In today’s episode I speak with Howard Dvorkin, CEO of Debt.com. It was very important for me to speak with guests who expressed concerns about the proposed student loan forgiveness program. Remember there are two sides to every conversation. What I was struck by was that when I asked him for suggestions on how to address the student loan crisis, Howard was aligned with what my other guests suggested as well. Basically, even though there wasn’t necessarily a consensus on the student loan forgiveness policy-there did seem to be a growing consensus among my guests about how to prevent this from happening again. I enjoyed this conversation and I hope you will too. Please note: nothing in this conversation should be construed as financial advice and this show is for entertainment purposes only. Do your due diligence.
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Listen to the Episode
Cash Freely
As a result of my debt experience, I was really skittish about ever getting another credit card. I hate to admit that when it was finally time to sign up for my first card in years-I chose badly. I hate this new credit card and I wish that I had known about CashFreely when making this decision. What I love about this free tool is the following. It helps credit card users stay organized when using different cash back programs.
You don’t have to worry about leaving cash on the table. CashFreely helps credit card users optimize the different cash back rewards programs that may be a part of current cards you’re using or future cards that you may be considering in the future. And just maybe, that extra cash can be applied as an extra payment on your student loan. Again, this is a free app or you can use the website and I think you should check it out. Click on the link in my show notes
Show Notes
Howard-My name is Howard Dvorking, I’m chairman of Debt.com I’m a CPA as well. I’ve been in the Debt space for 30 years. I’ve been helping people get out of debt for over 35 years. I have two books on credit and how to get out of debt.
Michelle-How did you get into this career? What happened to get you to help people pay off debt?
Howard-Great question. My family never had debt because we paid for everything with cash and that you never go to the bank and ask for a loan. Because the bank would give you a loan when people don’t need one. Fast forward I’m a CPA working for a firm in D.C. in the 80’s and the Savings and Loan crisis happened. I was working with people through this process. I often wondered “what about the average guy?” I then bought a house and I was getting these bills. I was using my credit cards and realized it was kind of addictive and thought that people would get themselves into trouble with credit cards. I thought people were probably getting into trouble and needed immediate help. I thought about helping people on the phone. I placed some ads in magazines and the phones started ringing and needed help. It was a good feeling getting people out of debt. I’ve probably assisted well over 10 million people over the course of my career.
Michelle-You talk about the addictiveness of some financial tools, what other financial headwinds, pressures or issues that your clients were dealing with?
Howard-Looking back, people’s attitudes towards money has changed. If you couldn’t afford something you wouldn’t buy it. Also, people’s attitudes towards being in debt. There was some shame related to being in debt. When I first started older people didn’t retire with debt. I’m noticing that has changed and that is problematic because they are making less money and don’t have the ability to pay on that debt. The attitude of consumers beingin debt has changed dramatically in the past 30 years.
Michelle-What do you make of that change?
Howard-I think it’s bad because people are living a lifestyle that they can’t afford because they see it on social media. The idea of “I deserve that” and I’m going to do it. The financial companies are making it easier for people to make these choices. Before there wasn’t a 7 year auto loan. The loan may outlive the use of the car.
Why Buy Now Pay Later Won’t Last
Michelle-What’s your thought of Buy Now, Pay Later products and services. KMART layaway in retrospect allowed people to pay small amounts on an item that stayed at the KMART facility. You can actually have these items in your home.
Howard-The Buy Now Pay Later model will blow up. It’s a great idea, but it won’t work. Around 43% of the loans are given to subprime borrowers. The riskiest level of clients. That’s a problem. They are given loans to people who cannot pay it back. They are lowering their credit standards in order to entice people to get further into debt. If you don’t have the money you shouldn’t be buying items and are hitting on people’s emotions and impulse purchases. The other thing is that this model is focusing on younger people 18-30 years old. They do not understand the product. All they hear is “pay 25%” then all the sudden they have big payments coming at them. Also, it doesn’t help you on your credit report because right now these payments aren’t reported. But, what will hurt you is that if you default that collection activity will be reported. You’ll likely see a lot of these businesses go out of business. In the real world of credit 18-30 year olds represent 13% of the credit population. They’re going to get hurt and it’s not a great product.
Michelle-There are a lot of folks who don’t understand the financial tools that they’re using. I’m curious about what has been the SLF policy or have you had chatter from your clientele about this program. What’s your read on what your community wants or is thinking about it?
