1. The Student Debt Crisis-- One Faculty’s Perspective
Presentation to the Friends of Bill (Utah Association of Student Loan Administrators)
The Student Debt Crisis--
One Faculty’s Perspective
June 12, 2018
Bryan Sudweeks, Ph.D., CFA
BYU Marriott School of Management at

2. Abstract
The rise of household and student debt is an alarming concern to all, including teachers of personal finance and student loan administrators. This presentation will share my framework for teaching, my perceptions of what it is costing students to go to school, what I hear about finances from my students, and what I am trying to impress on my students from what I teach. We conclude with what would you want me to be teaching as a professor and things we need to do differently in this industry. As we work together, we can find answers and better ways to both reach and teach these wonderful students.

3. Objectives In the next few minutes, I hope to address:
A. How I teach personal finance differently?
B. What is it costing students to go to school?
C. What do I hear from my students?
D. What do I try to impress on the students from what I am teaching?
E. What would you want me as a professor to teach?
F. Are there things we need to do differently to face the challenges in our industry?

4. A. How I Teach Personal Finance Differently
Our perspective for this course is simple. It is:
Personal, family, and individual financial management is simply part of the gospel of Jesus Christ

5. Teach Differently (continued)
Our learning framework for this class is unique
We use the framework for learning used by Professor David A. Bednar in his book “Increase in Learning”
It is based on doctrines (why we do things), principles (what we should do), and application (how we do things). He calls it, “A flexible tool that can be used to enhance our learning and can be a useful aid as we apply the principles of inquiry and the pattern of asking, seeking, and knocking” (Increase in Learning, p. 157).

6. Teach Differently (continued)
His concern is how we act. He writes,
Somehow we seem to be drawn to application as the primary way to ‘fix” things, to make life better. . . And far too often we emphasize application with the necessary understanding and divorced from the doctrinal content. . . Whatever the reasons, emphasizing the application to the exclusion of fundamental doctrines and principles does not produce spiritual power, protection, and direction. . . Appropriate applications are necessary but can never stand alone. What is needed is a balance among doctrines, principles and application. . . The answers always are in the doctrines and principles. And the doctrines and principles need to be in us (ibid. italics added, p. 170).

7. Teach Differently (continued)
It is a learning framework
It asks three critical questions that can lead us to better learning and life
1. Why should we learn and become better at personal finance? (this is a “why” or doctrine question)
2. What are the principles on which how we learn and become better at personal finance are based? (this is a “what” or principles question)
3. How do we learn about and become better at personal finance? (this is a “how” or application question)

8. Teach Differently (continued)
Why is this framework important?
1. This framework helps us ask the important questions about our finances, such as
“What doctrines and principles (why am I doing this and what really should I be doing), if understood, would help me:
“Change my behaviors toward my finances?”
“Teach my children the place of money in our lives?”
“Better improve my financial management to live on a budget, spend less than I earn, and be more exact in my record keeping?”

9. Teach Differently (continued)
2. This framework reminds us where the answers really are
Bednar reminds us, “What is needed is a balance among doctrines, principles and application. . . The answers always are in the doctrines and principles. (Italics added, Bednar, p. 170.)
3. This framework allows us to lift our perspective which can help us gain greater motivation
By finding our higher purpose, we gain greater motivation to do the things that we need to do. “With increased vision comes increased motivation” (Ted R. Callister, Ensign, May 2013).

10. Teach Differently (continued)
4. This framework encourages us to take the long-term perspective rather than a checklist approach
Putting things in a proper perspective allows us to see that the purpose of personal finance is to help us become better people, parents, and citizens
5. This framework changes our thinking
While principles and application keep us on the right track, understanding the doctrines and principles allows us to transform those hourly and daily mundane acts of obedience we must do in our finances into the majestic purposes that our Heavenly Father has planned for us.

11. B. What is it Costing Students?
It is costing students a lot to go to school
Costs include:
Time
Tuition, fees, books and supplies
Room and Board
Lost wages from other alternatives
Loss of previously held ideas and concepts
For those who borrow:
It is the lost use of future earnings and experiences they might have had but did not because they have to pay off their educational loans

12. What is it Costing Students (continued)
A student commented:
You taught be about personal finance, but you didn’t teach me how hard it would be to pay back student loans
Why is it so hard to pay back these loans?
Did you ever notice that students are not consistent in their thinking
They talk about salary on an before-tax basis (i.e., $50,000) and borrowing (a student loan) on an after-tax basis (i.e., $3,000)

13. What is it Costing Students (continued)
Why is it so hard to pay back loans?
Students don’t understand the key principles:
Understand yourself, your vision, goals and plans (identity)
Understand your purpose for education and your available resources (have an idea of what you want to do in life)
Make an Education Plan (so you climb the right mountain)
Learn to be financially wise (it is a lot easier and cheaper)
Understand the costs and benefits of financing (you will likely earn more after college so borrowing may help)
Be wise and borrow only for a modest education (education is generally an appreciating asset)
Borrow as little as necessary, at the lowest interest rate available, and pay it off as quickly as you can (be wise)
Be honest in your dealings (integrity is fundamental)

