By Lambert Strether of Corrente
This is my first foray into the topic of college debt[1], so I’m necessarily going to be taking a high-level view. However, the 30,000-foot view has its advantages, since from that level the enormous flaws in the proposals made by both Democrat candidates appear. (I’m not going to consider Trump’s proposals, because I’m not certain they’re serious[2]; his stance on “debt-free” college is “unequivocally no.”) We’ll get to the flaws in the Sanders and Clinton proposals — they have to do both with future college debt, and past or legacy debt — but first I’ll give a brief overview of the college debt market. And in the course of the exposition, I’ll explain the differences between “tuition-free” (Sanders) and “debt-free” (Warren, and then Clinton). I’m working from the candidate’s websites, not the news, so if I get any details wrong, readers please correct me!
The (Insane) Market in College Debt
Fix firmly in your mind the fact that college has been tuition-free in the United States in the past, and is tuition-free today, in other civilized countries, if “other” is the word I want. For example, California. From the Daily Californian:
At the [University of California] system’s inception, tuition was free for California residents. Over the years, student fees increased, and by the 1970s, the university moved away from free tuition for residents.
(Note the lack of agency in “increased” and “moved away”; although as governor Reagan was unable to destroy free college for California citizens, by the mid-70s the neoliberal infestation had begun to bite in policy-making circles nationally.)
Hence, Senator Sanders is correct to claim that tuition was free in the United States, and is still free elsewhere:
Was college once free in United States, as Bernie Sanders says?
Sanders said, “Making public colleges and universities tuition free, that exists in countries all over the world, used to exist in the United States.”
There are at least nine advanced countries that offer free college, including the recent addition of Germany.
There was a time in the United States when some public colleges and universities charged no tuition. However, tuition has never been set as a national policy — it is a decision for each school or state government officials. And some colleges charged tuition dating back to the 1800s.
So you can also fix a corollary in your mind: The entire college debt system is useless, parasitical, and could (should?[3]) be done away with. (The parallel between our tapeworm-like college debt system and our tapeworm-like health insurance system is exact.)
Be that as it may, the college debt tapeworm has swollen to enormous size. MarketWatch:
The total outstanding student loan debt in the U.S. is $1.2 trillion, that’s the second-highest level of consumer debt behind only mortgages. Most of that is loans held by the federal government.
About 40 million Americans hold student loans and about 70% of bachelor’s degree recipients graduate with debt.
The class of 2015 graduated with $35,051 in student debt on average, according to Edvisors, a financial aid website, the most in history.
One in four student loan borrowers are either in delinquency or default on their student loans, according the Consumer Financial Protection Bureau.
And about those delinquencies and defaults:
Student loans surpassed credit cards in 2012 as having the worst delinquency rates in consumer credit. More than one in 10 student loans were more than 90 days overdue as of November, according to credit analysts Equifax Inc. Adding to the concerns is research that suggests the biggest financial problems are faced by students who can least afford it: poorer Americans who took out smaller loans to pay for courses at less prestigious institutions.
Federal laws stop student debt from being discharged via bankruptcy in most cases, meaning the debts can drag on personal finances for years. [T]he level of student debt, [has] averaged just under $29,000 per borrower in 2014, up from $18,550 a decade earlier.
Remind you of anything? That’s right! Subprime! From Dollars and Sense:
The basic premise driving [Student Loan Asset Backed Securities (SLABS)] is that powerful financial actors and institutions are able, through regulatory and legal sanctioning by the government, to transform a debt obligation (student loan) into a financial asset (SLABS) that can be traded on the secondary markets. This can be understood as the “commodification of debt.” The underlying assets for SLABS are student loans that have been sliced and diced to create packages of debt obligations that are then sold to investors such as pension funds. SLABS has proven to be a lucrative device to hedge risk for investors, raise capital, and even to generate income when student loan debtors default (through derivative contracts such as credit default swaps, which pay off in the event of default).
What could go wrong?
Once we peel away the complexities of SLABS, we are left with the basic problem: the success of the “investment” ultimately depends on the ability of the debtor to earn enough money to pay the principal of the loan, plus interest and fees. The alchemy of finance cannot erase the risk of how hard it may be for the student to ever repay the loan because the student will struggle to find gainful employment after graduation. From this angle, SLABS—like all forms of credit—rests on the ability of the state to ensure that debtors (students) will repay the loan—no matter what their incomes may be. … Like the sub-prime housing industry, however, SLABS ultimately depends on the ability of borrowers to meet their debt obligations. Herein lies the rub. Since as far back as the recession of 2001, the majority of student debtors have not been able to get decent paying jobs upon leaving college.
But let’s assume this time it’s different. Suffice to say for now that the present college debt system produces manifestly absurd results. College debtor Samual Garner:
My current payment is about $1,500 a month—that’s almost 40 percent of my take-home pay—and despite having paid more than $75,000 toward my loans, I still owe about $190,000. Remember, I started with $200,000 in debt. With more than eight years of some of my private loans at 8 and 9 percent interest, and my federal loans at more than 6 percent, Sallie Mae and the federal government have made it very hard to make progress.
