Dave Dayen on Student Loans as Medieval Indentures

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Dave Dayen’s latest article at Salon makes a critical point about student debt, that is it fundamentally misleading to call it a loan:

The roughly two-thirds of U.S. students who take out loans to finance their college education can end up in a situation most resembling the historical concept of indenture. In medieval times, peasants would sign deeds to work land, which would then get cut in a jagged line (looking like teeth, or “dentures”). Each party would get half, and rejoining them would prove the authenticity of the contract. Colonial indentures would trade years of labor for the opportunity of transportation to the New World. The indentured could not alter the terms of the contract, no matter their circumstances. One way or another, the debt would get paid.

Student debt slavery is in many respects worse than indentured servitude. Indentured servitude in America occurred most often when men with no or little in the way of savings pledged their labor to pay for the cost of passage. The term varied, depending on the vigorousness of the worker and his skills, with the time of bondage typically three to seven years. (Historical trivia: this practice had become illegal in England after the Middle Ages but was revived in the Colonial period. The Mayflower Compact served to head off an incipient indentured servant revolt, since the ship landed north of where the Separatists, aka Pilgrims, had negotiated a land patent from the Virginia company. The servants argued that that put them outside the jurisdiction of English law, rendering their agreements void. The non-Separatists “strangers” who were free tradesmen and craftsmen had been recruited by the promoters, were also chafing under Pilgrim rule on ship and joined with the servants. The Mayflower Compact created a temporary government to deal with this mess).

By contrast, as Dayen stresses, one of the horrors of student debt peonage is how crushing and inescapable the debt becomes for those who have trouble finding lucrative enough work to pay it off. You can’t discharge it in bankruptcy, unless you can prove “undue hardship” which is a very high bar. You can’t refinance it. The Feds can even garnish your Social Security.

And we are well into Herbert Stein, “That which is unsustainable must stop” territory, although no one seems willing to admit to that. The official rate of 90+ day delinquencies is over 12%. but (based on 2011 data) 47% of the loans don’t require payment because they are in forbearance or deferment. So the actual delinquency rate is whopping 23%, well above that of any other category of consumer debt.

Dayen stresses that there are social and economic negatives to having young people acquire debt millstones in order to get a higher education:

Princeton professor Jesse Rothstein argued in a recent working paper that graduates burdened by debt will choose higher-paying jobs to pay off the loans, draining the talent pool for lower-paid, but critical, “public interest” job sectors like education, government or nonprofits. This further erodes the nation’s seed corn and funnels the best and brightest into the financial industry or other higher-paying power centers, reducing entrepreneurship in the bargain. Student debtors also put off major purchases like houses or cars, and the Federal Reserve believes this is having a serious negative effect on our economy.

Dayen argues, as we have, that various proposals that simply dork with interest rates is rearranging deck chairs on the Titanic. He argues forcefully for ending the privileged status of student loans and the overly large role they’ve come to play in financing advanced education. One good idea for future borrowers is “income based repayment” in which payments for low income debtors are limited to 10% of income. The Administration wants the time limit for IBR payments to be 20 years. Representative Karen Bass has proposed the IBR be limited to ten years and that loans be deferred, interest free, when a borrower is unemployed. Dayen also recaps the proposals for allowing borrowers who already have student loans to refinance. The big needed change is to allow these borrowers to declare bankruptcy. Weirdly, policymakers appear obsessed with the idea that someone borrowed to go to college (presumably to party and get laid) and then stiffs his lender. The initial remedy was to bar bankruptcy filings for five years; that sort of compromise would force badly needed discipline on lenders.

I’d also like to see more pressure on college costs. Gold plated pay packages for administrators and overinvestment in dorms and facilities doesn’t improve the quality of the educational product. And what about disclosure? The Consumer Financial Protection Bureau is big on simple forms for mortgages. But prospective homeowners (nowadays) have incomes. By contrast, colleges make general pitches to students on the value of a degree without discussing the experience of new graduates or breaking down results by major. Showing students what 50th percentile and (say) 20th percentile after tax incomes in their likely majors in high and low income tax states v. their post-graduation debt service costs are like would focus a lot of minds.

Fixing the student debt problem is not going to be easy. But student debt penury is having enough of a macroeconomic impact to be capturing the attention of policymakers and possible real economy allies, such as consumer goods companies. But the biggest wake-up call has already come in the form of declining enrollments for law schools and other programs which were once seen as sure-fire routes to a middle class or better lifestyle. But absent more pressure from students themselves, we are likely to see patchwork rather than real reform. So keep the heat on.

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60 comments

  1. Chris Engel

    We really do need to overhaul the bankruptcy law changes that went into effect under Clinton and W, which made student loans and medical debt not dischargeable.

