Tag Archives: student loan debt

Building Wealth In College: 6 Personal Financial Tips Before You Blow Your HBCU Refund


By William A. Foster, IV

“There are two types of (people) in this world; there are those with guns and the ones with butter. The guns; that’s the real estate, the stocks and bonds, artwork that appreciates with value. The “butta”; cars, clothes, jewelry that don’t mean shit after you buy it.” – Melvin (Baby Boy)

When I arrived at my HBCU many years ago, two decades ago now, it was true before, it was true then, and it is true now – you know on an HBCU campus when refund checks have been disbursed. New wardrobes show up and fashion shows commence across campus, “new” used cars show up with rims and sound systems, and in some cases trips to Jamaica for spring break are coordinated. A full range of African American consumerism is in full bloom. The problem of course is that majority of these refunds are part of a financial aid package that largely includes student loans. This means students are being handed thousands of dollars (with no financial aptitude) that will in their future life turn into tens of thousands of dollars of student loan debt to pay back. But Jamaica will be fun, right? Or in the words of the classic philosopher Riley Freeman (of the Boondocks) after blowing the food money their granddad left them “Now before you start hating, ask yourself – be honest, ain’t I clean though?”

The ripple effect is acute to put it kindly. HBCUs, although significantly cheaper, often find their students graduating with more student loan debt than their counterparts. A result of poor endowments, lack of family resources, and again, poor financial aptitude. Student loan debt, even more so than credit cards, maybe the easiest debt for a college student to obtain. It is also the cheapest unsecured debt that most of us will ever see or have access too in our lifetime – and there is the rub. There is good debt and bad debt. As simple as it can be put, good debt helps you acquire assets that generate income. Bad debt does not. Again, good debt, if used properly helps you acquire assets that can in turn pay off the debt and once paid off continue to pay you passive income. The best example of this I ever witnessed was a classmate of mine who had a part-time job while in school was using his refunds as down payments on rental properties buying one or two a year. By the time we graduated he owned 5-6 rental properties that were all cash flowing. Those rental properties will pay for the mortgages AND his student loans. Eventually leaving him with rental income and appreciation from the properties. Meaning when he takes that trip to Jamaica he could really afford it.

A few things to think about before we get into our tips. Upon graduation, do you expect for someone to give you $10,000 or more dollars? Upon graduation, how will you come up with the deposit for your first apartment? Upon graduation, will you have an emergency fund or savings of any sort? For most HBCU students, there is a resounding no to probably all of those questions, which is why refunds should be treated as close to an “inheritance” as most of us will ever see. If we are smart about it, this will give us the foundation to build transformative wealth.

The TIPS

TIP 1: Learn to say NO. Say no to yourself, to your friends, and for a lot of HBCU students – your family. The last part being the hardest for some. It is a poorly kept secret on a lot of HBCU campuses that a lot of students send portions of their refund checks  home to help their families. Unfortunately, their families are not likely to be helping them pay their student loans after graduation. Without learning to say no you are likely to succumb to your own consumer desires, friends or classmates peer pressure, and families dependency. Just like when flying, put your mask on first. In other words, make sure you establish your financial foundation before overextending yourself to help others. Financial security and stability should be a paramount concern. If you are unsure what that means, always ask yourself this question as you build wealth – if something happened and you could never work again – how long would you be financially okay?

TIP 2: Call a financial advisor and open a brokerage account. There is a misconception that that financial advisers are for the wealthy. This is simply not true. They are for whoever is willing to use them and the earlier you acquire one the more likely you are to make a long-term plan for wealth creation. Remember, you building wealth is in their best interest. If you need help finding a financial advisor, do your homework. There are vultures out there like in any occupation, but there are quality people in the profession as well. This is one time where Google is indeed your friend. A great place to also go – your HBCU’s business school. Just to understand what this has the potential for in the short-term. Imagine your refund is $2,000 a year and we will use the prior five year returns of the S&P 500. The returns on the $2,000 invested each August over the past five years would be worth $14,020 today. Which means the student would have increased their assets by 40 percent with a student loan interest rate that has been under 5 percent for over a decade. There are however downside risk and that should be explained to you by the financial advisor. If they do not explain this, fire them immediately and find a new one.

