San Francisco Chronicle (IDAs)
By: Erica Mu
July 18, 2011
As recent graduates struggle to find jobs, they do so with an alarming amount of student debt. Education debt has now surpassed the nation's credit card debt, which means students are paying off their loans instead of investing or saving.
This got the attention of local non-profit EARN. EARN helps low-income people save and plan for a more stable financial future. To start a dialogue around these issues, EARN launched mydebtstory.com. It's a website that features testimonials from student loan borrowers.
To hear more about the project, KALW's Holly Kernan spoke with EARN President and CEO Ben Mangan.
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BEN MANGAN: You know there's a raging national debate about the role that education plays about the American dream, at what cost it's acceptable. And one of the things we observed at EARN is that while people in Congress are talking about this, and people at schools around the country are talking about it, the voices that were missing were the students themselves, the borrowers themselves.
We have learned over the years how powerful stories can be in adding dimensions to policy debates, and debates about what the American dream means for people. And so we actually saw to create a platform for people to share their stories because of that gap, in the hope that some of those stories would, in a nuanced way, inform the national debate on education debt.
HOLLY KERNAN: That's what we've been doing with our recession grads stories. What kinds of stories do you hear? What's the range?
MANGAN: People are not feeling optimistic on the whole, and understandably so. A lot of the stories are people who, so far - we have another two weeks left in the campaign - are people who are in school right now, who are looking for work or thinking about their prospects in this economy and are feeling really discouraged.
I haven't uploaded my own story, but when I do it's actually going to be a different kind of story. I still have student debt, but I actually consider it to be the best investment I ever made. I know that's not true for everybody. There are other people who are on the site who thought the same thing and they've actually found it to be harder going than they expected.
The theme that has emerged so far is just some doubt about the degree to which the American dream is going to be fulfilled as a result of people taking out these loans to go to school.
KERNAN: What do you think though is the psychological effect of this idea of the American dream, which is what EARN is trying to help low-income savers get to, a way to buy a house or get an education or start a business. Is there this psychological effect? I'm thinking particularly of low-income people, of this idea that my degree isn't worth this debt?
MANGAN: There is something very powerless about it. As uplifting as feeling like you've gotten a piece of the American dream can be, there is a sort of dark side to the American dream and the mythology around it.
The dream goes something like this: you work really hard and you're rewarded, and you get a piece of the American dream. And the flip side of that is if you're working really hard and it's not happening then it's your fault.
The fact is there are structures in place and public policies in place that are greater than the will of any individual, no matter how hard they work. And what EARN tries to do is return some opportunity and integrity to the American dream, resources that help people bridge the barriers that are put in front of them when they're striving, like the ability to save and invest in one of the assets that you mentioned, for education or home ownership or small business.
And getting back to your point of the psychology of this, we've learned a lot over the last 10 years about the degree to which people build something that we call financial self-efficacy. It is their belief and their ability to succeed in financial matters. Our research on the issue of education debt shows that for a lot of people, they are so indebted, it looks so grim to them, they experience the opposite of financial self-efficacy. It's something psychologists call learned helplessness, and they throw their hands up and believe they'll never be able to positively change the circumstances they're in.
That scares us because it's a signal about the outlook for lower income people in this country. It's true for education debt. It's also true around home ownership. These are big, challenging questions for our country and I'm not sure we're going to know exactly how they play out for a generation.
KERNAN: Ben, can you explain just a little bit? EARN is dedicated to helping low-income, the very lowest income earners actually save. And these are people whose margins of saving are very small sometimes. And then those savings are matched. Can you explain this concept of asset building very succinctly?
MANGAN: Sure, so the whole history of prosperity in the United States is rooted in the ability of people to save and invest in things like home ownership and small business and education. And this country is really great at generating wealth for some people. Turns out we're not so great at generating it for lower income workers who have these dreams, but just can't get beyond some of the barriers to save some of the money that would enable them to begin that path toward investing in one of those dreams.
So EARN actually seeds this. We match people's savings and we provide money management training.
KERNAN: So you're saying if I'm making say, $20,000 a year and I can manage to save say, $200 a month, you match that twice. That becomes $600 a month.
MANGAN: Correct. And people save over the years with us. And it's not a huge amount of money. It's certainly not enough money to buy a house or go to college, but it's a spark. And it's the beginning of a process for people to then start to layer other resources.
For home ownership, for example, they tap into other layers of subsidies that are available, matching their savings and also reducing the interest rates on the mortgages that they get if they purchase a home. And for a lot of people, they actually believe they can go to a school like San Francisco State or City College. Whereas before, without any savings and any match to their savings, it was just not within the realm of possibility.
So we work with people on an average for two and a half years. And there's something very transformative that happens when we work with people and it starts with the money part, but it really involves this business of financial self-efficacy where people begin to believe in their ability to succeed with regard to financial matters.
What we have learned in watching people who have gone through EARN is that when the match goes away, 83% of them continue to save. And they report things to us like having an increased confidence in their ability to plan for their financial future. And increased optimism around their kids' financial prospects. And even things that are deeper, like changing their social circles to be around people who show their money values. That was surprising to us.
KERNAN: How have IDA savers, low-income savers who bought houses fared in the foreclosure crises, in the mortgage-lending crisis?
MANGAN: They have fared better than the general public by a long shot. They have been more successful because they were on a path that involved structures that were designed to protect people.
One of the things that we realized early on is that it was not a kind marketplace for anyone if you were shopping for certain kinds of mortgage financing. So we created a number of rules that required people to get certain kinds of mortgages that were less vulnerable. So no adjustable rate mortgages, no amortizing mortgages. And people went through a lot of training before they actually purchased their home.
It was a major investment time-wise for them to actually access the kinds of subsidies that were available through EARN. And in the process, they also became more resourceful with regard to their financial lives, and we believe that's part of the reason that they've been successful in avoiding foreclosure.
KERNAN: So you started EARN and this whole asset-building movement got really powerful about 10 years ago when the economy was doing a lot better. Right now we're in this very serious economic downturn. What gives you hope and optimism right now?
MANGAN: Well, interestingly, we started opening accounts in the last recession. And part of what gives me hope is watching the way - in the last recession, and in this recession - the demand for what EARN offers was really high. And people - in the same way that you see things like savings rates go up when the economy goes down - the people that we serve are smart. And they really understand how important it is to find a way to invest in assets that are going to protect themselves and their families.
And so that level of commitment to bettering their families, that actually gives me hope. And also watching the fact that people have continued to save and to invest in EARN through two recessions really is a statement about the resiliency of people, and the kinds of choices they make when you position someone to succeed and you give them an incentive to do so.
This article originally appeared on KALWNews.org