    Yves writes:

    I’d also like to see more pressure on college costs.

    But even providing free tuition won’t change that young people start out needing to take out loans. Take the example of Sweden:

    Swedish colleges and universities are free. Yep. Totally free.

    But students there still end up with a lot of debt. The average at the beginning of 2013 was roughly 124,000 Swedish krona ($19,000). Sure, the average US student was carrying about 30% more, at $24,800.

    http://qz.com/85017/college-in-sweden-is-free-but-students-still-have-a-ton-of-debt-how-can-that-be/

    It’s not unusual, if you view things through something like a permanent income hypothesis where consumption is smoothed over a lifetime, that young people go into deficits no matter how education is funded. This deficit can be funded by parents giving some of their wealth, or by financing it through loans. Or, you can just live really frugally and manage by working on the side and building up that way.

    It’s a consequence of a debt-based monetary system that the most common way to handle this youth deficit is with debt/loans. And it’s present across a lot of the developed world regardless of how socially enlightened they are.

    But there’s no moral or theoretical justification for why medical bills and student loans should follow you around until your death for any reason. It’s part of the struggle between the powerful money interests and the rest of us. We need extra tools to gain some leverage in this fight and that means letting students and those with onerous medical debt have a second chance by getting out of it in bankruptcy.

    And to those who say this is a moral hazard (as Yves puts it, people stiffing lenders to party and get laid) — what about all those friggin house-flippers who did “strategic defaults” and all that crap to get out of their bad investment decisions? Why does the investor class get access to these strategic manipulations of the legal system, but the working class can’t get a little debt relief in the humiliating process of bankruptcy?

    Dayen does a great job of making the case for why we need, at the very least, some basic rights to debt relief. There’s room to discuss greater reform as well, but keep in mind with the Swedish example that it goes beyond the prohibitively exponentially growing cost of tuition.

      1. just me

        In 1963, JFK gave fledgling San Diego State College’s commencement speech. KPBS just did a 50th anniversary segment on it:

        http://www.kpbs.org/audioclips/17649/#transcript

        JFK: I believe that education comes at the top of the responsibility of any government at whatever level. It is essential to our survival as a nation in a dangerous and hazardous world, and it is essential to the maintenance of freedom at a time when freedom is under attack.

        What a difference between then and now. Then California led the nation, now we’re 49th.

        CAVANAUGH: Let’s go back to 1963 and think about the educational policy at the time. Was it almost free for students back then?

        MALLIOS: It was $5. You talk to the students who are paying $5,000, $7,000 to come [to SDSU] now, that’s a stunning difference. Henry Jensen just told me moments ago –

        CAVANAUGH: And he is?

        MALLIOS: The political science professor who started the move to get JFK out here, he said it was a time where you could work at McDonald’s and pay for your education and cover your rent as well.

    1. sleepy

      Medical debt is treated as unsecured debt just like a credit card and is fully dischargeable under Chapter 7 liquidation.

      Under Chapter 13–a wage earner’s plan–a certain portion of unsecured debt, including medical bills and credit card bills, must be paid off to obtain a discharge 3 to 5 years down the road.

      Medical bills are treated no differently than other unsecured debt in either chapter.

      http://michiganbankruptcyblog.com/2009/11/25/can-i-discharge-my-medical-bills-in-bankruptcy/

      1. Chris Engel

        sleepy,

        Since BAPCPA hasn’t it been harder to file for Chap 7 and they force people into Chap 11 and make the medical debt essentially really difficult to discharge?

        It certainly made student loans all but impossible to discharge and they follow you until death.

        I seem to recall there was an anecdote of a guy with half a million in debt from Sicko (or maybe it was a diff doc) that he couldn’t discharge because it exceeded a certain level and he still had some earnings power or assets.

        Perhaps it varies state by state as well, I don’t know. But that aside, it’s still absurd that medical debt builds up the way it does and people have to even file bankruptcy to get the debt relief instead of a federal forgiveness program through catastrophic insurance or something. I think that’s still absurd. And student debt I know for sure can and does follow people to their death:

        http://finance.yahoo.com/news/3-ways-student-loan-debt-060114112.html

        1. sleepy

          Yes, to file for chapter 7, you now have to pass a test. Basically, your income has to be below the median of your state. Then you automatically qualify. If not, the courts look to the amount of your disposable income after living expenses. There is a formula for that.

          If you still can’t get into chapter 7, you will be forced into chapter 13 (chapter 11 is a corporate reorganization)-a wage earners plan-where for a period of 3-5 yrs. some portion of your income will be used to pay down unsecured debt. If you abide by that plan, your debt will be discharged after 3-5 yrs even if you still owe.