My debt may take decades to pay off and ultimately cost more than twice my original balance. Depending on my income, my payments could peak at almost $2,000 a month. Without a substantial boost in salary, there’s no way to get ahead of my debt.
Garner’s a bio-ethicist, but who needs that when we’ve got Monsanto? (For those looking to blame Garner, read the whole piece to understand his situation.) Anyhow, he’s trying to work within the system — he’s not defaulting, exiting the credit system entirely and/or emigrating, and praying that sanity returns before it comes time for Social Security to garnish his retirement check — and after paying $75,000, he owes almost as much as he did when he started, with no end in sight. I don’t care what any policy wonk says. How is that anything other than insane?
Plans for the Future: “Tuition-Free” vs. “Debt-Free”
Now let’s look at the Democrat plans to get Garner out of his hole. The road to Clinton’s proposal leads through Elizabeth Warren, so I’ll start with her. Warren’s thinking — and mainstream Democrat thinking — is embodied in this speech she gave to the Shanker Institute and the American Federation of Teachers, June 8, 2015 (PDF). I’m not going to go through it in detail, since Warren isn’t running. Instead, I’m going to pull out bits of her language[4] for display.
- “Here’s the truth–both sides are right.”
- “It starts with courage–the courage of both Democrats and Republicans to admit how much is wrong and that the other side has a real point.”
- “It’s time for the federal government to realign incentives. “
- “Skin in the game.”
- “Shared savings.”
- “The form should be simple.”
- “Consider many options. “
- “Conservatives at the American Enterprise Institute have endorsed similar ideas”
Does Warren’s (market-centric, neoliberal, free tuition-crippling) language[6] remind you of anything? Does it raise any red flags? That’s right. ObamaCare! And the language used to frame the policy justifications for ObamaCare’s (market-centric, neoliberal, single-payer crippling) architecture. Hold that thought. For now, the important data point is that Warren’s thinking[5] drove Clinton’s proposals. Politico:
To the great relief of restive progressives [ha], Clinton’s campaign has sought out policy experts with strong ties to Warren, who has crusaded on the issues of making college more affordable and refinancing student loans so that students get the same interest rates on federal loans as banks do on theirs.
Clinton’s “College Compact” “debt free” proposal, from her campaign website:
- Students should never have to borrow to pay for tuition, books, and fees to attend a 4-year public college in their state under the New College Compact. The additional support they receive will reduce all costs, including living expenses, by thousands of dollars. Students at community college will receive free tuition. Students will have to do their part by contributing their earnings from working 10 hours a week.
- Families will do their part by making an affordable and realistic family contribution.
- States will have to step up and meet their obligation to invest in higher education by maintaining current levels of higher education funding and reinvesting over time.
- The Federal government will make a major new investment in the New College Compact and will never again profit off student loans for college students.
- Colleges and universities will be accountable to improve their outcomes and control their costs to make sure their tuition is affordable and that students who invest in college leave with a degree.
- And we will encourage innovators who design imaginative new ways of providing a valuable college education to students – while cracking down on abusive practices that burden students with debt without value.
(Note in passing that “do their part” and “step up” map directly to ObamaCare’s concept of “shared responsibility” between citizens, the health insurance companies, and the government, which presupposes that the tapeworm-like health insurance “industry” should exist in the first place. Note also “innovators,” which probably means for-profit colleges and squillionaires with bright ideas.)
And here is Sanders’ “tuition-free” proposal, from his campaign website:
- Make tuition free at public colleges and universities.
- Stop the federal government from making a profit on student loans.
- Substantially cut student loan interest rates.
- Allow Americans to refinance student loans at today’s low interest rates.
- Allow students to use need-based financial aid and work study programs to make college debt free.
(Here’s a handy chart comparing the two.) The conventional wisdom is that there is “virtually no difference” or “few key differences” between the plans (although since Clinton’s plan does not cover all costs, calling it “debt-free” is overselling it). Matt Yglesias, however, disagrees, writing:
Thanks to Sanders — and specifically thanks to his campaign — I’ve come around to the idea that the correct tuition for qualified students at public colleges and universities is $0.
Wealthy elites have formal and informal means of influence wherever you look. When they are invested in actually using public services, the odds that the services will actually be decent go way up. Trying to save money by keeping rich kids out of public school or refusing to build libraries in affluent neighborhoods or having police departments charge a finder’s fee when they investigate crimes committed against rich people would be penny wise and pound foolish.
If Sanders were to actually become president, the idea would need a lot more work. But Clinton’s plan seems like it was written by higher education wonks for an audience of higher education wonks. Some of my best friends are higher education wonks, and obviously you need some wonks to seal the deal on any kind of workable legislation. But it’s useful to start with some kind of clear big-picture goal that means something to normal people.
The greatest legislative success of the Obama years — the Affordable Care Act — suffers greatly in its political sustainability from the fact that people have such a poor grasp of what it encompasses, how it works, and whom it is supposed to be helping.
The contrast with a program like Social Security, which is worse targeted but much better understood, is stark and instructive. The narrow-targeting way is designed to minimize opposition to new initiatives by reducing their headline costs [as in the CBO estimates during the ObamaCare debate]. But there’s something to be said for taking the opposite approach and trying to maximize support by framing your objectives in a way that ensures the people to whom your policy is supposed to appeal actually understand what it is.