TIP 3: The financial advisor can help you with this one as well, but it is a specific type of account. Opening a Roth IRA. It is another type of brokerage account, but the difference is you will not have access to the money until you reach the ripe retirement age of 65. The beauty of this account though is you will never pay taxes on the money earned in it. Retirement is often something that African American are ghastly unprepared for financially. If you contributed $2,000 a year to the account during your five years in college and graduated at 22 you would have $10,000 in your account. If invested in the market, which has a historical annual return of 12 percent, and you simply contributed $50 a month going forward for the next 43 years that would give you at the age of 65 over $2 million tax-free.

TIP 4:  Open a CD ladder at your bank or credit union. Every year when you get your refund, go to your bank (preferably a Black Owned Bank) and open a certificate of deposit (CD). Your freshmen year get a four year CD, sophomore year get a three year CD, junior year a two year CD, and so on. Assuming you are getting a minimum of $2,000 in refunds per year and it takes you like many students these days five years to graduate, when you walk across the stage you will have $10,000 to start off in the world with. This will not have the same impact as the previous tip, but is more for those who are a bit more risk averse. While you may not increase your assets by 40 percent, there is also no chance of you losing any of the $10,000 either. If you are not familiar with CD ladders, call your bank, visit the library, Google, and of course as always – your HBCU’s business school.

TIP 5: Start a business. When I was in undergraduate, I wanted to open up a jazz club, but learned very quickly and harshly that nobody wants to lend to just a good idea. Banks, the SBA, and others expected you to have some skin in the captain also known as a down payment of capital. It is also unlikely that you will be able to call home and have family fund your amazing idea. Often times, your refund can serve as the seed capital for your business. Remember, Michael Dell founded Dell Computers in his dorm room. You do not need to be a business major to start a business. You need an idea. It certainly is prudent to visit your HBCU’s business school and ask for guidance on things like setting up the proper paperwork. While there, you may have recruit an accounting student as your CFO and a marketing major as your CMO. Some HBCUs actually house the region’s Small Business Center that is funded by the SBA and they have a lot of free resources at your disposal to help you get on your way.

TIP 6: Create a real estate partnership. Believe it or not, there is still a lot of valuable real estate that is available to be purchased in and around HBCUs. It also protects HBCU communities from gentrification that we have and are seeing around HBCUs like Howard, Texas Southern, Prairie View, and others. If you can find three other like-minded class mates who are all willing to contribute their refunds that would be $8,000 a year and $40,000 by the time of graduation which would give the group buying power of $200,000 worth of real estate. Be it a single-family, duplex, or other kind of rental property. Your refunds could be the start of a real estate empire that in turn would pay off all of you and your classmates student loans and build wealth over the years. Definitely do your homework on this one. Take a real estate class from a reputable place, speak with a local real estate investor who maybe open to mentoring, and of course see what resources your HBCU business school has on the topic.

In the end, whatever you choose to do with your refund, make sure it counts. Remember, this is still debt – whether it becomes good debt or bad debt is ultimately up to you. Getting more financially educated whether you receive a little refund, a big refund, or no refund is vitally important for all HBCU students and their futures.

 

 

The 2016-2017 HBCU Graduate Student Loan Report


There is scarcely anything that drags a person down like debt. – P.T. Barnum

The most recent study on HBCU student loan debt by HBCU Money shows a continued trend in this our third installment of tracking the crisis at our nation’s Historically Black Colleges & Universities. Whatever the nation thinks of the overall student loan crisis, it pales in comparison to what is happening at HBCUs. America’s student loan flu is African America’s student loan pneumonia with no insurance.