          My point was that under either a chapter 7 or a chapter 13, medical bills are as dischargeable as any unsecured debt.

          But, yes, chapter 13 is punitive, to make the debtor suffer. Under previous law, it was up to the debtor to elect which chapter. Not so now.

          1. Chris Engel

            Ah okay, thanks for clearing that up, sleepy.

            Hopefully I won’t be in that situation where I’ll have to know more details on filing. And hopefully we can get bankruptcy reform on the agenda before Obama’s out, but I haven’t seen any progress in that area.

    2. Stelios Theoharidis

      As someone with considerable student loans, at some point it was north of 60K, I would honestly like to see a larger tax deduction. The cap for student loan interest tax deduction is $2,500.00. I remember having points early on where my interest on student loan payments was three times that. It has leveled off at this point but I think it seems it would be easier to do then indexing based on wages or some sort of other scheme. It would mainly affect middle class people that didn’t have parents willing to pay for their university degree, incentivize payment, and increase the likelihood that we would pursue starting businesses or other risk taking as well as jobs in public service that pay less.

      If we are acknowledging that it is a public good, then students should have greater tax breaks for pursuing a degree and paying it off. I would even like to see it extend into a share of principal not just interest. People receive quite substantial tax breaks for home ownership I don’t see why this should be any different.

  2. vlade

    Can’t remember where it was first mentioned (it was quite some time ago) – possibly by SRW? The suggestion was that if you do need to have student loans, they should be really term equity investments. That is, you pay (fixed) part of your income for a number of years regardless of the income. So if someone does well after uni, the lender does well, if they do badly, lender does badly.

    Add a no-discrimination clause (i.e. lender has to lend to any student) and capped rates (as in part of the income is capped) and now you have a system where the lenders would be actually encouraged to help the students to get a good employment. So they can put pressure on unis (you’d have to give them same levers for that) to spend the money on something better than fancy dorms/higly paid admin, work with employers etc. etc.

  3. taunger

    In an neoclassical economic sense, it seems rational to take public interest jobs. Low pay leads to low payment under ibr, and then the loan is forgiven after 10 not 20, years. Especially for processions that require advanced degrees, like public Admin, teaching and law, you can end up paying less than as ticker price.

  4. middle seaman

    Student loans shouldn’t exist in their current form. The transaction the loan represents is the gov pays a college for educating an individual. Currently the college also makes the student fork over addition money if it only can.

    Let the gov and the college own the transaction; leave the student out of it altogether.

  5. run75441

    Hi Yves:

    One would think the present argument in Congress about allowing the rates to go from 3% to 6% would be nonsensical since you can get 0% loans on home improvements, cars, and other purchases. Even Discover has come out with personal loans at 6-7%; but, they are “simple interest.” I believe the Fed is still forking over to the Goldman bank loans at 1% or less.

    Discharge of student loans can be accomplished if one claims no income or low income for 20 years and then it can be counted as income. One has to fill out the forbearance form yearly and claim “no income or little income.” If a student becomes disabled or dies, the loan is discharged also. Partial loan forgiveness can be accomplished if one becomes a teacher who teaches in a hardship area (inner city) and also in some other occupations. Much of the present restrictions was the result of a minority of students stiffing banks on student loans.

    A student can get 3 years of no interest forbearance; but the, the free ride is over and they have to go to forbearance. The best bet is to get away from the banks and go with the government sponsored Direct Loans for consolidation.

    1. Yves Smith Post author

      Are you trying to make that sound easy? 20 years of low/no income presumably has to be consistent with tax filings. How many people can live substantially in the cash economy that long? And you’d have to live bare bone consistent with the claim of no income (with relatives?)

      And in the meantime, you are regularly hounded by debt collectors.

      This NYT piece IMHO gives a more realistic picture of how hard it is to qualify for “undue hardship.” Admittedly this is prospective, not retrospective:

      Federal bankruptcy law requires those who wish to erase that debt to prove that repaying it will cause an “undue hardship.” And one component of that test is often convincing a federal judge that there is a “certainty of hopelessness” to their financial lives for much of the repayment period….

      Most have settled on something called the Brunner test, named after a case that laid out a three-pronged standard for judges to use when determining whether they should discharge someone’s student loan debt. It calls on judges to examine whether debtors have made a good-faith effort to repay their debt by trying to find a job, earning as much as they can and minimizing expenses. Then comes an examination of a debtor’s budget, with an allowance for a “minimal” standard of living that generally does not allow for much beyond basics like food, shelter and health insurance, and some inexpensive recreation.

      The third prong, which looks at a debtor’s future prospects during the loan repayment period, has proved to be especially squirm-inducing for bankruptcy judges because it puts them in the prediction business. This has only been complicated by the fact that many federal judicial circuits have established the “certainty of hopelessness” test that Mr. Wallace must pass in Ohio.

