Monday, October 24, 2011
THERE'S THE WAY IT OUGHT TO BE, AND THERE'S THE WAY IT IS.
STUDENT DEBT HAS BEEN GETTING MORE ATTENTION,
BUT WHAT SHOULD WE DO ABOUT IT?
Many of us knew the day would come that more citizens and the media would start wondering about the fact that there is almost 1 trillion dollars in unpaid student loan debt in the US. How did this happen? Why is this happening and what does it mean for this country?
Well, like a sink that is getting backed up with water- it is easier to not notice at first, but as the water starts to overflow and continues until there is flooding and damage in the surrounding area, it becomes more difficult to ignore.
It is a complex problem that can be broken down somewhat simply however:
The federal student lending program that was designed to initially help students has done just the opposite. Because the government secures student loans (it will pay them if the borrower does not) there is no risk to the banks in lending students money.
As such, universities are guaranteed payment, and tuition rates at all schools have skyrocketed over the years, as greedy lenders and university administrators have continued to milk this "cash cow."
Long gone are the days when you could go to college and pay for tuition and books by working a part-time, or even a full-time job. It is not just a matter of budgeting or choosing a less expensive school either. College is unaffordable for most without borrowing money. And there is plenty of money to be made in the lending of that money!
The colleges and administrators are taking advantage of this system as well, because their funding is essentially controlled by their own admissions process and the tuition rates they charge. Easy-to-get, federally backed loans go directly to the schools for payment (which they determine), and the lenders take the interest and fees and are guaranteed the funds.
The recipe for disaster was worsened by the fact that our society and culture encourages the pursuit of education as a means to achieving a decent standard of living and better employment opportunities. This idea is repeated over and over, and no other viable options are really presented to American children.
"Going to school" or "going to college" is seen as the standard by most. As such, people are willing to borrow for something they feel they need, believing that it is a good investment and they will be able to pay the money back. "Financial experts" have for years been supporting those decisions calling student loan debt "good debt" and saying not to worry about it, as college graduates will make over a million dollars more over their lifetimes to pay it back, and have better quality lives, too. Not true.
Education for the sake of being more knowledgeable and learning to think critically is invaluable for those who value those components of a meaningful existence, which of course not everyone does. And certainly there are decent jobs which require advanced degrees. The idea of education is not the issue, but rather the marketing, the cost, and the financing of it.
Many college graduates struggle to find decent jobs that pay enough just to manage day to day living expenses, let alone their huge student loan payments. This is true as well for advanced degree holders, and in recent years, especially lawyers. All of this is compounded by the fact that wages have stagnated for about thirty years in the US, and little has been done to develop an innovative, competitive job market here. So we have a young generation that is in more debt, with a higher cost of living, and fewer job prospects than ever before. Some try to argue that this is not true, or just a temporary problem, but the statistics don't lie.
Of course you have examples that are contrary to all of this, but that anecdotal evidence doesn't speak for the general trend that has become very threatening, and was built on extremely predatory practices to begin with. The ignorant tend to take the approach that students are at fault here, but that is not correct. These people do not understand the full extent of what has happened, or recognize the implications for society as a whole. Rather they bask in their ignorant self-righteousness while defending the very the institutions that will happily screw them or their loved ones out of a chance for a progressive future.
Many students deeply regret going to school and taking on student loan debt, but once thought they were doing the right thing and that it was worth it. They did not have the life experience or financial skills to realize how detrimental these loans would be. They acted in good faith on the information they had been told about the value of education and securing a good job.
Some went to private schools that were more expensive than a state school or community school. They though these expensive schools provided opportunities that were worth the extra debt, only to realize later they had been fooled big time. State institutions are no bargain these days anyway, and much of the debt students are in come from attending them.
A LITTLE LESS CONVERSATION, A LITTLE MORE ACTION
POSSIBLE SOLUTIONS TO THE STUDENT LOAN CRISIS
A lot of ideas are circulating about this impending avalanche of unsustainable student lending. Here are a few to consider.
1. STUDENT LOAN FOREGIVENESS. A "bail out" for students. This one time amnesty program would help a lot of people, but it wouldn't address the unsustainable higher education lending scam. The more one learns about the predatory, subprime nature of student loans, the more likely they probably are to support forgiving them. The system would still have to be fixed however, where students could get an education without being in debt for life, or have viable alternatives to attending school just to try to make a decent living in this country.
2. RESTORING BASIC CONSUMER PROTECTIONS TO STUDENT LOANS. AKA: Allowing student loan debt to be discharged in bankruptcy. This makes a lot of sense. Right now, student loans can not be discharged in bankruptcy. Gambling debt and credit card debt can be though. If student loan borrowers had the same sort of protection other debtors do, lenders might not be so inclined to over lend money to them. Further, for those in the most trouble now, there would be a way out. This solution, of course, would be best in connection to a complete overhaul of the higher education system.
3. DEGREE EXCHANGE PROGRAM. Wish you didn't get that social work degree at Boston University for $37,000 a year? Of course you do. What were you thinking? You never should have been lent that money in the first place. You were naive and taken advantage of by predatory lenders and greedy, dishonest administrators. Exchange that degree for the equivalent from your state university, and be responsible for the state school tuition only. The university, lender, and government can split the difference.
4. DEGREE RETURN PROGRAM. Regret the whole thing? Really feel like you were ripped off? Return the degree. Get your money back. Under this program, you wouldn't be able to "use" your degree on your resume (and it would be illegal to, as it you would no longer actually have it). For the "education" you did receive a percentage of overall tuition could be charged to you. Example: total tuition $80,000. You pay $4,000 (5%), and it's over. When schools have to start reporting how many degrees are "returned" it will be harder to sell their bunk programs.
5. PARTIAL DISCHARGE. Feel like you owe for the housing and meal costs at school and some of the tuition, but that overall you were taken advantage of as a young student and your education was way overpriced? Students could file to have "their case" reviewed by the courts to have a more reasonable debt responsibility assessed, and the rest would be discharged. Much of the debt accrued has never had any real potential for being repaid, because the job market and salaries don't support it. It's a scam, and lenders have known it all along. It's just that people are now waking up. People aren't looking for a "free ride", but don't like being ripped off either.
6. EXPAND IBR. Income Based Repayment is a program available now to those in certain fields. A percentage of your salary determines your loan payment and after 10 years the loan is forgiven. Simply make that available to everyone. 10 years and 5% of annual salary should be enough to pay back an education loan. If not, the rest is discharged.
7. EXPAND THE STATE UNIVERSITY SYSTEM USING THE ORIGINAL CALIFORNIA STATE PROTOTYPE AS A MODEL. The goal should be affordable education, without borrowing money. Tuition should be based on what students could reasonably afford, and the rest would be subsidized through the tax system. Fine and heavily tax predatory lending institutions and use that money for developing this system. Private school tuition would have to be funded by scholarships or private funds, but not student loans!
8. GET RID OF THE FEDERAL STUDENT LOAN PROGRAM. It has been exploited by the greedy banks and college administrators to the point of obscenity. Education needs to be affordable and accessible not an exploitable commodity that creates an indentured class of citizens.
What are your thoughts?
Posted by Paul at 12:09 PM