When you’re the child of immigrant parents, you quickly learn the value of a dollar and the difference between needs and wants.  Food, basic shelter, education are needs.  Everything else is wants.  I wanted “everything else”, like name brand clothes and electronics.  I got tired of being the kid in school with the $20 pair of sneakers, so I got an afterschool job after 8th grade to get those wants.   My parents would have killed me if they knew I was spending $100 on a pair of Timberland boots or a 64MB MP3 Player, so I would hide my receipts when I got home.  Despite the follies of my youth, I somehow learned how to save money.  By the time I was 25, between a combination of living at home my first 3 years out of college, investing 5% of my income in company stock, and 15% of my income in my 401K and living below my means,  I had saved over $100,000.   I’d lose a lot of it later during the housing bubble, but YOLO (you only live once).

I went to college on a partial academic scholarship, and didn’t get a credit card until I was 22 years old.  So I didn’t really know much about “debt” until I went to business school.  Harvard Business School costs $90,000 per year.  I did some research and found a few investment banks that offered fellowships that covered business school, and was able to get my first year paid for.   However, because I wanted to enrich my experiential learning (which is code for extensive traveling), I still graduated with $120,000 in student debt….but again, YOLO.

During the time period following graduation, to better manage my debt I refinanced a portion of my student loans to a private, floating rate loan that was nearly 3% lower than my government loans.  I always put a little more in than the minimum to pay it down faster.  But I was also saving for an engagement ring, a wedding and a new apartment with my soon to be wife.  I had not been investing in my 401K during this period, so lost several years of retirement savings. 

Conventional wisdom says to maximize your 401K, and pay the minimum towards your debt.  But the reality is that I hated watching my debt grow, hated having to pay interest on debt and prefer putting money in investments that I can control and don’t have to wait until I’m 65 to touch.  Also when you’re working for a startup, which I had decided to do after business school, you’re hoping that it will be your retirement.  It also requires saving a larger nest egg than usual as job security can be tenuous.

Through the growth of the startup and living below my means, which included a few months of living with my in-laws and 1 year old nephew, I was able to get my savings back up to pre-recession levels.  With $100K I had saved in my bank account, I took a leap of faith (drumroll…YOLO), quit my job and started a mobile app publishing company.  I bootstrapped it, got it up to 3 full time employees and sold the business at the end of last year.   I took a few months after selling my company to figure out what I wanted to do next.  A friend of mine recommended a strategy that had worked for him, which was asking close friends and family what was the one thing he was really good at.  The objective being to pursue something you are really good at, versus investing or building strengths in areas that you are weak at.  After procrastinating for a few months on doing this exercise (I hate asking people about myself because I may not like what I find out), I finally reached out to a dozen or so people whom I trusted.  The feedback was pretty much unanimous: I was good at setting personal objectives and meeting them.  While it was nice to know how I was perceived, I wasn’t quite sure what I could do around that skill.

I decided to write down a list of all of the things we set personal objectives around, e.g. applying to school, saving for retirement or for a specific milestone, finding a spouse, getting in shape, getting things done at work, house chores, personal development, etc.  I then looked for successful companies that had been built around those personal objectives.  Match.com for finding a spouse, Thumbtack for house chores, Yammer for getting things done at work.  This gave me some encouragement that I could start a company around setting goals and achieving them, but still didn’t help me narrow down the vertical I would operate in.

Personal finance and investing has always been a passion of mine.  So I thought maybe I could start a company setting and building objectives around that.  I’ve always taken a high risk/high reward approach to investing, so one of my biggest frustrations has always been how few of my peers took advantage of the better returns you can get investing in the stock market.   I decided to send out a survey to find out how people invest, where they invest and how they learn about the stock market, in the hopes that I could use that information to create something useful.  The results of that survey were quite interesting.  Thanks again to everyone who participated.

The survey revealed a few things.  For one, most people’s exposure to the stock market was through their company retirement plans, and a lot of people were just selecting whatever the standard options were in their retirement plan.  I was a little disappointed with the underwhelming involvement in the stock market but another question in the survey would reveal why people weren’t putting more money into the market.