      Lawyers sometimes joke about the impossibility of getting over this high bar, even as they stand in front of judges. “What I say to the judge is that as long as we’ve got a lottery, there is no certainty of hopelessness,” said William Brewer Jr., a bankruptcy attorney in Raleigh, N.C. “They smile, and then they rule against you.”

      http://www.nytimes.com/2012/09/01/business/shedding-student-loans-in-bankruptcy-is-an-uphill-battle.html?pagewanted=all

    1. washunate

      I agree that we should offer a basic educational track beyond secondary school designed around making better people (not better workers; that’s called training, not education).

      But the interesting problem is defining ‘it’. The American higher ed system serves virtually no public purpose – it is all private benefit.

  6. washunate

    Thanks for the continued attention to this. The pressure for change from below has been building for some time as younger people have been largely excluded from middle class living. Eventually, upper middle class households have to realize that no one is going to be able to buy their house and pay for their nursing care :)

    “I’d also like to see more pressure on college costs.”

    Yep, that’s the core problem – the product itself. The majority of the value of education goes to the employees of the system, not the students (and of course, at least students get some value; there is essentially no public good in higher ed).

    1. Kokuanani

      I also wonder just HOW we can force down tuition and the elements that cause it to be so high. Professors going to take a cut in salary? I doubt it, and as I understand it, currently all too much teaching is done by adjuncts for minimum wage.

      Cut the salary of the university president and his minions? Yeah, THAT’s gonna happen!!! You know how these clowns whine, just like those in business, that “it takes this high salary to attract someone,” and “we’ve got to pay this much to keep this person.”

      The luxurious dorms, climbing walls, and food courts have already been built, so I assume $$$ for their maintenance and service of the debt used to build them is factored into the university budget.

      All I can think of is for kids to quit going to the expensive colleges. Go to community college and transfer to your state u.

      1. jrs

        “All I can think of is for kids to quit going to the expensive colleges. Go to community college and transfer to your state u.”

        And let’s ignore the fact that students who may have considered this choice, decided to go to private colleges so it wouldn’t take them 6 years or more to get out. Because yea that community college and state system is just working so well .. and isn’t overcrowded at all!

    2. anon y'mouse

      “there is no public good in higher ed”

      you’ve made that claim repeatedly. at the risk of insulting you, this is trolling (as was your method of ‘commending’ me the other day). i can only see your point when regarding that one of the many “private” benefits is that industry is obtaining vocationally trained individuals to employ without having to spend money themselves on it. for that, and all of the loan-profiteers and Uni presidents who make more annually than the U.S. president, i buy your theory.

      but a person who can’t financially support themselves is not only useless to themselves but also a burden to society in a number of ways, and i will argue that without the discipline and lifestyle of a mediaeval monk, very few high school graduates can support themselves fully on the jobs out there. especially not as they are currently being offered–no full time, screwy hours that induce the same kind of lifestyle as a medical intern (not good for physical or psychological health and largely unnecessary–i’d say that this was set up just to make sure that the workers remain too shell-shocked to look for or obtain supplemental employment, much less fight back management’s constantly increasing demands), no health insurance, no compensation for hours and hours travelled to/from work because metro rents are totally unaffordable, etcetcetc.

      a person in such position will necessarily rely upon public services more, including the above-mentioned extremely expensive emergency room “doctoring.” a person who can afford to support themselves and has enough free time to do so might just be inclined to volunteer in the ol’soup kitchen now and again (how can one even expect that from slave laborers, which is what nearly all of us are now?).

      education that increases your ability to earn money benefits your employer, it benefits you, and it benefits society by your reduced likelihood to need public services, your increased propensity to “give back” to the community, and higher taxable incomes. granted, college is still a very expensive way to get vocational training, and most commenters here are still ignoring the fact that it is highly likely that MOST college is not OF the traditional 4yrs-and-a-Bach variety, but vocational programs that are provided by community colleges.

      i just can’t believe that one of the many, much smarter commenters around here has let you go around using this thing that sounds too much like a thinktank constructed meme without challenge.

      1. washunate

        I’m sorry you feel pointing out the obvious truth is trolling. Are you hoping to bait me into responding with something over the top? What is remarkable to me is that there is so little defense of how our system of higher ed – as it actually functions – serves the public good any more. That perhaps is what is upsetting you? The general recognition that the system itself is deeply flawed and in need of significant change?

