The student loan crisis in America has reached an all-time high. Suze Orman encourages parents and students to avoid it at all costs.
When it comes to student debt, Suze Orman doesn’t mince words: “Student loans are the most dangerous loans you can have, bar none.”
America’s student debt crisis is at an all-time high, reaching an estimated $1.5 trillion in 2019. Students taking on loans to attend college frequently cannot secure jobs with incomes high enough to pay off their debt after graduating, and many live with debt their entire lives. “What we’re doing is allowing our students’ futures, America’s future, to be laden with such horrific debt that we are literally crippling the economic growth of our country,” Orman said. “It is horrible, horrible, horrible.”
Completely unprepared
As one of America’s most well-known financial advisors, Orman says students aren’t educated enough financially to fully understand the burden they’re taking on. “It’s a travesty that the high school system doesn’t make every student and parent pass a student loan exam before taking out a loan,” she said. “In 99.9 percent of cases, the loans are non-dischargeable in bankruptcy, and the kids don’t understand that. So when they are told the loans can go into deferment, the kids don’t realize that the interest they pay every day on that student loan just keeps growing.”
A student loan can be a solution for college tuition if families are practical about how they’ll pay the debt. “The rule of thumb is never take out more than what your first year out of college will pay you,” Orman said. “If you have manageable student loan debt — $40,000 or $30,000 or whatever it is — you will absolutely be able to pay that off if you stick to a plan and don’t go into forbearance, default, or deferment.”
When loans get as high as $100,000, that’s when things get dangerously unmanageable. “I have many emails from people telling me they’re in their 60s and they’re still paying off student loan debt,” Orman said.
No Ivy necessary
Another factor, according to Orman, is that too much importance is placed on expensive higher education, while community colleges are delegitimized. “I’ve got news for you: If I had a kid, there is no way they would be going to a $100,000-a-year school, even though I could afford it. We have created a society of the haves and the have nots, and it’s not right.”
As for making decisions about higher education, Orman said that it often comes down to parents’ unwillingness to speak frankly with their children about finances. “The parents have to have enough courage to say to their kids, ‘I love you more than life itself but I barely have enough money to save for my own retirement,’” she said. “That’s not a conversation to be had one year before they go; it’s a conversation to be had the day they enter high school.”
“Here’s the main thing,” Orman said. “You are not a bad parent because you can’t afford to send your child to a prestigious college. It makes you an honest parent that puts the needs of your child and you first. Going into debt for the rest of your life at an exorbitant interest rate that cannot be discharged in bankruptcy is not something that you want to be doing.”