(Clinton, of course, obscures the idea that college education is a public good with demogoguery: “I don’t think taxpayers should be paying to send Donald Trump’s kids to college.” Or, following Yglesias, paying to send Donald Trump’s kids in grade school, Donald Trump’s buildings with the fire department, Donald Trump’s wife and daughters with women’s shelters… I mean, come on.)
I think Yglesias gets this right, and wrong. Right: College education is a public good, hence demands public finance not private debt. Wrong: Yglesias argues for free tuition — seemingly and unconsciously adopting the Obama administration’s mentality — as a public relations problem: “[P]eople have such a poor grasp” of ObamaCare’s complexity. In fact, ObamaCare is genuinely hard to grasp, because it’s a neoliberal Rube Goldberg device designed to support the tapeworm-like for-profit health insurance model; it can’t be anything other than hard to grasp. (And the presence of phishing equilibria isn’t a bug. It’s a feature.)
That is — and this is the 30,000-foot view that I promised — Clinton’s proposal and ObamaCare have a similar program architecture and a similar hidden assumption. The program architecture is complex eligibility determination (what Warren calls “many options”). To calculate the square inches of “skin in the game,” Clinton must consider colleges vs. universities, family income, student income (from work), and student expenses, as well as any other State and Federal assistance programs, and in addition whatever bright ideas the “innovators” come up with. Sanders, by contract, simply says $0.00. The hidden assumption is that (using Yglesias’s term) “targeting” is low- to no-cost (at least to the government. As we see from ObamaCare, the costs are shifted to consumers citizens, as a tax on time). In fact, complex eligibility systems involve cadres of trained and credentialed professionals whose job is to separate the deserving from the undeserving, and allocate the “financial assistance” accordingly, and produce the marketing collateral, and training materials, and brochures, and websites that explain all the ins and outs to those targeted by the programs. And to descend to cynicism for one moment, I don’t think it’s a coincidence that such credentialed professionals form a big part of Clinton’s base.[7]
So from a purely ethical perspective, Clinton’s plan will have all the defects that ObamaCare has, due to its requirements for complex eligibility determination: Some people will go to Happyville, and others to Pain City, randomly, depending at the very least on jurisdiction, income, and the colleges selected by the student. (We might also note that the ability to navigate bureaucratic systems, taken for granted by Clinton, Warren, and their ilk, is in itself a function of class privilege.) Of course, Sanders-style free tuition makes Clinton’s entire cluster go away, since all citizens are equally deserving.
That is our future college debt system, as conceived by Clinton and Sanders. But what of the legacy of college debt, held by existing students? Prepare yourselves for disappointment.
Redressing the Past: Repayment and Forgiveness
Let’s start by stipulating that Obama’s repayment and forgiveness programs are of the HAMP-like clusterf*ck nature:
The various repayment programs that promise forgiveness are cruel jokes, administered in bad faith by a Department of Education that has zero desire or intentions of forgiving any loans. I estimate that fewer than 15% of those signing up for these programs will actually make it through. The rest will be expelled owing far more than when they entered.
What the Obama administration did do was great for the federal government, not the students. Obama federalized the system to where the government now profitsimmensely from both interest on loans it makes directly to students, and defaults. To say that the federal government now sits atop the most predatory lending system in our nation’s history is not an understatement.
Obama’s Consumer Financial Protection Bureau (CFPB) was designed so as to give it essentially no jurisdiction over federal student loans. The CFPB busies itself only with private student loans, which at least have statutes of limitations, and are covered under Fair Debt Collection Practices, and Truth in Lending laws (federal loans are not). So the CFPB is no help. Meanwhile, Obama’s lawyers fight furiously behind the scenes to keep bankruptcy protections gone from student loans in order to protect their cash cow.
We would expect nothing less. Here is what Clinton proposes:
- If you have student debt, you will be able to refinance your loans at current rates, with an estimated 25 million borrowers receiving debt relief. Typical borrowers could save $2,000 over the life of their loans.
- For future undergraduates, the plan will significantly cut interest rates so they reflect the government’s low cost of debt. This can save students hundreds or thousands of dollars over the life of their loans.
- Everyone will be able to enroll in a simplified income based repayment program so that borrowers never have to pay more than 10 percent of what they make.
And here is what Sanders proposes (from his plan, above):
- Allow Americans to refinance student loans at today’s low interest rates.
Let’s just skip Clinton’s $2,000 bullet point. If I were on the hook for $100K, that would just be a slap in the face.
More centrally, neither Clinton nor Sanders even discuss — thanks for this, Joe Biden, you loveable Amtrak-ridin’ goof and all-around good guy — making college debt dischargeable in bankruptcy once more. That’s appalling[9]. The Los Angeles Times:
We are now halfway through the presidential election campaign, however, and we have yet to hear from either Democratic or Republican candidates (except Jeb Bush, who is now out of the race) on the question of bankruptcy and student loans. The solutions some have offered to the student debt crisis, including Sen. Bernie Sanders’ proposal for tuition-free college, will do almost nothing for the 44 million people who have already been through school, have the debt to show for it, and vote.
