This past week, I came across two exceptional news items about financial aid and student loan debt. The financial aid article showed how alumni giving can affect financial aid. The student loan debt article reinforced my cautions about the consequences of excessive borrowing to pay for college. The two articles are a good news-bad news duo.
First the good news: Michael Bloomberg: Why I'm Giving $1.8 Billion for College Financial Aid. That headline boggled my mind (it doesn't take much to do that these days). Have you ever really thought about how much a billion dollars is, let alone $1.8 billion? Let's pause a moment to consider that question.
In the news these days, we often hear about the national debt, which, unfortunately, is expressed in trillions of dollars. Pondering a trillion dollars is a topic for another discussion. For now, let's just stick with a billion, specifically Michael Bloomberg's $1.8 billion. I did some research and found this interesting article: HOW TO SPEND $1 BILLION IN 25 YEARS. Wouldn't we all love to have a challenge like that?
Anyway, to give you some idea about the magnitude of a single billion dollars, here are a few highlights from this fancifully instructive article:
Suppose you had one billion dollars. You could spend $5,000 a day for more than 500 years before you would run out of money. ...
... For starters, you would have to spend 40 million dollars each and every year. That would mean spending over three million dollars each month. Breaking it down even farther, it means you would have to spend over $100,000 every day for the next 25 years in order to spend one billion dollars. ...
I don't know about you, but I find that level of spending difficult, if not impossible, to imagine. Now, back to Michael Bloomberg. What possibly could have motivated him to undertake such a magnificent act of philanthropy? Here are a few parts of his explanation from his New York Times opinion piece.
The article's sub-headline states Bloomberg's mission: Let's eliminate money problems from the admissions equation for qualified students.
To that, I give a standing ovation! Across my decades of working with college applicants, I can't tell you how many of them I've seen turn down wonderful acceptances because of their families' inability to afford the costs. Bloomberg wants to fix that problem, at least at Johns Hopkins University. He explains:
Here's a simple idea I bet most Americans agree with: No qualified high school student should ever be barred entrance to a college based on his or her family's bank account. Yet it happens all the time.
When colleges review applications, all but a few consider a student's ability to pay. As a result, high-achieving applicants from low- and middle-income families are routinely denied seats that are saved for students whose families have deeper pockets. This hurts the son of a farmer in Nebraska as much as the daughter of a working mother in Detroit.
America is at its best when we reward people based on the quality of their work, not the size of their pocketbook. Denying students entry to a college based on their ability to pay undermines equal opportunity. It perpetuates intergenerational poverty. And it strikes at the heart of the American dream: the idea that every person, from every community, has the chance to rise based on merit.
I have expressed many times in my postings here how hurtful it is to see perfectly qualified, bright, able applicants missing out on high quality higher education simply because of money. Many colleges seem to want it all: A dazzling campus with new science facilities, deluxe dorms, a fancy football stadium, plenty of money in their endowments earning investment dividends, a massive administrative staff, etc.
A consequence of all this for colleges is, in many cases, having to turn down applicants whose families cannot afford the dreaded Expected Family Contribution (EFC).
Bloomberg's Gift Offers A Solution:
… Hopkins has made great progress toward becoming “need-blind" — admitting students based solely on merit. I want to be sure that the school that gave me a chance will be able to permanently open that same door of opportunity for others. And so, I am donating an additional $1.8 billion to Hopkins that will be used for financial aid for qualified low- and middle-income students.
This will make admissions at Hopkins forever need-blind; finances will never again factor into decisions. The school will be able to offer more generous levels of financial aid, replacing loans for many students with scholarship grants. It will ease the burden of debt for many graduates. And it will make the campus more socioeconomically diverse.
The key phrase is “replacing loans for many students with scholarship grants." Yes, I'm going to once again caution this year's college-bound seniors to be very careful about seeking and accepting student loans. I'll emphasize that point in just a moment, but let's finish up with Bloomberg first.
