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Yves here. I don’t pretend to have a magic bullet for the student loan problem. At a bare minimum, student loans should be dischargeable in bankruptcy and servicers should not be able to garnish Social Security payments to satisfy student loans. Another step in the right direction would be to end default interest rates, which rapidly compound the amount owed when borrowers miss payments, which can readily happen due to job loss or a medical or personal emergency (having a car is critical to being employed in most parts of the US, so a transmission failure can wreak havoc for someone whose finances are on the edge).
Once you go beyond measures like those, you get into the complicated terrain of whose debt to write down, and how much. I’m frankly surprised that a Main Street coalition for student debt relief hasn’t sprung up, since low household formation rates among the young are due to a significant degree to the student debt peonage. After all, people buy lots of stuff when they move out of their parents’ home or quit living in apartments with roommates.
Writeoffs mean losses to the government on Federally guaranteed student loans, which constitute over 93% of the amount outstanding. Now as Michael Hudson is wont to say, debt that can’t be paid won’t be paid, so this is arguably an exercise in loss recognition (the losses exist, as in marking many of the loans to fair market value would result in writedowns). However, the current draconian repayment requirements mean that debt moralists will argue that reducing or writing off principal is a gimmie.
One way to refocus this argument is to marshall evidence of how colleges often acted as predatory lenders. For instance, students were often shown data about the earnings of recent graduates that was unrepresentative (as it didn’t allow for how many completed degrees, nor did it show incomes by major). Provisions to require lenders (meaning schools) who have a high level of defaults and/or engaged in deceptive marketing to pay significant penalties would help politically. But while that will (deservedly) put a lot of for-profit colleges out of business, measures like this should not be limited to them. Otherwise, we will have yet another two-tier system in which respectable-seeing institutions get away with bad conduct.
However, it’s hard to see ideas like this coming from anything to the right of the Sanders wing of the Democratic party. Student loans have subsidized a huge income transfer to college and universities, particularly to highly paid administrators. Academics and higher education bureaucrats have a high propensity to vote Democrat, so the party is not going to attack one of its strongholds, as attested by Elizabeth Warren’s timid student loan reform proposals. Maybe we need to start talking up prosecuting college administrators who knowingly devised misleading student loan marketing materials to raise the baseline. Another important set of measures would be to greatly strengthen the laws against predatory servicing and assign large penalties.
While I differ with some of his ideas, particularly his idea of getting rid of licenses, as opposed to getting rid of educational requirements that are tolling as opposed to providing needed instruction, Bob Hertz’s proposals below will hopefully help foment more discussion of how to greatly reduce the harm done by the student loans’ millstone.
By Bob Hertz, Editor, New Laws for America You can reach him at Bob.Hertz-at-frontiernet-dot-net
According to John Galbraith. the wealthy always want to avoid taxation and put debt in its place. Student loans substitute debt for taxes perfectly; thanks to loans, the burden of funding higher education has been largely transferred to the backs of students
In the words ofMike Konczal , “Student debt has taken the place of public funding, and it has become a slow-moving disaster.”
Per Ellen Brown, author of Web of Debt:
The lending business is heavily stacked against student borrowers. Their debts normally cannot be discharged in bankruptcy, and these debts can compound and dog them for life. Without a well paying job, many students will be hounded by collectors, have their wages and even their Social Security garnished, and have abysmal credit the rest of their lives. They may feel unable to buy a house, or even start a family. We are sacrificing a generation to student debt.
What Must Be Done Instead
New Student Loan Law #1: No repayments are due until the borrower’s income exceeds $40,000 a year.
This rule has been in effect in Australia, Britain and Canada for several years.
The student-borrower owes nothing until the year after they file a tax return with over $40,000 personal income.
Also, no interest will accrue when earnings are low.
If they never earn $40,000, they never owe anything. If they fall below $40,000 after years of higher earnings, their payments will be reduced.
Federal farm loans worked like this for decades through the Community Credit Corporation. If farm prices fell, the farmer owed nothing; if prices went up, the farmer had to pay.
This ‘rule of $40,000’ will effectively end student loans for cosmetology schools, medical coding schools, culinary schools, non-profit work, fashion design schools, art schools, et al., In these fields, many salaries will be less than $40,000. The lenders will likely never get paid back.
The rule will bring immediate relief to many debtors who are in dire trouble. Even if their debts are modest, they may have dropped out of school, and now can only find low wage work. Right now they have “no way out” as their debts multiply with interest and penalties
There is nothing wrong with someone wanting to go to barber school! But they should be in a public vocational school that costs far less than $5,000, and could be largely covered by a Pell grant.
The Medical Assistant program at for-profit Heald College costs $22,275 a year; a comparable program at Fresno City College costs $1,650. A paralegal degree at Everest College costs $41,149, compared to $2,392 for the same degree at Santa Ana College. Without federal loans these educational crooks will disappear, and not a moment too soon.
New Student Loan Law #2: No interest will accrue on any federal student loans. (either during school, or during repayment.)
Instead of lowering interest rates, we should eliminate interest altogether. (As New Zealand did in 2006, and Nova Scotia is doing right now.)
Also, any existing accrued interest should be forgiven, immediately.
In too many cases, multiple years of forbearance, penalties.and high interest rates have caused original loans to double or even worse. A student who borrowed $50,000 might now owe $100,000. It is not hard to find debtors who borrowed $20,000, have paid back $40,000 in principal and interest, and still owe $35,000.
Loan interest must end, if not all at once then over just a few years.
The person who borrowed $20,000 and has made $40,000 in payments will be done paying.
The person who borrowed $20,000 and has made no payments will still owe $20,000….NOT the interest..
If any default or ‘rehabilitation’ penalties have been added to the loan balance, they also will be wiped out. The hideous extra charges imposed by collection agencies (often 25% of the loan balance, and 25% of future repayments) must be cancelled retroactively. . Late fees are a gold mine for predatory servicers, and must be taken away.
In any event, monthly payments for many debtors will shrink dramatically. This will be a quick and efficient write-down, far preferable to millions of drawn-out court cases or futile requests of help from servicers. The federal government will simply declare a new balance.
In addition, the forgiveness of loan interest should be income tax free, or at least taxed very lightly.
(It would be ideal to forgive all existing student loans. But that is politically impossible —due to understandable resentment from those paid back older loans in full, those whose parents saved diligently for college, and those who did not go to college to avoid loans.