To put it mildly, the HBCU student loan crisis continues to be complicated. Overall, less HBCU students are graduating with debt as a percentage, which is a positive thing. Although the cause of why that number continues to drop is very unclear. The other piece of the puzzle though is the amount of student loan debt HBCU students are graduating with is skyrocketing. In the five years since our original report, the median student loan debt for an HBCU graduate is up twenty percent. Over that same period, median student loan debt for those graduating from a Top 50 endowed college or university is up only six percent.

The results are paired against America’s 50 largest universities by endowment which varied by geography, public and private status, and school size similar to that of HBCUs. The Project on Student Debt by The Institute for College Access and Success reports that in America overall, “New data show that the average student debt for college graduates continues to climb but at a slower pace, according to a report released by the Institute for College Access & Success. Nationally, about two in three (65 percent) college seniors who graduated from public and private nonprofit colleges in 2017 had student loan debt. These borrowers owed an average of $28,650, 1 percent higher than the 2016 average.”

Numbers in parentheses shows the comparative results from the universities of the 50 largest endowments:

Median Debt of an HBCU Graduate – $34,131 ($24,237)

Proportion of HBCU Graduates with debt – 86% (40%)

Nonfederal debt, % of total debt of graduates – 4% (26%)

Pell Grant Recipients  – 71% (15%)

Statistics show that HBCU graduates are almost 32 percent more likely to graduate with debt than the national average, this number is up from 28 percent a few years ago. As the nation continues to increase the percentage of graduates with debt, HBCUs are actually decreasing its percentage is a canary in the coal mine. Again, it is unclear what is causing the drop. HBCU graduates are an astonishing 115 percent more likely to graduate with debt than those graduating from a Top 50 endowed college or university, by far the worst number in our report’s history with the previous being 96 percent more likely three years ago and 93 percent more likely five years ago. A disturbing trend upwards if there ever was one. The percentage of HBCU graduates finishing with debt is down over four percent in the past five years, while Top 50 endowed college or university graduates have seen the percentage of graduates graduating with debt down over eleven percent.

In terms of the debt itself, as mentioned the median student loan debt is up over twenty percent since our inaugural report five years ago. Disparagingly, student loan debt for HBCU graduates is more than 40 percent greater than Top 50 endowed college and university graduates. This creates a number of socieoeconomic issues  for HBCUs themselves and for the graduates they hope will be able to benefit from education’s upward mobility in wealth accumulation.

Median Total Cost of Attendance – $22,866 ($66,623)

The cost of attending an HBCU should be an advantage for African Americans, but poor endowments and lack of familial wealth continue to negate the one primary advantage HBCUs have, cost. Despite costing almost three times more over a four year period, Top 50 endowed colleges and universities are managing to graduate those who finish with debt at about 9 percent of the total cost of attendance over that four year period. In contrast, for HBCU graduates, they are finishing with 37 percent of the total cost of attendance over the same period.

Three years ago in our second report we said this and it remains true here in our third report as well, “Unfortunately, HBCUs are caught between a rock and hard place in needing to desperately raise tuition to generate more revenue because of weak endowments, but doing so increases an already over-sized burden on their graduates long-term and making it even less likely they will become the donors that the institutions desperately need. It has become a vicious cycle and with so much of African America and America invested in the demise of HBCUs that it seems only a miracle will keep us from perishing.” Without transformative donations of the eight and nine figure variety on a more consistent basis, then it is hard to see the student loan debt load decreasing or even plateauing at this point. A somber reality in a world where education is becoming increasingly vital for upward mobility for individuals, families, and communities.

The Finance & Tech Week In Review – 3/18/17


Every Saturday the HBCU Money staff picks ten articles they were intrigued by and think you will enjoy for some weekend reading impacting finance and tech.