14. What is it Costing Students (continued)
We created a tool to help students’ clear up one aspect of perspective and to be financially wise
It was created to help students and others take this before-tax perspective (and it doesn’t yet account for interest)
It is available at
Go to Helping Others, Learning Tools, and Loan Amount to Pay Back (LT34)

15. Student Loan Example
Chandler is in the 22% Federal marginal tax bracket and the 7% state tax bracket
He is paying off a 6.8% student loan for $3,500. How much will he have to earn on a pre-tax basis for every dollar he pays back on the loan (and this is before interest)?
For pay back $1, he must earn
1 / (1 – ( )) or
$1.41
That’s 41% more than he borrowed!

16. Student Loan Example (continued)
How much will he have to earn to pay off his $3,500 student loan (before interest)?
He must earn $4,930 just to pay off the loan, and that is before interest costs.

17. Student Loan Example (continued)
What impact does charitable donations and savings have on amounts to pay back?
Savings and charity increase the amount students must earn to pay back a loan

18. Student Loan Example (continued)
What about subsidized student loans?
Many don’t understand that subsidized loans don’t eliminate interest; rather, the government pays interest while the student is still in school and then the student must pay the loan back in full

19. Student Loan Example (continued)
Notice that the Annual Percentage Rate (APR) changes depending on this perspective
A after-tax 6.8% APR loan for a person in the 22% federal and 7% state marginal tax brackets is not 6.8% pre-tax: rather, it is significantly higher
The key point is that the APR is the after-tax rate for the loan (not including other fees), not the actual rate students pay on a before-tax basis. The before-tax basis is significantly higher

20. What is it Costing Students (continued)
We need to help our students understand the principles

21. C. What do I Hear From my Students?
My students concerns are similar to most schools (and not in any specific order)
Grades: Surviving school with a high enough GPA for scholarships and possible grad school
Relationships: Building a strong foundation for a spouse, family and a lifetime of service
Jobs: Getting the internships/jobs needed
Finances: Trying to get through school without borrowing or trying to minimize borrowing
Future: Being wise and preparing for long-term goals

22. What do I Hear?
Students learn personal finance differently and at different speeds, based on their:
Priorities: Priorities determine time spent on personal finance. Many don’t understand personal finance because its low on their priority list and they do not give it the necessary time
Applicability: Seeing its applicability is key. Some are excited as they see the applicability of personal finance in their lives and go on to make changes
Background: Some have trouble because they have were not taught finance growing up. It is harder to learn finance when you have no background in it

23. What do I Hear? (continued)
Class Load: Some have heavy class loads. They are not able to put in the necessary time in their personal finance classes which are not part of their major and considered less important
Stage in Life: Changing life stages is a critical motivator for most students. Leaving school, getting married, having children and realizing the importance of preparing for retirement are all important motivators for students to change

24. What Do I Hear? (continued)

25. What do I Hear? (continued)
Indications the problem is getting worse:
Recent Trends in Student Loans: More Loans and Higher Balances, St. Louis Fed, May 2014
Student Loan Delinquency: A Big Problem Getting Worse, St. Louis Fed, April 2015
What’s Behind--and Beyond--the Default Rate on Student Loans, St. Louis Fed, June 2014.
Student Loan Debt: Can Parental College Savings Help, St. Louis Fed, December 2014.
Are Household Debt and Student Debt Exploding, St. Louis Fed,” FRED Blog, May 2017.

26. D. What do I try to Impress on my Students
Remember that “Life is Good”
L1 Love the Lord and always put and pay Him first
I 5 Invest your money wisely, consistent with your risk
F 8 Find happiness in your spouse, family and service
E9 Enjoy the journey and give back
I 7 Invest in yourself and family for Educ. & Miss.
S 6 Save 20% of everything, with 15% for retirement
G4 Get and stay out of debt
O2 Organize yourself, know vision, goals & plans
O3 Operate on a budget and get very good at it
D10 Do good, be good, and get better

27. What do I try to Impress (continued)
I do this by having every student puts together a Personal Financial Plan – a roadmap for their financial lives. It includes 16 sections:
Introduction
Vision, Goals and Planning
Financial Statements
Income Statement
Balance Sheet
Liquidity, debt and savings ratios
Budgets and Spending Plans
Tax Planning
Cash Management
Credit Use: reports & scores
Loans & Debt reduction
Insurance Planning
Money and Relationships
Investment Planning (IPS)
Retirement Planning
Advance Planning
Giving Plans
Education, Mission, Home and Auto Strategies
Service Teaching