Cancelling interest (or re-calculating interest at 1%) seems a decent compromise. The borrower must repay what they borrowed – but not all the interest and penalties.)
Meanwhile: Private loans will have interest capped at the federal funds rate (about 1.50% currently) This will apply to both new and existing loans.
If a private loan is guaranteed by the government, then the bank is taking no risk…why should the bank get a generous interest rate? As Michael Hudson says,” Banks don’t take risks, that’s what governments are for.”
Private. Lenders will likely not want to offer loans at low rates, since interest and late fees are the “gold” in the market.,,,,but they will not be missed. Colleges should be funded with grants, not loans.
The ‘SLABS market’ – which consists of securitized, high-interest loans sold to investors — will probably collapse in short order. The government will cover much of the investors’ losses, but this is a cost of our foolish policies.
Complaints will be made that this is all bad for business. Which it is… but when did we get the idea that college funding should be a business? Government aid to education should be just that –aid -with no private profits on the side.
Student loans have been an attempt to get more people into college without raising taxes. State governments are indeed under a lot of pressure from health care costs, pension costs, infrastructure, et al., and can no longer fund colleges automatically as in the 1950’s. Drafting private capital may have seemed like the least bad solution. The general public sees student loans as a generous program, not a rip-off.
This rosy scenario did not reckon with the millions of borrowers who would not earn more, or the drop-outs, or the greed of for-profit colleges; or the lethal power of compound interest.
Loans are a dangerous drug….they are an endless replay of Pleasure Island, if you remember the story of Pinnochio. The policies to expand home ownership also looked like free lunches, until the mortgage brokers and big banks came aboard. Now once again we must pick up the pieces
New Student Loan Law #3: All student debt owed by borrowers or cosigners over age 60 will be forgiven, immediately.
This is a barbaric practice and the nation should be ashamed. We are creating multi-generational webs of debt, exactly the opposite of a good society.
Debtors over age 60 have the highest default rate, and can be forced into poverty if their Social Security or disability benefits are garnished for loan repayment. Most students have no assets, so lenders are going after the parents, who do have assets.
Under our law the government will see its loan portfolio shrink by about $85 billion .This is not a major issue: The government’s net revenue from student loans is negligible in a $3.5 trillion federal budget. The government is ruining lives, in order to collect money it does not even need.
In fact, the government will eventually take in more money when debts are forgiven — because the debtors can then re-enter the economy and spend on more constructive things other than debt.
Consider the example of Europe after two World Wars. In the 1920’s, the victorious allies demanded full payment of German war debts, and this helped cause the Great Depression. After World War II, German debts were forgiven and this helped lead to a boom.
The US government should not be squeezing its own citizens with debt extortion. The government should levy sufficient taxes for public programs, so that odious debt is not necessary in the first place. If we want more college graduates, then let’s spend the money on free or next-to-free public college.
New Student Loan Law #4: Allow student loans to be discharged in bankruptcy.
If the lender demands a payment schedule that the borrower cannot meet, then bankruptcy can go forward. Private student loans are the worst offenders here, and these loans will be cancelled with ease in bankruptcy court.
There are many thousands of debtors who now have required loan payments of perhaps $1000 a month, but incomes of just $2,000 a month. (or similar ratios) They are not eligible for income-based repayment plans, so loan servicers harass them mercilessly
This can end starting tomorrow. The normal rules of bankruptcy court can take effect. If your loan payments exceed a standard per cent of your income, and the lender will not offer some forgiveness, then the debt is wiped out.
Note: If a college is guilty of outright fraud — and some of them are– then any related student loans should be cancelled immediately and not need bankruptcy court This must not be a timid step that any later administration can reverse,
It is worth repeating that private colleges can declare bankruptcy; huge airlines can declare bankruptcy; Donald Trump has declared it several times. (and got a huge tax deduction for his unpaid debts.) Gamblers can declare bankruptcy; credit card abusers can declare bankruptcy; VA mortgage holders can declare bankruptcy; SBA loan recipients can declaire bankruptcy. All across society, people can put their mistakes behind them. We would not be “coddling” ex-students, if we give them the same rights as all other borrowers.
Tbis is not to deny that some borrowers have made huge mistakes. They did not keep track of all their loans; often they kept taking loans in a desperate attempt to get an advanced degree…..which (they prayed) would lead to higher incomes.
The question is, how long are we going to make them suffer for a bad bet? The rest of their lives?
As Elizabeth Warren has pointed out, bankruptcy court is where America’s social problems are exposed.. Lost jobs, erratic incomes, inadequate health insurance, no disability insurance, and the fallout of divorce—all are addressed eventually in bankruptcy.
Bankruptcy is a recognition that both borrowers and lenders have made a mistake. That the federal taxpayer is in effect the lender makes this politically painful, but no less true. We are fiscally responsible for the foolishness of public bodies.
New Student loan law #5: Pell Grants must be expanded to $8,000 a year, and be available to any student from a family that earns less than $100,000.
This could cost the government an extra $74 billion a year. (Obama made a pathetically small proposal to increase Pell Grants, by $35 billion over ten years.)
We ca afford this, because the government will be making a lot fewer loans. If Washington can currently make new loans of more than $100 billion a year, it also has the money to make grants instead.
We give vouchers to parents for elementary education, and even right-wingers applaud. No one has to pay interest on a voucher. We do not fund Medicare or Medicaid by backing up private loans to patients (who would then default in massive numbers.) Again the principle must be grants, not loans.
More federal funds should go into vocational schools. These have no dormitories, no athletic teams, and no professors being paid lavish salaries to do research. They actually help their graduates find jobs.
The loan monies that have been going to dishonest for-profit colleges could have funded every vocational school and community college at 100%, with ease.
New Student Loan law #6: Guaranteed student loans must be cut back across the board.
We may want to stop all loans to:
– third tier law schools
– ‘Parent Plus’ borrowers
– liberal arts graduate school programs
– ‘online universities’
– for-profit vocational schools
– any loans for living expenses
– loans to persons over age 50
Note: If a student has just a year or two to go to complete a professional degree, we can give out another loan. But the amount must be reviewed. Even for the professions, some tuition prices are ludicrous. A year of law school need not cost $50,000.