In fact, Sanders has the power to propose this reform immediately and has not exercised it. The Hill:
Sanders could easily vow to fight for the repeal of 11 USC 523(a)(8), the tiny piece of federal code that has caused this problem. Tomorrow, he could sponsor a Senate companion bill for any one of 3 good bills currently in the house that would do just that. But he had better be quick about it if he is serious about fighting for the citizens — and winning the nomination.
Worse, both the Clinton and Sanders refinancing plans are a form of contingent debt, defined as follows by NASDAQ:
A contingent debt is an unusual kind of debt that is dependent on uncertain future developments. A contingent debt is not a definitive liability as it is based on the outcome of a future event (for example, such as a court verdict).
In the case of college debt, the “uncertain future development” is the debtor’s future income. (And I’m being optimistic here, given the new crapified normal.) Clinton’s gimmick to limit the contingent debt to 10% of income sounds more attractive superficially — there’s a number to get one’s head around — but it adds yet another layer of complexity to her proposal. For example, will ObamaCare subsidies need to take it into account? Worse, it’s regressive: 10% cuts into the bone if you’re poor, but not, if you’re not. Both refinancing proposals are fixed obligations that cannot be reduced by other claims. People can drown in an inch of water. It doesn’t take fathoms! And the Sanders proposal is especially appalling given Sanders’ appeal to youth. The Hill:
Sanders is pledging to make public college tuition-free for future college students. This sounds great, and may even work for those who have yet to attend college, and don’t vote. However, he is proposing almost nothing that would significantly affect those who have already been through school, have the debt to show for it, and do vote. What he is proposing for these people is an extremely underwhelming refinancing plan (like Hillary Clinton’s) that would lower interest rates slightly for existing borrowers. Whatever nominal savings might be realized under these plans at today’s low interest rates will be reduced further still- perhaps to nothing- by the time such plans were implemented.
Taking the 30,000-foot view, let’s assume that either Clinton’s plan or Sanders’ plan is passed in 2017. What we will then see will be (like the unconscionable compromise on Social Security between Tip O’Neill and Ronald Reagan) a two-tier system where those who took on college debt before 2017, some large fraction of whom are condemned to decades of debt slavery, albeit ameliorated, and those who went to college after 2017, most of whom will have no debt at all. How is a policy with such a grotesque disparity in life chances[8] in any way sustainable? I don’t think it is; imagine a 26-year-old loaded with debt at the same job, side by side, with a 22-year-old who has no debt, when both have the same degree. How does that work? Now, to be fair, I don’t have a policy solution, here. However, I’d note that student debt is mostly owed to the Federal Government, and if somebody like the Archdruid gained a real following, some might see some possible decay paths for the resulting legitimacy crisis as a form of debt discharge. I mean, would the Lakeland Republic really keep all those Student Loan Asset-Backed Securities in play? Why? Just a thought…
Conclusion
Both the Sanders and the Warren-inspired Clinton proposals have deep flaws, and (dare I say it) expose the limits of Democrat Party thinking. Clinton’s debt-free proposal is not really debt-free, and, like ObamaCare and for the same reasons, is bound to produce unjust, disparate outcomes due to its system architecture. Sanders’ tuition-free proposal is cleaner, simpler, and more fair, like single payer and for the same reasons, but both proposals share appalling refinancing schemes hardly adequate even as palliatives. The problem with college debt is the debt itself. And in fact, we don’t need college debt at all.
NOTES
[1] I’m going to try to say “college debt,” instead of “student debt” or “student loans,” because the latter two locutions imply that college education is not a public good, and it’s all on the student to finance their career based on the expectation of future returns, as if higher education were a sort of collective trade school — as indeed our corporate masters would like it to be. Here’s a bit of classic NeoliberalSplaining:
“What a lot of students don’t understand is that student debt is an investment in your future,” John Petellier, the head of the Center for Financial Literacy and one of the panelists, said in a separate interview. “A perfect example of what I think is missing at a lot of high schools is one of the key topics in financial literacy, understanding the connection between career and income.” A better sense of that relationship could help students make more informed decisions about whether a college or career path is worth the debt, he said.
No, a college education is not “an investment in your future.” In large part, it’s a public good. Whenever you hear the phrase “financial literacy,” your default assumption should be that the speaker is bullshitting. And back into note mode: I’m also not making a distinction between colleges and universities; in this piece, it’s all “college debt.”
[2] One might take the view that a vote for Trump is a vote for volatility, regardless of his policy proposals, and whatever concrete material benefits, if any, they bring.
[3] Harvard, Historically Black Colleges and Universities (HBCUs), exceptions, blah blah blah. Some are advocating that Harvard, with its $36 billion endowment, should go tuition-free. Why not hand a chunk of that to the HCBUs, as reparations, and then go tuition-free?
[4] See e.g., and following.
[5] That’s not to say that there aren’t some good details in what Warren says: Eliminating Joe Biden’s horrid work, and once again allowing student debts to be discharged in bankruptcy, for example. But the central tendency is very clear.