One of the questions I asked in the survey was “If your income doubled, what would you most likely do with the extra money?”.  The number one response was pay off high interest debt, particularly student debt.  Not a surprise. My wife and I could put a healthy down payment on a mansion with the amount of student debt we have between us.   However, I had always naively assumed that debt was something you just had to deal with personally and that it shouldn’t get in the way of investing for your future.  The reality is this is NOT the case for A LOT of people.

But, how did people get into so much student debt, and why aren’t we paying it off faster?  A lot of it comes from the huge difference between the amount of debt we are taking on as students and the inequality between degree earning potential.  As one friend put it, “No one told me that I would come out of school with $100,000 in undergraduate debt and the starting salary for my degree would be $30,000.”

Here’s some interesting stats I found while doing additional research.

  • There is $1.3 trillion in outstanding student debt.
  • Student debt is growing at a rate of $2,726 every second.
  • More than 40% of student borrowers aren’t making payments.
  • Fidelity Investments, the nation’s largest 401(k) provider discovered that 41% (4 in 10) of those ages 20 to 39 cashed out of their 401(k) after leaving their job.
  • In a recent survey, 49% of respondents, said they would prefer student loan payment contributions over a 401(k) plan.
  • Each additional dollar in student loan debt decreases your retirement savings by 35 cents.
  • Homeownership among Americans under 35 fell to 34.8 percent, down from a high of 43.6 percent in 2004.

The conclusions are clear.  Student debt is dragging down saving for retirement and starting life for a lot of younger Americans.   We did what our parents asked and went to college, and earned degree upon degree upon degree, with no regards to cost.  We even made Grammy winning albums satirizing our college experiences (Kanye West).  For those of us fortunate enough to get jobs that paid off our student debt, it was totally worth it.  For everyone else, it feels like the biggest gotcha.

Our millennial generation now represents the largest demographic in the workforce.  Employees frequently cite benefits plans as a key influencer in attraction and retention within companies.  However, traditional retirement benefits plans are routinely being underinvested in by younger employees and no longer have the attraction power they once had because of high interest debt.  

But what if employers contributed towards your student debt, in a similar manner to how they contribute towards a 401(k)?  A monthly company contribution of $100 towards student debt could save up to 2.5 years of payments off of borrower debt.  An accelerated debt repayment plan would help borrowers get out of debt faster and avoid thousands of dollars of interest.

I’ve made it my mission to help people get out of student debt faster.  I believe this can be achieved by helping employers align their financial wellness plans with the actual needs of their workforce, which is paying off student loans.  This is not just limited to millennial workers, parents cosign more than 90% of private undergraduate student debt and are bearing a lot of the financial burden of sending their kids to school.  Studies have shown that less stress over personal finances increases workplace productivity.  In addition it would also be a great way to attract and retain employees.

I still have student debt because I’m investing everything I have into making PeopleJoy a reality.   I’m making slightly aggressive monthly payments, but being an entrepreneur can be very volatile, so staying liquid is a necessity for me.
If you’re interested in looking at the results of the survey I sent out you can find them here.

Emeka

This article has 3 comments

  1. Jarel H Reply

    I feel the passion and pain in this post . You dug deep and feel honored to say I know you . This does not feel like a business more like a movement that will impact society. Sign me up

  2. Maritza Guillaume Reply

    This is an interesting business venture, I would also add, single parents like myself who had to pay for my own student loans and save/pay for my daughter’s schooling is not an easy task, it felt daunting at times. A similar offering can be offered to parents who may elect not to receive any 401K contributions, in lieu, receive a matching against parent’s school loan payments.

  3. Virgil Magee Reply

    Student debt is one of the purest forms of financial slavery! It defers an individual’s ability to achieve the American Dream of home ownership and financial freedom.

    To make matters worse, with bachlors degrees becoming the modern day high school diploma, students are facing lower ROI when entering the workforce resulting in the need to go back to school for advance degrees incurring even more debt.

    PeopleJoy is at the forefront of a paradigm shift in not only how employers attract and retain talent, but also how to empower those saddled with student debt to break free!

    Let me know where I can help PeopleJoy in its mission

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