Would this be a form of paternalism? Absolutely yes. We have been treating students as though they were knowledgeable loan customers, with disastrous results.
Personally, I like paternalism. Mortgage re-fi loans should have been greatly restricted in the 2000’s. Millions gave up their home equity for what seemed like free money at the time, but in the long run made them poorer. Compound interest swallows up assets, it happens every time.
Alternatives to Student Debt
To survive without loans, many colleges will have to get their tuition down to the level of a Pell Grant, or perhaps a Pell Grant plus $5,000. Students can stay at home and commute, rather than destructively borrowing money for living expenses.
If an industry actually needs new employees, that industry can help pay for their education. (This happens right now in vocational schools.) Employers who need workers can also help their employees pay down their loans. If an industry does not want new workers badly enough to train them, why give out loans?
Too many degrees have been debt-financed in fields with no new jobs. These loans are often the most destructive. A larger supply of qualified social workers, counselors or computer game designers has not created a demand for those graduates.
Some colleges will shrink or close. Some probably deserve to close, given the dishonest promises they made to students, and the rich salaries that have been extracted from loan-covered tuition. It would not be unjust if colleges had to use their endowments or reserve funds to make refunds, or to help defray the cost of government loan guarantees..
(Note: all earned credits must transfer to other colleges if a school closes. This is not negotiable.)
The highest loan default rates are actually not among university grads, but in for-profit institutions. Downsized workers, poor kids, ex-convicts and single parents are understandably desperate to get into the middle class….and for-profit colleges have promoted themselves as the solution..Student loans were often the only form of credit this group could get.
Unfortuantely this group was poor back then, and often they are still poor today. The only way out is to forgive most or all of their small loans., We do not solve the problem of wealth creation by doing debt creation.
The best social alternative is not more college, but plain higher wages.
In Germany, for example, apprenticeships lead to good wages; but college is not required.
German workers do receive training, but it is paid for by employers and the government.
Danish workers also get retraining when their old jobs disappear, but this is paid from taxes not loans. Job and training benefits like this cost about 4% of every Danish paycheck.
The German apprenctices are well paid not because they are more educated – but because their unions demandhigher wages, and their unions can stop outsourcing and strike-breaking. European employers in general cannot replace workers with cheap labor for quick profits.
,McDonald’s workers in Germany make $37,000 a year. They rarely fall prey to dishonest pitches about needing to go to college to make a decent wage.
In America, warehouse and food service workers could make a living wage if they had strong unions. (This has been proven by unionized Las Vegas hotels.) The policy emphasis on “more education’ is a way to avoid the reality of exploiting workers.
We also need to address the licensing requirements that send people to college in the first place.
Up to 2,000 hours of classroom time is required to be a carpenter, a manicurist, a fire-alarm installer, a make-up artist, a hair braider, pest control applicator, pre-school teacher, earth driller, et al.
These restrictions create a ‘toll booth’, where a job applicant must essentially borrow $50,000 or $100,000 or more just to enter the occupation. The only answer is to outlaw this kind of licensing, and let anyone enter the fields. Let the customers decide if they want service from a doctorate holder at $400 an hour, or a trade school graduate at $50 an hour. In a world of Yelp reviews, the markets can police themselves.
Pell grants are the foundation of our reform. If a student still needs a BA degree, they can find a program for $8000 a year in tuition. The private colleges charging $40,000 a year can serve the well -off.
We ought to remember what the GI Bill was like after World War II. A young veteran could marry, have children, attend any college for free and even get a stipend to help pay the rent.
This generation matured with houses they could pay for and children they could afford. With decent union jobs, both spouses did not have to work. This did not happen in a far-off fantasy land. In a sense it happened about two miles from where you live right now.
Let’s quit harassing and destroying our own citizens. The Federal Reserve was rich enough to buy up billions of ‘toxic assets’ after the bank meltdown of 2008. We can do the same with toxic student loans, which are destructive to more individuals than subprime mortgages. You can walk away from an unaffordable house. That destroys your credit but your financial life can be rebuilt. These student loans are forever.
This is not just a theoretical debate. Debtor suicides are not unknown, and loans can be a cause of divorce. In several states, one’s drivers license and professional license can be seized for not paying student loans. Debtors were actually imprisoned in America in the 19thcentury. Not likely, but it could happen again. History is filled with wars between debtors and creditors, and the contest is not really over moral correctness, but power.
It is bad enough that helpless migrants from the Third World have to work off their transit and recruitment fees. Why are we treating so many of our own young people the same way?
We forget that the United States was founded by debtors, and was a refuge for debtors who needed escape.
We are not saying that 100% of student loans are bad, or that all graduates are in financial trouble. Many students graduate with under $20,000 in debt, no more than a car loan, and make their payments on time.. Student loans by themselves will not destroy the US economy.
But the evil aspects of student loans will destroy millions of people, if we do not restore the right to bankruptcy and other forgiveness. This is what we are desperate to enact.
For more information, contact me at Bob.Hertz@Frontiernet.net.
Also you should follow these excellent organizations:
Student Loan Justice……..http://studentloanjustice.org/
Condemned to Debt……https://www.condemnedtodebt.org/
Student Debt Crisis………..http://studentdebtcrisis.org/
Student Loan Warriir……….http://studentloanwarrior.org/
Student Loan Sherpa…….https://studentloansherpa.com/
I had contemplated paying off my student loans, which are pretty low compared to most people 20 years my junior, but as they can not accept foreign bank transfers, I guess I’ll just support the boycott. Nothing like clicking that temporary deferment button every 2-3 months.
You’d think these parasites would accept foreign currency, but apparently they only want dollars and not euros.
Why stop student loans to third tier law schools and liberal arts graduate school programs? Or, is this just some STEM virtue signalling?
It’s basic lending 101: the three C’s of underwriting: credit, capacity and collateral. A no down payment car loan for a high end Mercedes sedan to a minimum wage fast food worker is a more responsible loan. The Benz can be repossessed.
well they also stop them to people over 50, but over 40 might be more realistic. I think however we should pay for assisted suicide in those cases and 40 might be more realistic.
It’s not STEM virtue signaling. It’s because graduates of third-tier law schools and many liberal arts graduate programs have a harder time repaying their student loans. This is because they’re borrowing much larger dollar amounts than undergraduates typically do in exchange for a couple of extra years of school that yield little financial benefit.