        “but a person who can’t financially support themselves is not only useless to themselves but also a burden to society in a number of ways”

        I wholeheartedly reject your premise that our system of higher ed helps high school dropouts and people arrested for drug crimes and veterans with substance abuse challenges and homeless people with mental health conditions and so forth support themselves financially. Rather, the system entrenches inequality – only those who go through it benefit. Everything you are describing is a private benefit of the graduates, not a public benefit for all – and you sidestep the fact that the biggest beneficiaries are not even the students – they are the professional administrators and companies getting cheap research and so forth.

        I also wholeheartedly reject your premise that the primary function of education is about economic gain. Education is about making better people, not better workers.

  7. Uncle Bruno

    How did students survive the 90s when delinquency rates were more than double what they are now?

    1. washunate

      roommates, dead-end jobs, lack of vacations, lack of retirement savings, delayed marriages, delayed childrearing, significant stress and other responses with long-term health consequences (like substance abuse), massive incarceration…

      In other words, a declining standard of living.

  8. annieb

    How do you reconcile this: “graduates burdened by debt will choose higher-paying jobs to pay off the loans, draining the talent pool for lower-paid, but critical, “public interest” job sectors like education, government or nonprofits.”

    with this: “colleges make general pitches to students on the value of a degree without discussing the experience of new graduates or breaking down results by major. Showing students what 50th percentile and (say) 20th percentile after tax incomes in their likely majors in high and low income tax states v. their post-graduation debt service costs are like would focus a lot of minds.”

    Seems like the latter is designed to funnel students into exactly those extractive fields that are of questionable productive value. Not to mention that gathering that data is extremely difficult and expensive, and adds to the regulatory burden on universities that creates the rationale for all those high paid administrators. I work in a university, in an academic department, and believe you me, being in an academic department is about the lowest place you can be in the medieval ecclesiastical hierarchy that a university is. Delivering the product is not where the money is going…..

    1. Yves Smith Post author

      You’ve got the causality backwards. There weren’t highly paid administrators before the heavy use of debt to finance education allowed for that.

      And you don’t need each college to gather the data. One research service could do it, better yet the CFPB.

      Credit cards and mortgages now mandate clear, standard disclosure. Why not student loans?

      And there are numerous media reports of college officials pushing debt on kids with general talk of how valuable a college degree is. That comes awfully close to misleading advertising, which is a consumer fraud. Clearer liability for colleges when they are arranging financial packages for students might get you to the same place.

    2. LucyLulu

      ““colleges make general pitches to students on the value of a degree without discussing the experience of new graduates or breaking down results by major”

      The problem with the above is that it is difficult to predict when students are just beginning their college educations, and even more so if they are pursuing advanced degrees, as many careers follow cyclical gluts and shortages of people to fill available slots. Even careers that are rumored to always be in high demand, e.g. nursing, periodically have times when new graduates have high unemployment rates. I went back to school in the late 90’s to get a degree in computer science. Software programmers could write their own tickets when I started back. By the time I finished the program, jobs were scarce, esp. for those unwilling to relocate.

      As per your later comment about money not being in academia, Annie, it depends on where you work. I read recently that the highest paying public jobs in any given state are at universities, coaching either football or basketball. Also, those who work high up in administration do well. In addition, there are far more people working in non-instruction related positions than there were thirty years ago, thus also driving up tuitions. But granted, jobs that can be filled by students are typically minimum wage jobs, as there is a large pool to draw from, and salaries of professors are not high (IMO) considering the level of education required. Instructors without PhD’s typically work for slave wages.

      1. JTFaraday

        I think maybe you missed the part where she said she works in an academic department.

        In which case, all I can say is “Annie, get your g*n.”

  9. McWatt

    On the local TV last night here in Chicago a local hospital was complaining about the costs of servicing victims of crime without insurance. They said the cost
    of repairing the average gunshot wound was $524,000.00 and the cost of an average stabbing was $254,000.00

    Do you think the average low income person can can pay back that debt?

    1. Crazy Horse

      And the cost of the average hangnail surgery in the US is $10,000. Could that be part of the problem?

      1. Crazy Horse

        That’s why the America “health care” system is more properly termed the Medical Extortion System.

    2. washunate

      Uh oh, don’t tell the MMTers. You just suggested that the drug war is inflationary…

    3. LucyLulu

      Hence Obamacare with mandatory insurance for all. Problem solved!

      When people can’t afford to eat or pay rent due to the cost of medical premiums, their medical insurance will pay for hospitalization to treat the resulting malnutrition and/or pneumonia.

  10. paul

    Actually, college loans are worse than indentures. With indentures, you have a debt that comes with a more-or-less guaranteed method of repayment (you work for the person who put up the money for your passage or whatever, or for someone who has purchased your papers from the original funder).

