By Peter White
Student debt is like a loan shark who keeps breaking your fingers because you can’t pay him back. College students owe $1.6 trillion, second only to home mortgage debt.
After you graduate and if you find a good-paying job, you could pay off your debt even with 5.8% interest. That’s the average interest rate among all households with student debt. Forth-five million Americans have student loan debt.
If you can’t pay it off, you can declare bankruptcy but it won’t matter. You will still owe on those student loans probably until you die. It’s all in the fine print. African American women are shouldering more of that load than any other group, according to Jessicah Pierre, an inequality media specialist at the Institute for Policy Studies.
“Who’s hit worst by this skyrocketing debt? Women, who owe two-thirds of that amount— and especially black and Latina women,” writes Pierre.
Pierre noted that since black women only make 63 cents for every dollar a man makes, female black graduates start out deeper in debt and then have a much harder time getting out than their peers.
Why do they do it? The Association of Public and Land-Grant Universities found that college graduates are 24 percent more likely to be employed than high school graduates — and earn $1 million more over a lifetime.
Here’s the bad news: there is an unholy alliance between the federal government and debt collection companies in the profitable world of student debt. And loaning people money to get a college education is big business.
How Student Lending Works
There are two kinds of student loans: federal (92%) and private (8%) from banks like Wells Fargo and Sallie Mae. Federal loans are made through the Department of Education and serviced by private companies such as Nelnet, Great Lakes, and Navient.
“The student loan industry ultimately depends on the ability of borrowers to meet their debt obligations,” wrote Professor Susanne Soederberg at Queen’s University, Canada. She noted that since the recession of 2001, the majority of student debtors have not been able to get decent paying jobs after they graduate to pay off their loans.
Long-term debt from student loans has become a poverty industry. Student loans are part of an even bigger evil that Soederberg calls “debtfarism”. It’s a system of institutions that normalize the growing dependence on expensive consumer credit to meet basic needs such as food, utilities, gas, and education.
According to a recent analysis by the American Association of University Women, female students carry roughly two thirds of the country’s student debt load. In that study, about a third of women reported they had trouble covering their basic living expenses over the past year due to their student loan burden. Women of color have it worse. Four in ten Latinas and six in ten black women say they’ve struggled to cover the essentials and juggle monthly debt payments.
Since women have a higher risk of defaulting on student loans, if they want to start a family after they graduate, they face the grim prospect of what should be only a short-term setback turning into a lifetime of crisis.
Giving the Devil His Due
Unlike a home mortgage that goes into foreclosure, you can’t seize someone’s education after they’ve already gotten it. According to Soederberg, in order for the student loan industry to grow and remain profitable in the face of increasing rates of delinquency and default, the state must discipline the debtors.
Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) in 2005. It made it nearly impossible to pursue debt relief under Chapter 7 of the Bankruptcy Act. Student debtors filing under Chapter 13 have to prove “undue hardship” to get relief and debtors must adhere to a strict repayment plan for up to five years before courts discharge some of their debt.
The 2007 Cost Reduction and Access Act helped reduce the wave of defaults by giving some borrowers some relief. But it also created a system of income-based repayment plans that garnished wages for 25 years before debtors could apply for cancellation of their remaining debt. In short, federal laws have done little to stem the tide of rising student debt and borrowers get their wages garnished for decades under current rules.
Under BAPCPA, private student loans are included in the types of educational loans that cannot be discharged without adequate proof of undue hardship. “This means that private lenders such as Sallie Mae now enjoy the same state protection from debtor bankruptcy as the federal government,” wrote Soederberg. Private educational lenders can garnish the wages, tax refunds, and even Social Security benefits of delinquent debtors with no statute of limitations.
This is similar to the power Tennessee Child Support Services has to punish fathers who are behind in their child support. Tennessee courts add interest and fees to unpaid child support, and if a delinquent father can’t make his payments, he faces jail time. That doesn’t make sense but it’s the way things are.
Student Debt Keeps Growing and Defaults Are Increasing
A 2018 study by the Urban Institute found 1 million people default on their student loans each year. The Department of Education reported in September that the default rate has slowed somewhat in recent years but it is still growing. The Economist reported that 8 million student loans were in default in 2014. The Urban Institute estimates that by 2023 about 40% of student borrowers will be in default.
New Abolitionists Are Fighting Back
Living with unending student debt is to know a kind of modern day slavery. Borrowers who cannot get out of debt are economic chattel. Their lived experience is one of being owned. And the laws that exploit them and perpetuate their servitude are like the old ones that once defined black people as property.
Last July, 150,000 former students of for-profit colleges sued the US Department of Education for not canceling their debt. Also in July, the American Federation of Teachers sued Education Secretary Betsy DeVos for “gross mismanagement and out-and-out sabotage of the federal Public Service Loan Forgiveness Program”.