Indeed, “New Student Loan Law #6” should be expanded. Loans should be stopped (or more strictly capped in size) for any academic program where the rate of student loan repayment is poor. And this should be fine-grained. Not on a type-of-school basis, but instead down to the per-university, per-college, per-department level. All based on actual repayment rates.
When we blindly agree to lend out money to cover whatever tuition is charged, we’re essentially giving colleges and universities permission to raise tuition as high as they want. And then we look at the aftermath in horror, wondering why our kids are drowning in so much debt. If we actually limited the cash flowing into colleges, it would force them to engage in some long overdue cost-control efforts.
Ahem, in case you missed it, the idea that there is a STEM shortage is a myth. We’ve posted on that regularly. If you read Slahhdot, for the last ten years, they have regularly had posts by new computer science grads saying they can’t find a job, and the older readers agree, there are virtually no entry level computer science positions in the US.
Business majors actually do the worst:
Underemployed = taking a job that does not require a college degree.
And this list, based on a NY Fed study, puts engineering technologies, mathematics, and earth sciences on the list of majors with the highest unemployment rates:
If an earth science major gets a permanent job working for the NPS, it’s akin to hitting the lottery.
really? There is a big biz in hazardous waste clean up, that’s earth science.
Earth science is a good field, we have pollution everywhere
Wasn’t it something called “Say’s Law” which postulated that supply would create its own demand”?
Well, that sure is not true about college degrees and good jobs.
In the 1950’s, according at least to writing at the time, nearly all the GI bill college graduates got good jobs. In my own extended family that was certainly true.
But then, the economy was expanding fast.
My vision right now is an America where liberal arts is a luxury for rich kids and scholarship kids. The kids who are neither can go to vocational schools with Pell Grants. Just in my city, Dunwoody Institute and St Paul College have very high placement ratios for their graduates.
um, no. 8-15 years ago law schools were jacking up the number of grads because it was very profitable for the law schools, but the over-production of new lawyers led to difficulty for new law grads finding law jobs. (that’s since corrected because word got out back then that law school was a high-priced ticket to unemployment. law school applications fell off considerably and are only now rebounding.) From 2011:
The same “get this high priced* degree, get a great job” sales pitch is now aimed at STEM study. Leading again to over-production of newly degreed job applicants in the fields. Leading to reduced individual job opportunity and lowering pressure on starting wages for the entry-level jobs available.
*Course credit-hour costs for engineering or degrees requiring lab work with high priced equipment is usually much higher than credit-hour costs for degrees that don’t require expensive lab equipment. Well, the credit-hour cost might be the same, but then a lab-fee is tacked on, in addition to the cost of books, etc.
There’s another major point: stop requiring college degrees for occupations that don’t require them. Even for those that do consider allowing testing and work experience rather than college. My wife arrived to the US shores as a 17 year-old who spoke almost no English. She got a job as a cashier at a drug store. Cashiers need to speak to people and, unless those people spoke a Slavic language, that part of the job wasn’t going so well. But she could count, quickly and accurately. They moved her to the pharmacy where she became a “pharma tech” – basically, the people who count out and fill prescriptions.
She advanced to hospitals where she filled high-cost/high-risk chemo prescriptions. Eventually, a managing doctor/MBA decided he didn’t need to pay a pharmacist: that she could do the job. Which she could, and did, except she wasn’t allowed to because she wasn’t a licensed pharmacist. So they put one in place; he was rarely there because he was working on legislation to require government certifications for pharma techs, her job. Why, she asked? What do you care, he said (spending 100% of his time on his legislation while she still ran the pharmacy); you’ll obviously pass with no problem. Just doesn’t seem needed, she answered. Being a pharma tech was a fine no college or certification needed entry level job, with good health benefits and a $15/hr paycheck back when that was a lot of money.
There are countless jobs – maybe the majority – where on the job experience far outstrips anything people would learn in college. In many fields college professors are so far removed from reality what they teach is often counter-productive to working. Let’s face it: college is oftentimes trade school. People bemoan this fact but need not: very few people need humanity degrees and those that do will still likely get them, just as they always have. But for the greater number of working stiffs college degrees, and the loans and lost time, just aren’t worth it.
Ill push back on this a bit. The problem is what has become the wildly inflated cost of college, not college per se. And I think it is terrible (per the STEM comment above) that college is now seen as legitimate only as a mercenary exercise.
I don’t know if this is still true, since educational standards in Europe may have fallen even faster than in the US, but when I was a kid, it was generally recognized that graduates of high schools in most European countries were as well educated as most US college grads. Colleges wind up making up for the poor standards of even pretty good US high schools. I believe international comparisons show the US is falling further behind.
In addition, I think there is great value in having people have a high level of general education. A knowledge of history and literature gives people a wider frame of reference than their personal experience which is helpful in all sorts of arenas. It also can help you have a richer personal life by exposing you to things you might not have found on your own.
High school standards in Europe are very high, though the standards are collapsing for things like the French baccalaureat. Students in good high schools study science, math and literature that is probably equivalent to an average second year college student in the states.
As for the quality of US students, I have only anecdotal evidence from a handful of college professors I know. They tell me that outside of the top schools, most freshmen need remedial writing and math before they can even begin.
America has effectively turned education into a monetary commodity. It is “worth something” in the workplace and therefore should be expensive to acquire. Learning is, for at least a third of Americans, “faggy”, effeminate, liberal, and anti-American. Even those who advocate education disdain the liberal arts and mock lit grads or art majors; they tell them they are wasting money and ruining their chance to succeed in life.
Americans seem to be achieving their goals. Americans are consistently finishing far below other developed nations in education and knowledge. This is not a bug, it’s a feature.
“America has effectively turned education into a monetary commodity.” Yes. And can you think of anything America has NOT turned into a monetary commodity? I can’t.
our Entire Lives (and whether we get to keep them) are a monetary commodity but somehow education shouldn’t be, it should be like a virgin in a whorehouse … so pure and unsullied should it be … it should be a 4 year vacation (and maybe the only vacation you’ll ever get) from a life that must by necessity in this society be devoted to the mercenary, and the long hours, the long commutes, the two jobs if that’s what you have to work, the contract or gig work if that’s what you have to take etc., the figuring out whether you can afford marriage (and how will that work with both your jobs anyway?), procreation etc..
