endorse loans originated by Climb InvestCo, LLC, and Climb InvestCo, LLC is not affiliated with Frank.

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