    College loans are more like consumer loans from before 1970 or so, back when buying a sofa or lawnmower or whatever on time payments resulted in a fully negotiable note, i.e. if the object was complete garbage you still had to pay off the loan, and your only recourse was to sue the seller, who might or might not have any assets. Same thing with college: you take out a loan based on promises about the job-getting quality of your degree, and if it turns out those promises were crap you still have to pay back the loan.

    Which really ultimately suggests that some kind of income-based repayment scheme needs to be the way things go. Except: lenders (and colleges) should have some skin in the game. Rates should be set so that institutions that don’t improve their graduates lives don’t get paid anywhere near in full

  11. b2020

    No open society can sustain itself – either as an open society, or as a working economy – without “free” education, that is, tax-funded, and gated exclusively by aptitude and work ethics. Test applicants, use probation, but remove as many alumni and wealth biases as possible.

    To finance it, impose a 100% inheritance tax above 35 times 365 times minimum wage threshold per heir raising tax revenue that can only be used to finance education at all levels. Given all the blather about merit in this society, I’d even grant a flat tax on all income including interest and other rents, in exchange for an inheritance tax that wipes out inbred wealth networks distorting the political process and corrupting the institutions of an open society, *and* maximizes education and talent use at the same time.

    Screwing around with student loan interest rates and repayment terms is not going to address the issue that, as a for-profit endeavour, education makes about as much sense as health care. But then, the exceptional nation needs to try really everything before doing what is reasonable, and who cares if it runs out of time. Whatever one can say about the deck chairs on the Titanic, the fiddling supposedly was world-class entertainment.

    1. A Real Black Person

      None of the suggestions you have made will ever come to fruition. People who graduate or attend high ranking colleges and major in marketable subjects tend to come out in support of the status quo. People who graduate or attend high ranking colleges and major in marketable subjects tend to come out in support of the elite. Many highly educated workers are members of the elite, were sponsored by members of the elite, or will work directly for the elite. Most of them are smart enough not to bite the hand that grants them their status and high salaries. College has deep elitist roots and as many people have noted throughout many discussions on college, it’s “not for everyone”. College was designed for only 10 percent of the general population; the top 10% in cognitive ability and the top 10% in income. The expansion of access to college has diluted the original purpose of college, and the majority of academic education;to sort out those who deserve to be in elite from the general population.

      In addition to the proliferation of colleges with lower, egalitarian standards,there’s a related phenomenon of the top 10% waging war on the bottom 90%. The top 10% has waged war against the bottom 90% by voting for unequal distribution of funding for schools (decreasing the value of a high school degree), by voting to cut funds to regional vocational programs, by agreeing with politicians who want to offshore work and by not taking a stand against illegal cheap labor, and by supporting other measures that decrease options for anyone outside the Professional Class who wants to work.
      It’s not just the 1% versus the 99%. It’s the uppity upper middle class and up versus the lower classes.

      The upper classes know they vast majority of the bottom 90% will never become world-class engineers and doctors, but it’s very very profitable to mislead the average person into thinking that he or she is above-average or can become above-average. As many successful journalists, sales engineers, lawyers, and other soft skill mavericks will probably attest, propaganda pays the bills, truth-tellling doesn’t.

      Like you’ve said, b2020, the Titanic is sinking. There is no new wealth being created by the New Economy, particularly the service economy so much of economic activity is redistributes wealth from the lower classes to the upper classes. So, why should we be surprised that schools, banks, and possibly the medical industry are preying on the lower classes instead of helping them?

  12. bluntobj

    The solution to the debt problem is not to have debt in the first place.

    That means cash basis education, in this context.

    For those of you who now have the objection and rant welling up behind your eyes, take a quick look at where debt, loans, or insurance have driven prices or assets into bubbles:

    Housing
    Healthcare
    Food
    Education
    Government (All Levels)

    Debt, or payments from an outside source beyond what you have saved (like health insurance or medicare), always leads to higher costs for whatever the debt is used to pay for.

    Worse, it’s a positive feedback loop. Housing, education, and healthcare are the best examples. The more money available from lending, the higher the cost.

    Cash is the only way to pay for any of these things and not be an indentured servant.

    I’ve been the education route, have paid my loans, and paid cash for graduate school. I count myself fortunate because I was able to work in school, took on minimal loans, had a good job to pay, and learned new skills that would earn higher pay. Mostly because I’m not a millenial, and avoided the big bubbles.

    A return to cash won’t happen in any formal way though, as those who govern find debt to be far more lucrative.

    Look for more doctors to be moving to cash basis medicine, and then some educational institutions, probably online ones, go cash only or to a nearly free crowdsourced model.
    After the next housing bubble pop, look for changes in housing and landuse similar to detriot freestlye; there are groups there that demolish houses and turn them into productive land without regard to permits, fees, taxes, and ownership.

    When debt is an insturment of slavery, free men who wish to remain free will not use it.