Meanwhile back in the real world, I heard recently one community college in California was building low income housing on campus as one way to deal with the problem of student homelessness, actually a huge problem in California. For some people college is not even a vacation from the problems of having a roof over one’s head, of course those who are homeless and get through college make the right choice in a mercenary sense, less likely to be homeless later in life.
I can’t tell how much is sarcasm and how much is preaching, so I will just go by feel on this.
You seem to disdain the monetization of our lives and the reduction of existence to a score card with stocks, bonds, and deposits on it. But you also mock the notion of education as a vacation or a virgin in brothel. And should homeless students be housed or should they be forced into work camps or mines to pay for the roof over their heads? It’s not clear to me.
Since I sense enormous frustration on your end, I will just ask for explanations rather than risk responding in error.
I’ll answer both since I live in France and have a daughter in middle-school who will, assuming that we stay here, be taking the BAC soon enough. I also have a son from a prior marriage who went to what was then ranked as one of the top-ten US public high schools.
My son’s middle school — also a public school though funded by a special grant from IBM — was very good. His high school was great. But in a county of 1.4 million people his high school was also tiny, especially the top-ranked Math/Science/Engineering and Computer Science programs, each limited to 100 students (many who flunked out the first year). My daughter’s French also public (government run) schools aren’t as aggressive as his schools were but they’re also focused more broadly. From what I’m told, they also ramp things up quickly in the coming years. There is a change planned where high school (Lycee) won’t have tracks anymore; everybody will learn the same thing (though many kids are sent to trade schools, an entirely different track).
As for the liberal arts/STEM issue, I don’t disagree. The cost of college is being driven by administrators and quarter-billion dollar football stadiums, not tenured professors. Many schools continue to or have ramped up the use of poorly paid grad students and adjuncts; a severe income disparity. But I will push back: if an adjunct, or even a tenured professor, can teach a class of 300 students then those same students can also watch a top-tier professor “teach” the same thing on youtube for free. The disconnect comes from the ages-old assumption that college classes are the only or best way to educate people. That assumption is increasingly wrong.
My son is taking the Bac this year and there is much anguish and angst all around. That said, he is in a top-ranked private lycee so his level is high.
I am not sure what you mean by “tracks” for French schools. All the kids are lumped together in the same classes here already assuming they have not be shunted off to trade school. (For those who don’t know, some countries have different levels within the same grade such as Remedial, State Level and Advanced Placement. France does not have this; students, assuming they can maintain a minimum grade, all take the same classes together. So a weak math student will take differential calculus along with the future engineers and rocket scientists. It is more égalitaire this way).
AS for Youtube lectures, my son has informed me that they do watch TED talks for class.
20+ years ago, I worked in the University of Arizona office that (among other things) gave the incoming freshman a Math Placement test, to figure out what math class(es) at the U of A they needed to take to meet their college math requirement.
More than 60% of the students who took that Math Placement test did not qualify for a single Math course taught by the University of Arizona, and were told to go take one or more math courses at a community college before they could even begin to fulfill their college math requirement.
Brilliant intro….thanks for sharing your thoughts about this nightmare problem.
Here’s the perfect fix:
Make the Pentagon borrow from Wall St to buy F-35s.
That way the banks get to keep grifting; and the MIC gets to keep selling their worthless toys. If the borrower doesn’t pay the collections guys can attach the future Pentagon cash flows straight at the Treasury level.
The classic pyramid has the govt on top, then corporations (including banks) at the next tier, then the broad base of citizens. In reality the banks sit at the top; they own the government; and corps and people are beholden. So you won’t get any change if you threaten the bank rent extraction level.
This proposal substitutes the MIC rents for student loan rents. Bankers love it! So it has a chance of happening.
I wonder what value the appraiser would put on a new F-35, and its depreciation schedule.
Is the a Kelly Blue Book entry for the F35?
As an aside, the MIC has monetized the F-35, because the maintenance and software upgrades will continue for ever.
One shortcoming of this article is that it doesn’t compare or mention the cost of college in the US to the cost in the UK, Canada and Australia. In Canada it appears they have waved the cost of college for cash-strapped students. And what about Germany, Holland, France, Italy etc. and the Scandanavian countries. Does the article assume that all countries have the same intial costs as the US?
The key word in your article title is “evil.” In all the liberal democratic theories going back to Plato, you will find that governments are formed to promote the “good.” Logically and empirically we do not have a legitimate government.
The “iron heel,” to use Jack London’s term for the oligarchy are firmly in control and until they are displaced, substantive change will never come
In a just world, Joe Biden .. for one, would be displaced into prison, for helping to codify into law the penury of many thousands to millions of unwitting, and increasingly desperate citizens.
All of these suggested solutions address the symptoms, not the disease—advanced education is too expensive. These ideas will do little except pass on the costs of bad debt from those who shouldn’t have borrowed and can’t repay to those who can repay through long-term higher interest rates. That is a superficial fix.
We need ideas on how to lower the cost of education. Beginning in the early 70s the system became rigged in favor of banker, politicians, and college administrators personnel. The world suddenly decided that everyone needed to go to college. Money, through gov-guaranteed student loans, flowed like water. The old axiom: “When you subsidize something, you get more of it” ruled. Colleges with one swimming pool built 2 or 3. Professors who largely worked independently got assistants who also go assistants. Bank lending profits soared. Politicians got re-elected by promising more affordable education. Restraints on the growth the advanced-education were magically lifted and what was once a product that was fairly priced in society–a product that those who needed it and would most effectively be served by it could afford–took off like a rocket.
The education industry become politicized and many people made millions burdening young people with the costs of doing it, which they can pay back. The ripple effects are obvious now. Millennials are putting off marriage, renting instead of buying, buying fewer cars…. The industry player’s s greed is now falling on the American taxpayer.
How to address it? Phew, tough one. It’s going to have to start with a cultural shift in thinking. We need to stop being snobbish about vocational training. Not everyone is made for college. Admit this and back quality votech schools and encourage students in that direction. Streamline the college experience. Maybe by eliminating unnecessary courses we can turn out qualified graduates in 2 years instead of 4. Cut professors/admin salaries and unnecessary positions. Push online training and acknowledge the legitimacy of it in the workplace. Reestablish some discipline in how student-loan money is used (now, too many students use it to fund vacations and cover living expenses). Make schools more honest in how they prove their value to students. There are many more ideas out there on how to gradually make the cost of education more in line with its societal value. Let’s pursue them.