… College is a great leveler. Multiple studies have shown that students who attend selective colleges — no matter what their family's background — have similar earnings after graduation. But too many qualified kids from low- and middle-income families are being shut out.
As a country, we can tackle this challenge and open doors of opportunity to more students by taking three basic steps:
First, we need to improve college advising so that more students from more diverse backgrounds apply to select colleges. Through a program called CollegePoint, my foundation has counseled nearly 50,000 low- and middle-income students about their options, and helped them navigate the financial aid process.
Second, we need to persuade more colleges to increase their financial aid and accept more low- and middle-income students. Through the American Talent Initiative (which my foundation created several years ago), more than 100 state and private schools have together begun admitting and graduating more of these students.
Third, we need more graduates to direct their alumni giving to financial aid. I'm increasing my personal commitment — the largest donation to a collegiate institution, I'm told. But it's my hope that others will, too, whether the check is for $5, $50, $50,000 or more.
But these steps alone are not sufficient. Federal grants have not kept pace with rising costs, and states have slashed student aid. Private donations cannot and should not make up for the lack of government support. …
… There may be no better investment that we can make in the future of the American dream — and the promise of equal opportunity for all.
Bravo, Michael Bloomberg! If only more of America's billionaires could think like this!
Could You Owe Into Your Seventies?
Bloomberg's philanthropy was the good news. Now, unfortunately, the bad news, which is something Bloomberg is trying to overcome: This 76-year-old woman still owes $40,000 in student loans.
The typical 18-year-old who has set his or her sights on a “dream college" will not be thinking about life as a seventy-something. That 18-year-old may, in fact, be offered admission to his or her dream college and, regardless of the student loan consequences, decide to go full speed ahead and sign up, year after college year, for the loans needed to get that vaunted degree. Then it becomes truth and consequences time.
The truth will be deep debt. The consequences will be long-term debt, and in some cases lifelong debt:
In a few years, Seraphina Galante will be 80. And she'll still be paying off her student loans.
For a long time, she didn't tell anyone about her situation. But after the 76-year-old woman joined an advocacy group for borrowers, called Student Loan Justice, she realized she was not alone.
"It was amazing to find out that there are quite a number of seniors in this predicament," Galante said.
Indeed, Galante is one of 2.8 million people in the U.S. over the age of 60 with student debt, a number that has quadrupled from 700,000 in 2005 and continues to grow.
In 2018, Americans over the age of 50 owed more than $260 billion in student loans, up from $36 billion in 2004, according to the Federal Reserve.
Education debt is becoming yet another significant challenge for aging Americans, many of whom are already unprepared for retirement, consumer advocates and financial experts warn. ...
Seraphina is not alone:
… Steven Eads borrowed around $25,000 in his 30s and 40s to get his bachelor's degree in geology and then his master's degree in environmental science. During the financial crisis, he lost his house and filed for bankruptcy. However, student debt is one of the few debts that are close to impossible to discharge in the proceeding.
When Eads' son was diagnosed with cancer, he retired earlier than he expected to tend to him. His son eventually died.
During these difficulties, Eads put his loans into multiple forbearances, which are temporary postponements of payments, during which interest accrues. The 71-year-old man now owes more than $60,000, more than double what he originally borrowed.
"All that happened to me wasn't their fault," Eads said. "But it feels like the people who service the loans are putting obstacles in front of you."
He and his wife now live off around $2,600 a month between both of their Social Security checks and a small pension he receives from his 20-year career as a chemist for the government. ...
So, good news and bad news. I cite Michael Bloomberg's incredible generosity as a sample of what we can hope for from more and more wealthy citizens of our nation. I cite Seraphina's and Steven's sagas as a caution to those high school seniors who are applying to college.
Beware the consequences of student loan debt. Most of you won't be enrolling at Johns Hopkins or at an Ivy League or other elite school that meets 100 percent of a family's financial need. Most of you will be receiving financial aid packages that contain loans. Loans are necessary in many cases, for sure. But too many loans are dangerous and can be crippling … for life! Think about that.