What might an aging population mean for wealth inequality? / St. Louis Fed  bit.ly/2mDC6wG

The benefits of being bilingual – it’s more than just useful / WEF  wef.ch/2mBM2rd

Over the past year, average student loan debt in the 10th District has increased 6% / KC Fed ow.ly/yAqI308T1px

Simple living and conscious buying come with the territory for tiny home owners. / Practical Money pmsfl.us/2nnUfQS

If the housing bubble bursts, is the #US ready? / WEF wef.ch/2m0T9dq

Is it time to rethink gravity? / New Scientist ow.ly/LFXO309VNmf

The brain needs a moment to move on from mistakes. / Science News  ow.ly/1z8y309Wqcr

7 tips for developing a powerful data disaster plan / NetworkWorld  ow.ly/6TNg309WnU8

TRAPPIST-1 worlds are close enough for life to hop between them / New Scientist  bit.ly/2mJzE6g

DYK? More than 40,000 schools across the U.S. participate in #FarmtoSchool programs. / USDA ow.ly/6WCe309Rjwr

 

Good News/Bad News: Percentage Of HBCU Graduates With Debt Drops But Debt Loads Increase


Debt is the slavery of the free. – Publilius Syrus

hbcugradsdebt

A follow up to our internal study two years ago on HBCU student loan debt shows a “good news, bad news” situation for those graduating from HBCUs hallowed grounds. Slightly less are graduating with debt than two years ago, but those who are graduating with debt can expect those debt loads to be heavier. A troubling sign as wages stubbornly refuse to rise despite an arguably healthier overall economy in terms of employment. I say arguably because African America still remains the only group in this country experiencing double digit unemployment and largely dependent on employment from non-HBCU owned businesses. Add to the fact African American households earn 35 percent less than the national average and 50 percent less than Asian American households who have the highest household income in the nation; there will be a good deal of continued penny-pinching ahead for HBCU graduates. Although, one has to wonder at this point if we are not squeezing blood from a turnip as the old saying goes.

HBCUs served 99 percent of the African American population obtaining higher education prior to desegregation while today that number has dwindled to the neighborhood of 10 percent. This steady but precipitous decline over the past 60 years has had long-term impacts on HBCU endowments not least among them the probability of producing high quality donors and large alumni populations. The latter being integral since only an average 13 percent of America’s alumni donate. Wealth or lack thereof is also playing a role for African American families and the rising HBCU student loan debt. African American families have recovered mildly since the recession, but the median wealth gap between European/Asian and African American families is well over 20:1 as of 2012. Institutional wealth is also part of the spider web of student loan debt. The institutional wealth gap as a result of desegregation is even scarier with the top 50 endowments (all PWI/HWCUs) having a combined $330 billion versus 100 plus HBCUs with approximately $2-3 billion. All of these factors contribute to an ongoing burden by families, HBCUs, and HBCU support organizations to try and reduce student loan debt for HBCU graduates.

The results were paired against America’s 50 largest universities by endowment which surprisingly varied by geography, public and private status, and school size eerily similar to that of HBCUs. The Project on Student Debt reports in 2013 that 69 percent of all college graduates have student loan debt and the average debt of that graduate is $28 400. Both numbers are up from two years ago, when the figures were 66 percent and $26 600, respectively. The latter puts average debt rising almost 7 percent in the past two years.

The number in parentheses shows the comparative results from the universities of the 50 largest endowments:

Median debt of HBCU Graduate – $30 344 ($22 020)

Proportion of HBCU Graduates with debt – 88% (45%)

Nonfederal debt, % of total debt of graduates – 6% (23%)

Pell Grant Recipients – 69% (17%)

The statistics show that HBCU students are still 28 percent more likely to graduate with debt than the national average, a figure that was at 35 percent two years ago. A sign that the nation is catching up to the HBCU indebted way of life. HBCU graduates are 96 percent more likely to graduate with debt than someone from a school with a top 50 endowment, which is higher than the 93 percent two years ago. Unfortunately, there is no way to break out the African American student loan debt data of those attending those HWCUs which would help control for family resources playing an integral part in the difference. Given top 50 endowments ability to provide more low-income based aid; it is a safe assumption that the student loan debt is potentially lower for African Americans at HWCUs both in terms of percentage of those graduating with debt and debt loads. Over the past two years, median debt for HBCU graduates has risen 5.4 percent in comparison to top 50 endowment schools of only 1.4 percent. Both groups though are below the aforementioned national average over the same time period.