[6] Here’s another one. Warren: “Listen to the debate on the Democratic side — we’re talking about, ‘Should it be free college or debt-free college?'” Warren said. “That’s where we’re going back and forth and trying to have a conversation— how are we going to pay for it, how do the pieces work to make that happen?” Democrats love that word “conversation,” because it obscures power relations (and enables sycophancy).
[7] See the delightful Yes, Minister episode “Jobs for the Boys” (and, of course, girls, these days. So that’s alright then).
[8] OK, OK. Race and gender disparities are another discussion.
[9] It’s especially appalling given Clinton and Warren’s past differences on this topic.
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One missing point: the college debt experience is convincing debtors that government has no legitimacy. In order to live many debtors are going off the grid, eroding faith in the rule of law.
Critically important point that is almost never made.
Thanks for this.
Two other things that bear mentioning are the loss of grants for student aid; a gazillion years ago when I was in college, there were Pell Grants (and other grants), but by the time I was in grad school, those were harder and harder to get, and students were shunted into loans. On purpose I suspect. I went to a land-grant university and my tuition was modest (especially compared to now!) so I was able to work summers, secured scholarships, and worked during grad school, and emerged debt free. I don’t know if that is possible now, but it should be; friends then took out loans but they were smaller, and of course the interest was not so cruel as it is now.
Even ‘trade’ school tuition is bonkers now; a hair stylist I know is on the hook for $20K for her training.
And I don’t know if it is still the case, but when I was in grad school, they made it so that students were ineligble for food stamps, meaning that fellow students who were scraping by had to scrape even harder if they wanted to eat, all the while being told that they needed that degree to get jobs.
Unfortunately Elliot, it is no longer possible to work your way through school. In state tuition at a state school is roughly $13,000 to $17,000 now. That’s not even room and board and books — that’s tuition alone in a lot of cases. You’d have to be working full-time at a really decent job for that to be feasible. When I was college age, tuition for my state’s flagship was about $800 a semester.
It’s insane and unfair (and insupportable for the nation). Costs (actual costs) haven’t risen by that much over the years, and value hasn’t either. So today’s students are robbed and rooked and then tied to the stake over it. Bankruptcy discharge needs to be returned to it, admin bloat needs to be cut out, and yes, while I am imagining running things, a national school debt jubilee would do wonders for the economy.
That is, if people mattered.
$650 a semester, I think, for tuition at a SUNY school in the mid-70’s. With TAP or Pell grants that could go almost to 0. By the late 70’s grad school was around $2k.
The weasle words in the Warren/Clinton approach should disqualify both. Bernie’s failure to seriously deal with the existing debt nightmare is probably the most disappointing things about his campaign. Restoring the dischargibility in bankruptcy isn’t enough (although it should be a first priority for the upcoming lame duck). My answer would be for the Federal government to discharge everything owed for public college tuition. Recast the rest at 0%. If anyone in the Baby Boom expects to collect Social Security they’re going to have to demand that these kids be given a chance to stay in the aboveground economy. If they don’t, we’re all screwed.
Dont worry PhilNC. You will get your social security. But as Greenspan said, in a nutshell it may not buy you too much. This has happened already to the majority. And want to add did not agree with most Greenspans banker prescriptions.
The seed corn was eaten up for the millenials and a demographic imbalance issue was handled in the worst way possible.
Good article Lambert. Although I have to agree with that hag Hillary on one thing: Low interest rates be them credit cards or student debt should be utilized for consumers. It is a crappy prescription to a lobbying (bribery) issue by the merchant class in buying government. I do not see how though bond holders are going to continue avoiding the haircut/debt restructure.
For me, it was a $190/quarter “registration fee” (no tuition for in-state students).
I agree that Bernie’s proposal is incomplete and doesn’t address the needs of those who are already saddled with unmanageable and undischargeable debt, but at least it’s a start.
The odd thing is that it’s not a start for those who are voting and campaigning for him. So WTF?
My daughter did it. It took her five years, and she lived at home and attended a state school. I might have paid for some books and parking fees, but that’s it. She did the rest herself. Graduated last December. She has ZERO debt. She even had trouble getting her apartment because she has no credit history — no student loans, no car loans (she bought her own car with cash), and no credit cards.
It is hard, but not impossible.
A University of Maine graduate did the same thing in the last year or so; he slept in his car in a Walmart parking lot so he didn’t have to pay for housing.
Yes, it’s hard, but not impossible. It should be much less hard, and much more possible.
What state, which school?
Virginia — George Mason University.
My son is doing the same at another state college by living with a family member nearby.
Thanks. The tuition for in-state students at George Mason about 1/3 what the cheapest of my US almae matres now charges, and then there are the other “fees.” Still, at the proposed $15 min wage, that would requires 16 weeks of solid full time employment just to cover tuition at George Mason, I’d guess another 3 weeks to cover text books, and then there’s medical insurance, transport, etc. It would be pretty hard to make those hours and maintain a full time student status with decent grades, so you have a pretty exceptional kid. Congrats.
Between that and having a relative near by who will put up your child on their tab, I guess you’re one of those lucky exceptions that the neo-liberals like to use to screw over the balance.
