11:00 AM CDT, April 24, 2012
Hey, fellow college-educated and degree-aspiring Americans: happy $1 Trillion Student Debt Day!
Today is the day (approximately) that American student loan debt finally passes $1 trillion, having already passed credit card debt as the number one form of consumer debt last year. Now the interest rate on Stafford loans is set to double from 3.4% to 6.8%, which according to the White House will effectively straddle over 7 million borrowers with $1,000 each on average. Many factors and actors have fueled the student loan debt bubble, but its similarity to the sub-prime mortgage bubble probably couldn’t be more apt or frightening. Basically, there have arisen multiple industries where a lot of very rich people make a lot of money off of screwing middle and working-class people. Student loan debt is simply the latest iteration of that phenomenon.
Graduates from the class of 2010 owed an average of about $25,000, obviously a new record. Tuition rates are rising faster than the cost of living at about 5% a year, and not—as Newt Gingrich would try to tell you—because lazy Millennial kids are smoking weed out of a pop can instead of going to class and spending seven years in school (although I do know that guy)—but because states have divested enormously in public education. For instance, the University of California system of schools used to be a world-class jewel of public higher education, but that state has basically given up funding it (opting for an endless series of prisons instead. Yay!). As states divest, tuition rises, and students take out increasing debt.
Ah, but there’s more. For-profit universities like the University of Phoenix make most of their profit from federal student loan system by recruiting students who don’t understand the debt burden under which they’ll spend the rest of their lives (if you’re thinking about applying to one, watch the eye-popping PBS documentary “College, Inc.”). These for-profit schools account for 10% of college students, yet consume 25% of all federal student aid and could make up nearly half of all student loan defaults. When students emerge from these schools, they are often unaware that their degrees are not the bill of goods they were sold by the aggressive tactics of the sales force.
A default is basically an unthinkable option because student loan debt is non-dischargeable, meaning you can’t get rid of it through bankruptcy. There are no consumer protections, in fact, so for-profit institutions have figured out how to reap billions of dollars of profits in student loans while offering fifth-rate educations to unsuspecting consumers, many of whom may fail to graduate or get a degree that can actually get them a job. That’s why the for-profit schools fought the Obama administration so hard on the “gainful employment” rule, which meant that students had to be able to get a job that could actually pay down their student loan debt after they graduated (what a shocking idea).
And I won’t even get into law schools, which rope thousands and thousands of college graduates into their teeth every year. Unless you’re going to a top ten law school, though, you’re simply joining the bubble of people with a law degree who will have to take a job waitressing while strapped with upwards of $200,000 of debt. Schools, big and small, basically use their law schools as ATM machines.
What do all of these debt-traps have in common? Who’s benefiting from inflating the student loan bubble? Why all the same people, of course. Just like mortgages, student loan debt is being repackaged and sold by Wall Street as asset-backed securities. Federally-backed and private student loans currently swim around the global debt market in the form of mutant for-profit financial instruments. Can’t wait for all those defaults to start kicking in! Should be oodles of fun, right?
The geniuses who recognized the brilliance of lending mortgages to people who didn’t understand them figured something else out about the bottom 90% of the country: we need college degrees, and we need them badly.
Despite what Rick Santorum thinks about snobby college graduates, the simple fact is that your economic future basically depends on holding a college degree. All Wall Street did was recognize a way to make money off of this necessity.
But what we need now goes beyond massive investment in public education (especially community colleges), clamping down on malfeasance by for-profit universities, a program of student debt forgiveness, and reform of the student loan system to create consumer protections. What we need is for school boards to begin implementing a debt-education class in every high school. This class should be required for all seniors, and it should focus on how different forms of debt can basically ruin your life.
Since much of the American economy appears to be focused on forcing normal people into some kind of consumer debt as soon as they turn 18—whether it’s student loans, credit cards, mortgages, or the risk of going uninsured and ending up in crushing medical debt—our education system needs to fight back. Kids need to understand the financial risks of the society they’re stepping into, and apparently that will have to begin while they’re still mostly children.
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