I think one thing that might help is to cut the expectation that college should be done in 4 years. 4-year college is a throw-back to a time when college was exclusively for the elite.
4 years for the top 33% of the academic tool. 5 to 7 for the bottom 66%. No shame in taking one’s time.
IMO, for many students, 4 years are too far, too fast, too expensive—particular if their high school was marginal.
iif I recall correctly, both financial aid rules and tuition structures of many schools incentive-izes taking loans and being a full-time student, and penalizes students who want to work part-time and go to school part-time.
this is a horrible idea, it already takes people 5 to 7 years to graduate, that’s what happens when you have to work full time while going to school.
What’s also irritating is that there are maximum amounts of Federal Subsidized/Unsubsidized loans that students can borrow, and some students are never notified of this until they’ve switched majors several times and are loaded with debt they can’t repay because they never finished their degree. A receptionist at my last job ran into this problem: after ten years at various community & satellite campuses of state schools, moving from nursing to social work to criminal justice, she found herself a semester-and-a-half short of credits for graduation and disqualified from federal loans. Apparently no one at any of the institutions she’d attended had sat her down and said “The system has limits, let’s figure out how to get you graduated”.
It makes me wonder whether a lot of smaller/non-prestige public institutions (as opposed to the bigger research universities) realize a chunk of their students are aren’t going to graduate from their institution and consequently just don’t care if they graduate at all.
If payments are going to the Federal Government they are functionally the same as a tax.
The Federal Government doesn’t need the money, so why would written-off loans be passed on to other borrowers? Federal taxes don’t fund federal spending.
This is a political problem, not an arithmetic problem.
Agree. This is an excellent place to break the log jam. And various reforms will follow. Start by forgiving all government backed student loans and a moratorium on private loans until they can be resolved with equity. And in the meantime rewrite the playbook on who pays for higher education.
The problem isn’t “higher costs”… it’s a decline in income. Federal funding for higher education declined 55% since 1972 (not a big surprise, given the protests of the ’60s). States have cut back even more dramatically. For example Oklahoma reduced its spending on higher education 37% in the last decade.
I’ll agree with you about vocational education (and, if you follow the German example, apprenticeships and internships)…but blaming the colleges is really just part of the story.
I am cautious about the widely held belief that a decline in Federal and state support is the major culprit for the student loan mess.
My own reading suggests the following:
– government grants for scholarships to the brightest students has not declined,
– government support for general tuition has flat lined in many states. So it has not kept up with inflation. And that is a problem. But it is partly the college’s problem. They have added employees and raised wages and built many facilities, and did not have to.
State governments are not angels, but they are besieged with extra costs for Medicaid, state employee pensions, and infrastructure. Given a choice between paying for AIDS treatment or a nursing home for a 90-year old, vs. more money for colleges, I can see why colleges might lose out.
I think lowering the cost of college is very doable in theory.
1) Devote considerable federal dollars to supporting state colleges so long as tuition doesn’t exceed a given percentage of the median income of said state.
2) Ensure that those state colleges are essentially run by strong faculty unions who work in conjunction with strong graduate student unions. Make the administrators work for the faculty, rather than vice versa.
3) Have state colleges emphasize hiring faculty based on 3a) quality rather than quantity of research/writing and 3b) willingness and ability to teach.
4) Have the federal gov’t fund about 100 billion dollars of basic research annually (fairly distributed among the sciences, humanities, and social sciences), with a significant majority of that earmarked for state colleges.
Not that I think any of that has a snowball’s chance in heck of happening anytime soon.
My student loan situation has completely destroyed three of the most important, lifelong, friendships of mine. They had their tuition covered, didn’t have to work during school, never worried about affording textbooks, etc, Now they have homes, families, portfolios, take vacations, and so on. I have a negative net worth and no home. The spread has left us with nothing in common, conversationally or otherwise. Ideally we could all adjust our discourse but that just doesn’t happen. In fact I feel they see me as somehow deficient – maybe it is easier for them to think I made bad decisions rather than accept that they got a buy-in from their parents. I guess doing well financially induces a self-defensive myopia of sorts. Such is human nature.
I can’t believe the condition of this country.
Right there with ya, Dogstar. In my case, I’m not at all the person who began college, so I have even less in common with friends whose whose careers didn’t get derailed.
I was wrong about wanting to join their world in the first place. They seem happy enough. Wouldn’t understand me if I tried. And I just might follow, “I’m Zen now,” with, “booga booga!”
There’s more to the measure of us than spreadsheets can contain.
your perspective born of your experience is the broader and deeper one, which is no consolation at all if you aren’t even getting by financially. So I hope we can all get by.
The human cost of living in a rigid class society. Some future Edith Wharton will write quite an Age of Innocence about us all.
Thank you for posting this, Yves. Education has been dragged through the mud in this country and it is a sorry tale that indeed rivals what happened to home owners. Students are so vulnerable; they don’t know what happened in the past, only what is happening to them now. I think that’s why there has been no perceptible revolt, just the suffering that comes as the guilt of constant debt overwhelms lives and quenches hopes. Many blame themselves when they are in fact victims.
It is indeed about power, and the powerful have a lot to answer for.
I left school withh $22,000 in student loan debt. I have made around $18,000 in payments over the years, but when times got hard I had to file for bankruptcy protection. My student loan was the only debt that was not forgiven. Even my mortgage, worth far more than this student loan, was forgiven.
I then relied upon the Obama Income Based Repayment plan. Big mistake. I currently owe in excess of $29,000 due to the capitalization of interest.
And now I find that I get to look forward to the garnishment of my social security in a few short years?
Fresh start from bankruptcy? Not so much. I will likely take this debt to my grave.
How long ago did you enter IBR? After 25 years in the program you qualify for loan forgiveness, although it might be subject to income tax
I entered IBR in 2010…so does that mean I have another 15 years of payments? I had hoped the 25 year forgiveness would include the time period before IBR.
They used to send an annual amortization schedule but I havent gotten one in a long time so I am not sure of the date the loan is satisfied.
How awful. I am so sorry.
Suggestion: Extend the GI Bill to apply to those that perform some non-military public service, Peace Corps, Teach for America, Americorps. Health care, home loans, college tuition.