The funny thing about the bankruptcy discharge part of the law is how new it is, only from the 2000’s. That means it’s less than twenty years old, yet is treated as an immutable law of nature.
SLABS are one victim of a change in the bankruptcy law. But the Department of Education’s entire predatory scheme is another.
There are ways to discharge student loans, all based on need in the courts. A lot like legal pot in many states, you need to have lost your legs or have some other terrible ailment to qualify. Expect that pressure valve to be used more and more until precedent makes it virtually meaningless and Congress has to vote on it.
While we’re on the subject of discharge, you know that the Public Service Loan Forgiveness program is coming up on its 10 year anniversary in October 2017. Expect it to be killed immediately in order to continue the gravy train. All those doctors working at hospitals, all the professors working at colleges, all the millions at nonprofits, just having their loans disappear? No fucking way, sayeth the neoliberal. https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service
That’s not the case for college loan debt. The bankruptcy law was tightened in in 2005 but college loan debt was basically made non-dischargable in the 80s after a bunch of stupid hand-wringing in magazines about wealthy scumbags getting three free years of law school and similar hoary tales. (It seems to me the Reagan years were full of busybodies suspicious that a poor person somewhere wasn’t suffering enough….)
The point of that rule is, if student loans could be discharged in bankruptcy, who would make such a stupid loan? If student loans were dis-chargeable, who would lend someone money to get a degree in Sociology or Medieval Scottish History? (Rest in peace, Duncan, my friend.)
Or English? However, Stephen King, the writer, was the University of Maine’s largest donor until a corporate ninny of a President ticked him off (and having punched his ticket, said ninny moved on to UConn, where the Board shitcanned him for corruption).
It just goes to show you don’t ever know. Since education is a public good, finance it publicly, and eliminate the loan scheme entirely.
The exception does not make the rule. How many people are there with a Bachelor’s degree in English? How many become best-selling authors?
It is what Adam Smith described as a lottery — with more players and fewer payouts, the payouts are huge. Think of baseball. There are millions of kids who have played Little League. But fewer and fewer as you go up to High School, college, and pros. Most minor-leaguers make squat — a few thousand a year. The few who make the show make millions.
It’s the same with English majors. Plumbers, however, there is a much lower payout, many many more payouts. Everyone wins, but they don’t win much.
Engineering is in between. There are a lot of people who try, and many drop out. Those who succeed do well, but there are more who succeed in Engineering than in baseball, so the payout for those many Engineers is less than for those few baseball players. You can look at almost any field and determine salary levels based on those factors — how many want to do it, and how many succeed.
This only works if you’re very selective with your examples. Rugby is as difficult as soccer or American football, but with smaller audiences, the payout for the very best is vastly lower. (And then there’s chess, where maybe a dozen people make enough from prize money not to have to do something else for a living.)
Or art conservation. Difficult, but traditionally a field for those who DON”T necessarily need to make money at it.
This idea that engineers reliably make bank and English majors don’t is ridiculous. Need I explain about all those people who can do math who are brought in on H2B visas to take jobs from Americans and work under horrible conditions for horrible pay? Lots of people with STEM degrees can’t or don’t work in well-remunerated STEM careers.
I could go on to point out that English majors may end up being the ones to turn out the lights on American jobs, since they’re trained in something that it’s harder to get in Bangalore — not just English language skills, but cultural reference points for persuasion purposes, etc. I might also point out that advanced humanities training better prepares you to participate as a citizen, which is backed up by research and is probably a feature, not a bug, of the neoliberal push to crush the discipline.
But instead I’ll just point out that if college degrees are required to answer phones, i.e., get even a minimal job, then state college tuition should be free, as it was not so long ago. And then humanities graduates can later on launch web sites that people like you read and comment on.
Licensed professional engineers with 7 to 20 years experience cost a lot to train up and are less sensitive to lay-offs and usually pick up replacements jobs without suffering significant pay cuts (though this time it seems to be changing).
However CE/ChE/ME BS/MS entry level jobs, outside of the very top schools, are very sensitive to economic conditions . A student can start his studies in a bull market at a State university and graduate to be considered less employable than a liberal arts major. Currently there are few entry jobs in traditional engineering fields, and even fewer of these rare opportunities are real design/development positions. Most of the entry jobs are either for sales jobs with low base pay and commissions, and extremely high turnover, or running/maintaining existing facilities, jobs which don’t require significant engineering design skills, and are really more suitable for 2 year tech school graduates.
When I visit the USA my clients pay me to help them get an edge over other Asian corporations to recruit graduate school engineering students to come back to Asia, As to American born youth at my almae matres, those without the cultural/language skills to make it overseas, I tell them they better have a passion, better have the ability to graduate top of their class, and better lower their expectations.
“However CE/ChE/ME BS/MS entry level jobs, outside of the very top schools, are very sensitive to economic conditions . A student can start his studies in a bull market at a State university and graduate to be considered less employable than a liberal arts major. ”
Story of my life. Sigh.
Medevil Scottish history? That was very funny, though the Scots rebelled pretty hard against the bullshit.