Fairness and the Student Loan Forgiveness Policy
Howard-I’m going to answer this in a couple of different ways. The first, all the consumer hears is “free money” but there are downsides to that free money. These politicians are using this as a political football. The only reason they are talking about it is to get more votes. There’s no way the country can afford this. Frankly, I’m disgusted when politicians talk about this. It’s not that I don’t want people to feel financially secure; this is billions or potentially trillions of dollars. And I wonder where’s the fairness? What about the person who spent 20 or 30 years paying off their loans and then a year later someone else gets their loan paid off. Here’s an example: two people live next to each other, one went to a state school the other went to private school. State school guy paid off his loans in full and he’s done. The private school neighbor went through, didn’t pay off his debt, got deferrals and made smaller payments. They get similar salaries and one chose to play the system. The other one did the right thing and paid off the debt. Who’s paying? The guy who works on their lawns. The other person benefited by getting a higher paying job. That’s inherently unfair. I think it’s wrong. I do have a plan that would make this simple (I believe) Instead of charging 5,6, 7% interest why don’t we just charge 2% for all Federal loans from accredited universities vs. giving Mr. Smith $50k and asking the people who work for him to pay for it (via tax)
Michelle-To you think that there’s room to cap graduate loans. A consistent thread that undergraduate loans are capped and graduate loans are not. In addition to changing the APR there’s room to have a conversation about capping.
Howard-I think that makes sense because it puts pressure on the universities to run a more efficient business model. What businesses can raise its prices by 8-9% a year without pushback from its constituents. The problem is, no one is watching and it’s acceptable because the student loans are paying the expenses. The problem with universities is that they aren’t getting enough production from their professors, etc. Where the employees are working 30 hours a week. Universities should run a business and shouldn’t be able to raise prices just because they can.
Michelle-Do you think there’s also a conversation about the ROI students receive? If I go to this school will I be able to get a job? Are there resources to help students post graduation? Return on Investment and Cost and most of my guests are in agreement about colleges needing to be forced to reassess their business model. Because it doesn’t make sense that I had a maid in my college dorms. Senior year I lived in a suite and every week someone came in to clean. I didn’t have a professional career to pay for this.
Howard-You’re asking the wrong person that question. I believe that there should be one major in college-accounting. I had a friend of mine send me a picture of her son standing outside a prestigious university. He was standing by the sign. I thought it was wonderful. I asked my friend what he was studying. She said “Cinema Studies” for $80k. That’s crazy. I was married to a woman with a similar degree but she ended up doing something completely different. What can you use with that degree unless you move to L.A. or New York? I believe if you have the aptitude you should go to school. But, there are a lot of intelligent, successful people who didn’t attend school for several reasons. School doesn’t teach you everything in life. And probably 50% of your time in school is social and the other time is academics. Some would say that many people don’t use their degrees. If it’s specific such as law, accounting, science it does prepare you for a job. Not every education that you receive can be utilized and you can’t make money on it. There’s a certain part of me that thinks it’s a waste for some people.
Michelle-Currently, the loans have been paused and it has been over 2 years now. Besides the optics (during a political year) say that there’s no forgiveness moving forward-how do we prepare folks to start paying on that line item once the loans are required again. Spending has changed. What should we do next?
Howard-Michelle, that’s a very big concern of mine. It’s almost 3 years of a moratorium and it’s a big issue and you’ll have massive defaults coming at you. The initial pause was needed because of the Pandemic, the second one maybe, the third/fourth/fifth that was all politics. Unfortunately, the current Administration will cause massive defaults. This country cannot afford to give away that much money. There’s going to have to be some reconciliation on the defaults
Michelle- Could you expand on this comment?
Howard-If someone says you don’t have to pay $500 a month for the next 2 to 3 years, they will find another use for that money. Maybe they will buy a new house or car. Unfortunately, people get used to a certain lifestyle that they can’t afford. Now, you’re going to say “we’re just kidding you have to pay it back” Consumers will say “But, I bought a new car or house” There are some serious issues caused by this prohibition
Michelle-I do want to reframe this conversation. I remember from 2007-2009 the different administrations were doing the bank bailout and automotive bailout. Currently, we’re allocating money towards Ukraine. I used to live in Europe and I find it frustrating to me that the US citizen is never in mind. What’s the point of the Federal government if it doesn’t help citizens. I live in Colorado and the budget must be balanced. I’ll never forget in 2020 they had the budget balanced. COVID hit and they had to go back and cut everything and representatives cried on t.v. This year we have a surplus and we’re getting money back around $500. Sometimes I wish we would do that with the Federal government because it would force representatives to sacrifice.
Howard-I think we should take care of Americans first but it needs to be fair. But, giving free money to people and asking other people to pay for it and everyone needs to pay their fair share of taxes. They look towards the rich and unfortunately the middle class ends up picking up the rest of the tab. I’m not saying tax the poor or that the Rich need a tax break. What I would say is that when politicians go out there they need to think of Americans first. We give trillions away to countries that hate our guts. We cannot and should not put Americans second. It’s not intended to sound like political talk. But the burden of being efficient is back on the schools themselves. Charge a low interest rate to pay for the servicing of the student loans and the quality of the education. I just worked with a gentleman who attended an online university and I told him when I see that particular online university I pass on that applicant because it’s not a good school. They’re charging him $26k a year and it’s not good. Getting back to your question-our politicians need to start looking out for the people who put them in office and it’s not the average guy.
Michelle-I’ve begun to notice a consensus from my guests regarding the solutions for this problem. I think that Congress needs to listen to this series because you’re all coming up with the same solutions.
Howard-This is a tough thing to discuss and everyone has an opinion.
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