Would love to one day hear a Peace Corps worker being told, “Thank you for your service!”.
About the only good idea John McCain came up with – national service – and I doubt it was original to him.
Two years in a 21st century Civilian Conservation Corps, any military branch including the Coast Guard and Merchant Marine (does that still exist?), all the ones WT listed, maybe some infrastructure work for the hands-on kids… plenty of opportunity across the fruited plain.
Skin in the game likely to create better, more informed and involved civilians too. Prepare us all for the post-electronic future, folks.
Yes, forgive all student debt but also remove all “diversity departments” and other b.s. departments and secretaries. Also, the bankruptcy was initiated by med-students who had large student debts and was included in a “how to do it” package, finish school, then declare bankruptcy, so I think there needs to be a middle ground.
Meanwhile: A Non-Tenure-Track Profession? [Inside Higher Ed]
Debt-slavery for the students, penury for the instructors.
This does not seem like a sustainable business model.
I’ve been teaching for about 12 years and currently adjunct at three schools, and if I could go back in time I would have dropped out of grad school immediately had I know what a disaster my career would be. I had no idea had bad teaching English at a community college could be and how incredibly difficult it is to achieve full-time status. I sit in departmental meeting with these full-time faculty, and we’re very often discussing equity issues, diversity, and practices for working with disadvantaged and under-prepared students. You’d think we were saints, we care so much about social justice; the meeting after Hillary lost was like a funeral.
Meanwhile, all of us adjuncts are in the room with zero benefits and making 2/3 what the full-timers make for doing exactly the same work, and the issue of economic justice never comes up. Ever. The adjuncts are totally alienated and miserable, but who cares? They have a pool of suckers waiting to work part-time whenever somebody leaves.
One of my favorite things about NC is that they talk about the “10%” (your tenured community college colleagues) as well as the 1%. Inequality all the way down.
As with health care, once again Canada proves the tragedy of student debt is entirely unnecessary. My daughter is currently getting a rigorous, world-class education at the University of British Columbia — for $15,000 U.S. a year: tuition, housing, food, books, everything in. I don’t know exactly why the disparity exists between two such similar countries but my general observation is: in general Canadians are horrified by American-style greed and the government has not (yet) been sufficiently captured by the corporations.
> Canadians are horrified by American-style greed and the government has not (yet) been sufficiently captured by the corporations.
Yes, let’s hope that never happens.
As a Canadian who has worked in Post-Secondary Ed, I’d say don’t get too excited. It might seem like not much in comparison, but cost of undergraduate education has ballooned in Canada over the last 30 years as government has cut back funding (though they have regulated price increases at the same time). Just wait until your daughter wants/needs to do post-graduate school, where the costs aren’t regulated by the government. Same problems, just on a smaller scale.
Unfortunately, Canada has a crisis as well.
It’s not as severe in the US, but it is not like Europe at all, where tuition is often free.
We also need to improve our healthcare sector – universal dental care and prescription drugs (like what New Zealand has) would be a good start.
“student loans should be dischargeable in bankruptcy and servicers should not be able to garnish Social Security payments to satisfy student loans.”
Shout it from the rooftops, Senator Joe Biden is responsible for that. Delaware his state is where the banks are headquartered.
Servicers do not garnish SS, the government does.
I would recommend a two-tiered student loan program with the traditional non-dischargable portion covering only the cost of strictly traceable education expenses (I.e. professors, lecture halls, labs, and some library expenses). There would need to also be strict regulation and reporting to prevent redirecting of funds intended for instruction to other expenses (today, this is not effectively enforced).
The second portion would be fully discharable in bankruptcy and would include any “student life”, student living and meal expenses, non-instructional buildings and common areas, and sports stadiums, and coaching salaries above some threshold.
This would remove incentives to game up tuition on expenses that do not provide instructional value, nor help students to better earn and repay. These loans can given at the risk of the institutions and their partner lenders, which have more incentive to balance this portion of spending with a predictable ability to repay.
Another suggestion with the latter is to demand some high percentage of say 1-to-1 or 2-to-1 of matching grants, bonds, endowments, or other funding mechanisms before the remaining portion can be added to tuition formula.
If someone can go on a pleasure cruise, charge it to a credit card, and then discharge the debt in bankruptcy, why can’t someone who was conned into a dental assistant degree at 18 discharge that in bankruptcy?
Thanks for illustrating the ridiculousness of our current system and some realistic solutions. We might also work to just make the college system obsolete. The main reason people pay all that money for college is to get the stamp of approval (diploma) that is supposed to get them in the door for a well paying job. While it won’t solve the problem for those already in debt, your proposals can do that, for future students: Most of the information that colleges provide is freely available on the web, what is missing is a list of skills needed for a job and a verification process that demonstrates a proficiency with those skills. Thus creating a nonprofit that worked with companies to look at job openings then generated a skill set needed for those jobs and a verifiable test for those skills, thereby providing an alternative path to the standard college route. Of course, providing options for a mentor or tutor and some sort of social network to allow students to provide support (ie, bitchute tutorials) for one another would increase the success rate. On a platform like Steemit they could even pay for their education by creating tutorials of what they learned for those behind them. At a deeper level this brings up the bigger issue of how those in power use information control to stay in power and why we might want to use and support open source everthing if we are interested in providing a more equitable playing field.
Where there is a will, there is a way. There are a number of ways to bandaid the problem.
Municipalities and states can borrow at interest rates which are below the headline interest rate on many student loans. So any city or state that wanted to could issue bonds, fund a refinancing program, and recharacterize the loans in such a way that bankruptcy protection could be restored to the new loan.
One of Elizabeth Warren’s early proposals was that student loan interest for Federal loans should be set at the Federal Funds rate.
Elizabeth Warren: Students Should Get the Same Rate as the Bankers
Also, states could provide stronger funding for state university systems. The State of Illinois provides only 12% of the budget for UIUC. I’m sure that percentage was larger when I attended.
BUDGETING PRINCIPLES AND PRACTICES
In the private sector you have the example of Cooper Union, which was free to students until the recent trustee failure. What private foundation is establishing more universities with this model?
Wikipedia: Cooper Union
HR2366 is the latest incarnation of a bill that has been introduced in multiple congresses. Every congressional candidate should be asked whether they support it, and the responses published.