I always liked the joke about degrees in underwater basket weaving. We all seeing the common thread here in finance being allowed to dominate an economy? I hope so.
Right now your better off becoming a plumber. Most people think your working in shit but that is more the septic business. My guy comes very quickly and reliably and makes $200 am hour if I include his long ‘getting parts I need’ which really means a nice long lunch. Yeah he bends over to fix a pipe but damn, I may have considered the wrong profession.
Think some ugly bitch married this guy? Think again.
Also, databases are the new paper. One can learn SQL and get a job $60k per year and your boss never realizes you work 3 hours a day.
I totally agree with the missing piece of how to deal with existing student debt. I would like to see a more detailed plan–for state colleges only–that addresses the reasons for the high existing debt and incorporates a write-off strategy for the additional amount of student debt incurred because of decreased state funding, increased administration hiring, increased administration salaries, etc. So, for example, if you started university when state funding was 50% of the cost, but your state cut education to 33% of the cost (the current contribution rate here in Illinois, for example), the government would simply write off the amount, including interest, of the amount attributable to state cutbacks.
Also, one of the problems that has always bothered me about Bernie’s program is that it only covers tuition. Bernie, like many Europeans, initially attended a university to which he could commute from home. Other than California, Wisconsin and New York, not many states have university systems that are within commuting distance of a large number of students. Take a look at what room and board costs these days. The debt on that part alone would be staggering for today’s students.
Finally, the Clinton/Warren plan is so typical of a Republican mindset: every public good must be means tested, instead of having a graduated tax plan that initially takes into consideration the varying incomes of individuals within the community. Are we now going to have public libraries that are only free if you demonstrate that your income is below the poverty level? Or pay-for-service fire departments, depending on your income? Or maybe I shouldn’t have to pay for public elementary schools since I’ve never had a child who used them? The majority of Democrats are just as dangerous as the Repubs when it comes to refusing to recognize the concept of “public good”.
Actually, I do not think there is a State on the Eastern Seaboard that does not have a four-year public college in commuting distance of 90% of its residents, with the possible exception of Maine. Texas also has a great public college system.
Forgiving all currently held public college debt would be a huge boost to the economy and act as a much needed stimulus for the middle class, no?
That’s just what I was thinking – what a huge boost to the “real” economy that would be! And maybe the people toiling away for the loan companies could find more fulfilling employment providing goods and services to the newly-moneyed.
But of course, the “real” economy pales in comparison to the power of the FIRE economy so…
And what about the people who did the right thing and earned their way through college? What about the parents who did the right thing and saved for their kids’ college?
It is not possible to earn your way through college now. And the only people capable of saving for college now are in the parasitic class, who have also been exploiting tax loopholes designed for them.
You don’t seem to know jack, Jack.
what about people who never went to college? They probably earn less and thus could really benefit from some financial help coming their way.
SLABS is a cool acronym – reminds me of the Coroner’s Office. So maybe what we need to to is have the New York Fed buy up all the debt, set up a separate entity to manage it, and hire JP Morgan to administer the program. Oh wait, we already did that with mortgages!
“So come up to the lab. And see what’s on the SLABS. I see you shiver with antici… pation.”
Captures the rentier’s worldview rather neatly, I think.
“Magenta, Columbia. Go and assist Riff Raff.”
Always makes me think of academia.
What is truly the pity about high cost public education is the inverse correlation between scolarship and merely vocational studies.
Why study philosophy, English, history, for that matter physics or mathematics if employers are looking for certified vocational trainging?
Scolarship should be a public good as it can enrich us all. As too we can all benefit from providing advanced vocational training for free from community colleges.
The above should be provided tomorrow…
For the past, it is past time for a debt jubilee!
One reason tuition has increased so much is the existence of ready money to borrow from the student loan industry. Tuition can only rise if the educational institutions can find enough applicants able to pay the tuition, and with costs as high as they are, that implies going into sizable debt.
There have been no checks on institutions of higher education spending money on high priced administrators and athletic coaches, as well as various bells and whistles not essential to an education.
Free tuition should be only be offered to students enrolling at institutions that have reign in their bureaucracy and have a cap on the pay that their top personnel can earn. In many states the highest paid government employee is a college football coach or a university president.
I believe the one reason tuition has increased so much (along with everything else) is that back in the ’60s and ’70s, when state college tuition was free, corporations actually paid taxes. Now you have major corporations paying 8-12%, if they pay at all. So ExxonMobil can make $5 billion in profit and pay not one penny in federal income tax.
Most people don’t understand that, when corporations pay less in taxes, average American have to make up the slack.
I would say there are three distinct sets of colleges in which tuition increases have distinct causes, and perhaps need to be thought of differently:
1. Burgeoning for-profit colleges, which mostly use low-paid adjuncts at best and are Trump U-like at worst, have high tuition because students can borrow high amounts. I think this whole business is basically a scam. It would be worth considering how much of student loan debt arises from this scam business, which has much in common with the payday loan business.