    1. A Real Black Person

      There needs to be viable options for people who aren’t cut out to work in Law, Medicine, Engineering, and other areas that require a high amount of training. There doesn’t seem to be that. Instead, there is a trend of a lot of things that traditionally required apprenticeships classes now requiring unstandardized and expensive, and often poor quality four year degrees programs. I wouldn’t be surprised if there is a four year degree in plumbing or a master’s degree in plumbing offered by a for-profit school or an unscrupulous “non-profit” one somewhere out there. Until many people start regarding the administrations of colleges in the same category as predatory and irresponsible banks, nothing will change.

      1. Tokai Tuna

        I’d suggest law no longer requires a “whole lot of training.”
        Dean Baker has written about the professions desire to maintain higher compensation based on work that is now easy for anyone with a piece of tech. I wonder how Levitin feels about this, or how expensive his own school is for the majority of the population.
        The DC area has their expensive formative academies that are off limits to anyone but the wealthy, Bullis, Georgetown Prep, et al, and then the folks may gracefully enter Georgetown to persue law and then fall into lucrative positions, everything from the IMF, NGOs, Arnold Pothead, Shaw Pittman, all the fashion, prestige, and status quo that requires the jackboot of debt to remain in full force with no escape for the great masses.

        1. YankeeFrank

          It used to be as long as you apprenticed for 5 years and passed the bar exam you were a lawyer. Now its mandated you attend law school first. Its a racket.

    2. LucyLulu

      Your solution will rule out all but children of the rich entering many professions due to the cost of tuition, further entrenching our class-based society. For example, my daughter is in pharmacy school. It requires, at minimum, three years pre-pharmacy followed by four years of pharmacy school. She attends a state university, UK, as an in-state resident. Tuition is $25K+/year. How many students do you think can obtain part-time work that pays $25/year plus living expenses, bearing in mind that pharmacy is a demanding program? She has just entered her final year (they have 12 month years) which consists of seven different (unpaid) practicums. Each employer must require a minimum of 40 hours/week, and a maximum of 60 hrs/week, from them and their location (city) changes with each practicum. How do you think that affects ability to work and living expenses? Pre-pharmacy is even more demanding as entry into the pharmacy program is extremely competitive, with a minimum GPA of 3.5 being typically required. The course load is also far from trivial, being heavy on the sciences. My daughter has worked part-time since entering college, has worked way too much since starting pharmacy school (last year averaged 30 hrs/week, I did her taxes), had her first three years tuition paid for and part of her fourth by her parents, lives frugally, and will graduate with over $100K in debt.

      Working and putting oneself through college is far more difficult for today’s youth than prior generations. When I went to school at a state university, undergrad tuition was $700/semester. Hers was $4300/semester, which is a bargain compared to friends who paid $40K/year at private schools like UChicago.

  13. redleg

    I have many friends/peers that are college instructors. Only one is a professor – all the rest are poorly paid ajuncts/post docs. Where is the money going? The value of an education should be related to the quality of the instructors & their research (I’m of a science & engineering background). If the instructors bounce around from semester to semester chasing the better deal because of poor compensation the quality of the education suffers (having taught, each time you teach a lesson you get better at it, burnout aside). If it’s not going to pay the instructors or fund their research, where is the money going?

    1. A Real Black Person

      It’s irritating to hear insiders from college, even if they’re *just* instructors, stating that they ” don’t know where the money is going”. I don’t buy it. I think you guys either don’t want to know or know but don’t want to put yourself out of a job by biting the hand(s) that feeds you.

    2. Lambert Strether

      The money is going to the administrative layer: The Presidents, the Vice Presidents, the Deans, and so forth. Up here in Maine, a third of the budget goes to “The System,” but nobody can say what the outputs of “The System” are, or what value they add to the several universities across the state. What our right wing governor would do, if he had a lick of sense, would be to abolish “The System” entirely, and return the university to its twin missions of teaching and scholarship, and cut tuition by the third he saves. That won’t happen, I’m guessing because he’s got academic administrators categorized together with scholars and teachers, when the two are not the same.

      1. kmurp

        I hear the same comments (too many layers of managment) at the hospital where I work. I also suspect that tohose gunshot wound “costs” reflect full charges and not real costs and are therefore inflated.

    3. Massinissa

      Agreed with Lambert. Just like in private businesses, the elite of the schools takes all the profit extracted by charging the students too much and paying the teachers, like your friends, too little, redleg. I dont know why you even bother asking this question, it should be self explanatory.