H.R.2366 – Discharge Student Loans in Bankruptcy Act of 2017
“Unfortunately most economists fail to acknowledge Baumol’s disease when analysing changes in the economy. You won’t find a mention of it in the media (just two results when searching Google news), and you will find plenty of confused ideological articles about modern poverty and flatscreen television. How can someone live in poverty with a flatscreen television, a coffee maker and a DVD player? Simple. These goods are becoming relatively cheaper over time, while other fundamental goods and services – health, education, food and housing – are becoming more expensive. In fact, I could buy a flatscreen, a DVD player and a coffee maker for about the cost of four days rent or a week’s groceries for my small family. This is an important consideration in analysis of the changing cost of living. ” https://www.nakedcapitalism.com/2011/09/australia-has-baumol’s-disease.html
That is the theory of why education and healthcare are so expensive.
In the State of Michigan, the gov, has made drastic cuts in funding state universities which ends up in tuition increases. Then too some schools like Wisconsin squirrel away about a $billion and do not put it into usage for funding students.
Then there are the Jason Delisles, Beth Akers, Jason Winegards, Matt Chingos, etc. of the world who actually believe student loan interest rates are low. No one has asked Jason yet how he managed to fund his Public Policy Masters out of Georgetown which goes for about a $100,000+. These are the antagonists of the world who also believe anyone who is pursuing a Masters or Doctorate should be paying double digit interest rates.
At a Stabenow get together, she actually picked the gray-haired guy who raised his hand. She figured I was a safe bet. My question? What are you going to do to give relief to students who are deeply in debt? and then I interrupted her 3/4s of the way through to clarify. She had no answer and yet she voted for the 2005 version making it tougher on students. Joe Biden sponsored that bill. Get tough on your Democrats as they owe you.
A former Univ. of Michigan lobbyist scurried over to tell me about Reye and IBR. It was not a discussion as these are harsher than it was without. To get to the principal you have to pay the old interest first + any new interest. They do not capitalize it in the loan.
Naviente is being sued by 5 states as well as that agency Mulvaney took over (we will see how long that lawsuit lasts). Alan Collinge of Student Loan Justice has been pushing HR2366. He has convinced some Reps to sponsor it. He has been pushing Warren to take a stronger stance on student loan bankruptcy. I have put Alan up at Angry Bear whenever he needs such and also write for his cause also just like Yves does.
If anything, vote this November
What a treasure trove of ideas here, from Yves’ preface to the article to the comments, I really appreciate all the energy going into this important subject. Thanks everybody.
Reforming how our society funds higher education is something I strongly agree with; but I’m more hesitant when some commenters jump from that to reforming higher education in general. Some of these ideas are flat-out bad. Closely linking aid to employment prospects or income, for example, sounds good on paper, but it makes a huge assumption that the primary purpose of higher education is to get a job, which I would say is not necessarily true, especially from the point of view of liberal arts. Also, trade schools, community colleges, apprenticeships — yes, great, let’s have more of them. But there is also real value in studying the humanities, at a 4 year college, where the students live on campus as part of an academic community. That experience itself is an incredible learning tool, which shouldn’t be devalued for the sake of cost-cutting.
I wonder how much of an auto-correction we would see in terms of educational system reforms if we instead focused on simply reforming, or even destroying, the current student lending model.
Actually I totally support the humanities, as I graduated in history and loved it.
But college for the love of learning must have absolutely no debt attached to it.
This either means very cheap colleges, and/or full government funding for tuition. If we have full government funding, it will have to be for $5,000 tuition and not $50,000 a year.
I do not think that making college free stands much of a chance. One rarely-spoken reason is that students at free colleges tend to do a lot more radical politics. This was certainly true in the 1960’s in America and is still true in Europe today. The right wing wants those kids to be working part time jobs so that they are too busy to protest.
Also I do not think we can just forgive masses of student loans. That is too much of an insult to those who paid back their loans, or who had parents that saved up the cost of college, or who did not even go to college rather than take on debt.
That is why I propose that we lighten the burden of loans through three incremental programs:
– forgiving accrued interest-
– forgiving loan balances over age 65
– allowing bankruptcy
Thank you for your realistic level headed analysis. As someone who paid back and avoided taking out additional loans that were offered to me, I would want some kind of refund in the case of debt forgiveness for non-predatory schools. I agree in forgiveness and refunds for for profit schools.
Would students at free community colleges studying for trades or remedial education develop radical politics? That is the first beachhead of free tuition.
Seeing how radical university shutdowns have deprived so many students of an education in other countries, I do t favor unlimited radical student politics but I don’t think it’s as big of a risk in the US.
You will pay anyway in the end as they will need assistance and it will come from you ultimately. Hertz is right, he does not think.
At such a young age, why shouldn’t they be able to pursue bankruptcy the same as out multi-millionaire A**h*** president did 7 times. Are you asking for a rebate because of his bankruptcy? if not, why not?
Why aren’t you angry at Wall Street? We bailed them out and many of us lost our jobs.
Building a prosperous society does not mean you have to indenture people to it.
The only place you can start is to scrap the entirety of future student loans and/or federal payments to academia – overnight. That’s what has driven up the tuition cost of – say UPenn – from $400 in 1945 (roughly 40% of what a new HS graduate could earn – so a student could literally work their way through school with some effort/scrimping) to $45,500 now (close to 200% of what a new HS graduate can earn – so big loans or rich parents are now required)
Schools have got to be broken of the mindset that they can price themselves on a mortgage on a students future income and that they can acquire huge endowments to distort everything around them. The only way to break that is to utterly break it. Force massive restructurings on them so that they can reposition themselves for a different future. And, short-term, return ‘going to college FT right after HS’ as just an option for HS grads so they at least have a chance to maybe work/mature a bit – and become a bit independent – before they think about mortgaging their lifetime income.
Existing student loans – that’s a purely political decision – so whatever. Future federal payments for say military or other service – again that is political – so whatever as long as we are starting from scratch not compounding all the existing distortions
One of the ideas I’ve heard floated elsewhere was to have the university guarantee the loan payments (in lieu of parents I presume). At first blush, I saw this as an interesting way to whittle down the cost of admin/sports and focus the education on employability. Granted, there might suddenly be a dearth of loans towards fine arts and the like, but that could be addressed through Pell Grants etc. I mean, how much should a fine arts major cost per year? 8k sounds about right plus materials.