28. E. What Would You Want Me to Teach?
Here is what I teach (7 of 8 principles)
Understand yourself, your vision, goals and plans
Understand your purpose for education and your available resources (have an idea of what you want to do in life)
Make an Education Plan (climb the right mountain)
Learn to be financially wise (it is a lot easier and cheaper)
Understand the costs and benefits of financing (you will likely earn more after college so borrowing may help)
Be wise and borrow only for a modest education (education is generally an appreciating asset)
Borrow as little as necessary, at the lowest interest rate available, and pay it off as quickly as you can (be wise)
(The problem is I get many in their last year of school)

29. What You Want Me to Teach (continued)
Here is what I hope you teach (5 of 8 principles)
Understand your purpose for education and resources (know your higher plan for what you want)*
Make an Education Plan (plan your schooling)*
Understand the costs and benefits of financing (you will earn more after college so borrowing may help)*
Be wise and borrow only for a modest education (take into account the future job when considering amounts to borrow)*
Borrow as little as necessary, at the lowest interest rate available, and pay it off quickly (seriously, this is not free money and this debt won’t go away)*
* Common tasks we teach together

30. What You Want Me to Teach (continued)
Here is what we cannot teach
Be honest in your dealings (integrity is fundamental to the student loan process)

31. What You Want Me to Teach (continued)
What would you like me to teach?

32. F. Things We Need to do Differently
We cannot teach honesty
However, we should be able to hold students accountable for their actions. While there are valid public policy issues for not doing this, I am surprised that:
1. There are no credit checks for the ability of students to repay their loans
Resources are going to students who have no history, willingness, or ability to repay, and thus are not going to more needy borrowers
These loans will follow them for the rest of their lives, and will continue to be a drag on the financial system

33. Things We Need to do Differently (continued)
2. There is no graduated rate of interest for those who have not shown credit reliability
Our financial system is the envy of the world, as lower risk people can borrow at lower rates
Why can’t we use this existing infrastructure to do this with students as well

34. Things We Need to do Differently (continued)
3. Students do not have to take any prerequisite classes on financial management before going into major debt
This seems counter to my teaching and understanding on responsibility
There should be required classes and grades that students should have before they are allowed to borrow
Moreover, as borrowing increases, scrutiny over future borrowing should increase

35. Things We Need to do Differently (continued)
4. Students do not develop an Education Plan where they detail where they are going educationally and they are not held accountable for this Plan
Students should have an Education Plan with interim goals, plans, constraints and accountability
There should be intermediary goals that students should meet before they are allowed to take out additional loans
We have progress payments with construction loans. Could we do something similar with education loans?

36. Things We Need to do Differently (continued)
What should we be doing differently?

37. Summary I teach personal finance differently
I use Professor Bednar’s approach to learning. It is:
Doctrines: Why are we doing this?
Principles: What are we doing?
Application: How should we be doing this?
The answers are in the principles and doctrines, why we are doing the things we are doing and what are the things we should do

38. Summary The key principles of education are:
Understand yourself, your vision, goals and plans (identity)
Understand your purpose for education and your available resources (have an idea of what you want to do in life)
Make an Education Plan (so you climb the right mountain)
Learn to be financially wise (it is a lot easier and cheaper)
Understand the costs and benefits of financing (you will likely earn more after college so borrowing may help)
Be wise and borrow only for a modest education (education is generally an appreciating asset)
Borrow as little as necessary, at the lowest interest rate available, and pay it off as quickly as you can (be wise)
Be honest in your dealings (integrity is fundamental)

39. Summary What is it costing students to go to school?
It costs a lot, including:
Time
Tuition, fees, books and supplies
Room and Board
Lost wages from other alternatives
For those who borrow:
It is the lost use of earnings and experiences they might have had but did not because they had to pay off their educational loans

40. Summary What do I hear from my students?
They are concerned, concerned about
Grades
Relationships
Jobs
Finances
Future
But the levels of concern vary depending on where they are in their education and their lives
We need to get them at the right time

41. Summary Remember that “Life is Good”
L1 Love the Lord and always put and pay Him first
I 5 Invest your money wisely, consistent with your risk
F 8 Find happiness in your spouse, family and service
E9 Enjoy the journey and give back
I 7 Invest in yourself and family for Educ. & Miss.
S 6 Save 20% of everything, with 15% for retirement
G4 Get and stay out of debt
O2 Organize yourself, know vision, goals & plans
O3 Operate on a budget and get very good at it
D10 Do good, be good, and get better

42. Summary The really key questions for today are:
What would you want me as a professor to teach?
Are there things we need to do differently to face the challenges in our industry?

43. Appendix Abstract Objectives A. How I Teach Differently
B. What is it Costing Students
Key Principles of Education
Student Loan Example
C. What do I Hear from my Students
Household and Student Debt Graph
D. What do I try to Impress on my Students
E. What Would You want me to Teach?
F. What Things do we Need to do Differently?
Summary