  14. PaulArt

    I have a friend who is a senior business IT adminstrator in a very expensive private college. He is a clever fellow but if you brought a webserver or an ethernet router to him on a silver plate with watercress around it he would not recognize it much. I am sure he makes a five figure salary. Academia unfortunately become ecosystems for mediocre people because the environment is not demanding like the ruthless private sector. While the lack of ruthlessness (aka unaccountability) is laudable in many ways I doubt if we can point to administrative machinery in schools and yell ‘leeches!’. How is this different from the GOPers pointing at Government employees and yelling ‘parasite!’? Most money it would seem is pocketed by the President and the top tier rung close to him/her. The rest goes into infrastructure designed to attract students.

    1. Lambert Strether

      Academic politics can be plenty “ruthless,” PaulArt. And I don’t know what other word one would use for the administrators who cut back hours for the adjunct precariat so they wouldn’t have to offer them insurance under ObamaCare.

      And I don’t want to say that no college administrators are needed; but as I said above, we have an entire administrative layer that provides no demonstrable value t all. If the universities in Maine were rolled back to the point where that layer didn’t exist, there would be no harm to the university’s mission (assuming that to be teaching and scholarship) and a boatload of money would be saved. So, yes, leeches, exactly leeches.

      NOTE Adding, worse than leeches, because leeches, once affixed to a body, tend to stick there until they bloat and fall off. These leeches, however, move rapidly from body to body, giving themselves a raise each time the door revolves.

    2. LucyLulu

      IT is actually very important at universities. If he only makes five figures, he either isn’t very high up, or it’s a small college. At UK, I can guarantee the top level admin makes six figures, and earns every penny. All faculty use IT for grades, researchers use IT, students use IT for coursework, security is extremely important, and attempts at breaches are common. Granted this anecdotal, but I took a course from the same top level admin back in the early 2000’s and he was positively brilliant, as well as having tons of experience and practical knowledge. He also had a master’s in EE, arguably the most difficult coursework there is. UK also has 30,000 students (or did then).

  15. kmurp

    Is there any data on how the student loan deliquencies are distributed vs. type of college attended? That is, are a diproportionate number from “for profit” schools, community colleges or four year schools?

    I’ll probably get yelled at for this but is it really horrible to have (is it $22,000?) in debt that can be paid over 10 years? That doesn’t seen that horrible, but I know, currently, the job market isn’t that great.

    1. A Real Black Person

      I can’t tell if you’re ignorant or if you’re standing up for your academic buddies but to answer your question, it depends on whether graduates find steady full time employment that pays more than 22k year within six months of graduation, and whether that 22k in debt is made up of federal loans which incur little to no interest or private loans, which incur interest well above the Federal interest rate. Last but not least, if the majority of graduates were getting steady work in the private sector (no deficit spending propping up the employment rate of college graduates) and were repaying ,at maximum, 22k in student loans, there would be ni discussion about student debt. The reality of the situation is that students are borrowing much more than what they are likely to make when they start out. Plus interest.

      Payscale came out with a report that showed that a lot of non-profit schools are not a good deal for prospective students. The schools that have a real positive ROI are all engineering schools and business schools and are selective.

    2. LucyLulu

      It’s $26,000 and it depends on whether or not you can find a job that pays enough to live on, or find any job at all. If a new graduate can only find work making $1000/month, paying $270 or so can be a real hardship.

      1. kmurp

        Thanks for the replies. I’m not in academics ( might be ignorant though). It’s interesting to hear that the for profits might do better by their students . Math and science seem to be the best bets now. Healthcare maybe not so much if its share of GDP ever goes to 10%.
        The figure I just got from bankrate is $201/month for 20 years at 7% for the 26,000. As you say, tough If you make 1000/month (though you likely get free healthcare at that level right ?). Hopefully,a college grad won’t be stuck at 12k/year for too long and it would get much easier. That’s what I hope for my daughters anyway.

        1. LucyLulu

          You wrote:

          “I’ll probably get yelled at for this but is it really horrible to have (is it $22,000?) in debt that can be paid over 10 years?

          $26,000 at 3.4%, the current Stafford rate, over 10 years is $256, per spreadsheet function. I believe you’re correct however on the rate. If the Senate continues to block legislation preventing it (as they did earlier this week), the rate is set to double in July. Double the rate and double the time, and your figure is spot on………. but still tough for somebody working at Walmart.

          I hope your daughters fare well. The way I looked at it my daughers were even less likely to fare well without a degree. One is 28 now, debt-free and doing well, and one to go, graduating next year.

  16. Anthony Eller

    I don’t believe the student loan debt crisis will ever be solved till the profit is taken out student loans, and education as a whole look at secondary education as well

    I’ m just a crazy old man some would said, but I do know the difference between right and wrong. I started ProjectTuitionReimbursement.com To help find solutions

    just remember most solutions to pressing issues in society have always been called crazy especially if no profits are to be made in the solution!

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