The most telling sign of just how vital endowments impact student loan debt appears in the median cost of attendance for HBCUs versus top 50 endowment institutions. Top 50 endowment institutions cost almost three times as much or 177 percent more than HBCUs in terms of median total cost of attendance. Despite this HBCU graduates are still twice as likely to finish with debt and with more of it is a disturbing reality of just how big the institutional wealth gap is. HBCU graduates are finishing with almost 38 percent more student loan debt burdens than their top 50 endowment institution counterparts. A problem that will have very long term systemic wealth building implications if not attacked ferociously. Currently, the median net worth or wealth for African Americans is the lowest among all groups in this country at $11 000. In comparison, Asian and European American median net worth is $91 440 and $134 008, respectively.

As I said two years ago, we could spend years playing the blame game of why this situation is as it is. Unfortunately, African America does not have that kind of time. Two years later, it seems even harder to believe that the HBCU community has any more grapple or workable solution on this problem than before. There seems to be a foregone conclusion that student loan debt is just a part of life and as is the case with most things in this nation when America catches a cold, then African America catches pneumonia. The question becomes just how much debt and how fast it accumulates will ultimately determine the sustainability factor for how long-term benefits will be reaped by graduates, their families and communities. Unfortunately, HBCUs are caught between a rock and hard place in needing to desperately raise tuition to generate more revenue because of weak endowments, but doing so increases an already over-sized burden on their graduates long-term and making it even less likely they will become the donors that the institutions desperately need. It has become a vicious cycle and with so much of African America and America invested in the demise of HBCUs that it seems only a miracle will keep us from perishing.

HBCU Money™ Dozen 10/27 – 10/31


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Did you miss HBCU Money™ Dozen via Twitter? No worry. We are now putting them on the site for you to visit at your leisure. We have made some changes here at HBCU Money™ Dozen. We are now solely focused on research and central bank articles from the previous week.

Research

Cleveland Clinic uses IBM’s Watson in the cloud to fight cancer l Network World http://ow.ly/DA5nK

How to figure out if a data breach is a hoax l Network World http://ow.ly/DA5QJ

Prescriptions for Cleaner Waterways l US EPA Research http://go.usa.gov/7TdF

Sorry boys. Bird divorces are good news for the females l New Scientist http://ow.ly/DA6pz

Healthcare CIOs Can’t Be Afraid to Innovate l CIOonline http://ow.ly/DA6zv

Writing letters by hand produces measurable changes in brain activity compared with typing l New Scientist http://ow.ly/DA6I5

Federal Reserve, Central Banks, & Financial Departments

Are record-low interest rates masking high-cost mortgage lending? l Housing Wire http://hwi.re/7MqG7v

How empowering women can tackle malnutrition l World Economic Forum http://wef.ch/1zN9BP5

Africa’s urban population growth: what are some trends and projections? l World Bank http://wrld.bg/Dz1V8

Are men more emotional about money? l World Economic Forum http://wef.ch/1q30rEx

Dodd-Frank: Proposed records retention requirements for FDIC as receiver l St. Louis Fed http://bit.ly/1wE4Qne

On the Economy explores rising share of borrowers with more than $100,000 in student loan debt l St. Louis Fed http://bit.ly/1mm1KwI

Thank you as always for joining us on Saturday for HBCU Money™ Dozen. The 12 most important research and finance articles of the week.