The program allows public sector workers like teachers and firefighters to discharge the balance on their student loans after 10 years. But the lawsuit claims the program has failed to deliver on this promise because loan servicers continue to misdirect and neglect the borrowers they are assigned to help. According to the U.S. Government Accountability Office, by the 3rd quarter of 2018, 19,321 borrowers had applied for public service loan forgiveness but only 55 people got it.
“The federal government has not only walked away to protect student loan borrowers but in many ways it’s arming the other side,” said Seth Frotman, Executive Director of the Student Borrower Protection Center.
On Capitol Hill the Future Act has been stalled for months. It is a reworking of the 1965 Higher Education Act to increase Pell Grants and provide support for HBCUs. (See Future Act)
However, last week Senator Lamar Alexander (R-TN) and Senator Patty Murray (D-WA) reached a deal to give $255 million each year to historically black colleges (HBCUs), tribal colleges, and Hispanic-serving schools. Alexander had been holding HBCU funding hostage in order to pass the FUTURE Act that now is expected to pass.
With this little bit of help from Congress but none from the Trump Administration, student debt abolitionists are turning toward states to take on the student loan industry and companies like Navient.
“We have to set up a better program to protect the borrowers especially since the federal government is backing away,” said Assemblyman Mark Stone (D-Monterey).
California began licensing student loan servicers in July 2018. Student Loan collectors must now follow rules set by the state’s Department of Business Oversight. But Stone said more protections are needed to give student borrowers the same protections as credit card holders.
Stone wants to establish a Student Bill of Rights. His proposed law includes the right of private right of action. Individuals would be able to sue a collection company for violating state regulations. And they can’t just pile on fees to loan debt. The bill will be debated early next year.
“Servicers want to keep the borrowers on the hook for as long as possible. Executives have been clear in court and in Congress that they feel no obligation to the borrowers, only to their institutions. They don’t care about borrowers at all,” said Stone.
In a conference call last week, Frotman said a dozen states, including Maine, Maryland, Washington, Virginia, Michigan, and Oregon are considering student loan protections like the ones Stone is pushing in California.
Presidential candidate Bernie Sanders wants to make all public colleges tuition free and he wants to cancel all student debt. Elizabeth Warren has a $1.25 trillion plan to cancel most student loan debt, and like Sanders, eliminate tuition at public colleges. Warren’s plan also earmarks a $50 billion fund for HBCUs.
State Higher Ed Funding has Fallen since 2008
There was a time in the U.S. when a university education was free or pretty inexpensive. Grants and scholarships were widely available at private universities like Harvard and Stanford. William and Mary in Virginia provided full scholarships to one-third of its students who promised to teach for two years in a public school. Public colleges like the University of California system in the 1970s were very affordable with plenty of grants for low-income students.
The idea of public good where graduates would improve society and do public service with their degrees justified the public investment in their education. But that idea has been replaced by rapidly rising tuition and fees—and with the government’s prioritization of loan-based funding over grants. According to the Guardian, the Trump administration has made college even more expensive by slashing student aid and rolling back loan forgiveness programs.
Mike Mitchell is Senior Director of the Center on Budget and Policy Priorities.
To make matters worse, total spending by states on higher education has fallen dramatically since the 2008 recession, according to Michael Mitchell, Senior Director of the Center on Budget and Policy Priorities.
In a recent article Mitchell laid out some grim facts. Between school years 2008 and 2018, after adjusting for inflation:
41 states spent less per student.
On average, states spent $1,220, or 13 percent, less per student.
Per-student funding fell by more than 30 percent in six states: Alabama, Arizona, Louisiana, Mississippi, Oklahoma, and Pennsylvania.
Over the last decade, higher education institutions have raised tuition.
Annual published tuition at four-year public colleges has risen by $2,708, or 37 percent, since the 2008 school year.
In addition to increasing tuition, public colleges and universities have dealt with state funding cuts by cutting faculty positions, eliminating course offerings, closing campuses, reducing student services, and more.
So people are paying more for less of an education.
Mitchell says college costs—even with grants –at public four-year institutions across the country have risen by 24% or about $2,920. “This net price represents a significant share of many families’ annual earnings, particularly Black and Hispanic families in most states,” he wrote. Tuition at the University of Tennessee will rise 2% next year.
“This cost shift from states to students has occurred over a period when many families — particularly those of color — have had trouble absorbing additional expenses due to stagnant or declining incomes. Since the late 1980s, tuition has been rising much faster than incomes and the sharp tuition increases since the recession have exacerbated the longer-term trend,” wrote Mitchell.