2. Private liberal arts colleges have seen exploding tuition over last 40 years because, once tuition and fees passed any reasonable level affordable to middle-class parents, the game changed. Liberal arts colleges now understand that the pool of students/parents that can pay full price is limited, and they intend to squeeze them for all they can. For all other students (40-60% depending on school), students/parents pay what they can regardless of tuition, and annual tuition/fees increases of 10% or more are irrelevant.
3. Public colleges have seen exploding tuition due to: a) declining public funding and b) using liberal arts tuition/fees as reference point, at least for students coming from out-of-state.
Also, health care cost for employees.
Tuition costs also rise because parents like you are desperate to send their kids to college, knowing it’s one of the few ways to increase their progeny’s chance of punching a middle class ticket. As long as that desperation exists, parents will bid up the price of tuition the exact same way they did houses in good school districts.
This reads like an epilogue to the two income trap.
Parent – That is true but if college is subsidized, why not just trade school or associate degree? If something is going to be subsidized, must have caps. Private debt is subsidized by the taxpayer now at a negative multiplier but seldom counted or measured in how people pay by inflation, extra hours of labor, etc.
Collapsing in Place still gets to me. That was a weird feeling day. In the best of places & times it is significant when you feel the distress of the world. Collapsing.
Nukes stand out as Implosions, Forced implosions of heavy & unstable things.
& Debt is what eats at people because of phone calls and They Can’t Borrow anymore for anything else than their achievement in the life of the mind.
Some say, you as a good and wise rulership cancel debts to yourself when they make the kingdom unhappy and unruly.
The Good thing Is that We Own the Debt, right, since it can be canceled by us.
But no, guess what, you, the student, planning on default borrow better then from a bank that will take real collateral which is your parents home.
How protected are the homesteads?
One needs an accountant and an attorney from the day you get your first dollar.
We were telling ourselves to follow our own destinies and the money would work itself out.
I went to an Experimental College that moved the production & products & leadership with the money out to the country abandoning the trade & education and printing facility in the city.
They lost the building. There is nowhere for alumni to return to to live out their last days with friends.
Reports I get from the way outsiders of the way the children act towards neighborhood neighbors make new way child rearing look no better than any small mean town.
Where you landed is where you are and I remember making decisions from the means available.
I went to Monroe Community College in Rochester, NY for Audio Visual Technology later. The Equal Education Opportunity Grant paid for my semesters. I worked to pay the rent.
My girlfriend and I ended up there because her family could not afford another year of out of state tuition in North Carolina for her.
Both of us came from families of university academics who taught or were librarians. The Wife Is the Librarian, & the Husband teaches Literature & Theater.
That Equal Education Opportunity Grant, was great. Of course one finds that the Elite schools mean rubbing shoulders with the elites and getting into the power structure.
Yale is the one for the CIA, though the President of Rochester Institute of Technology was CIA. Really a CIA Operative. At a place like RIT the President would be deciding what were to be secrets of the technology that is all for the intelligence Force.
Must keep the Morale of the Troops up!
The only two Legitimate functions of the Government are Defense & Education. The hook for the entrants into the military was Free College Education after you get out. Remember that?
Make everyone serve to get free education however they want if they survive their service, well, why not.
Of course all that is left to fight for is the USPO. We must start in the right direction in a concrete way. Action means institutions are founded or altered so their Missions are clear.
Our Department of Education ought be taking care of this with the goal of giving all advanced Human Capital.
Advances in Human Capital mean they are worth more on actuary tables. That Finance has beat Insurance down to doing what it wants against all common sense is part of the equation.
We are to Petition the Government, not beg the rich people in the government.
We must show them the path they are to take Defending the Nation by Educating us to fight for it however we fit in the system at the time.
Now I am educated and experienced enough to know the responsibilities of Government, & where to turn to the best practices system to fulfill the responsibilities.
In & by 1978 return of letters to the Executive Branch stopped for me. It was then I began work on Transcendia, another nation.
What I know now applies to both what spawned me, and what is mine. I do not have to vote, though I do.
I endorsed Sanders, but between David Cay Johnston, Michael Hudson, Chris Hedges, Chomsky & Yanis, & You and You all, Lambert & YvesI am onwards with all of my own. I love you guys, & engineers, and poets and painters & Movie Makers.
My friends took up the criminal lifestyle. I think of it and have half the screenplay.
Not even rock stars are recording stars making money from it anymore. Only the movie stars or jocks get ahead from Merit, which was codified as a requirement of Post Office personnel in the long ago past.
It would be better if the US canceled debts to itself before it loses currency reserve status. The Petrodollar died in Yemen.
Finance Banking has gone too far. The interest laid on the people causes them to become unhappy and unruly.
To have a “Revolution” and keep the vital infrastructure going, the drugstores open, you must give the people something good to touch.
The Plaque of Bronze put up to show the work of the Federal Government for the Good of the People is to the Building Dedicated to “Service”.
To end the reign and ideology of Finance Banking, we must give the people Service Banking. This is the Ideology that would save us.
Goldman with its own currency can go out in the world, its hands on our Treasury Securities needs to be ended as proper and seen as a conflict of interests.
The aim is right to get their hands off and out our Treasury. No wonder they all are so rich, they take a skim off every dollar we make.
They have undercut the value of our Financial System with greed that is them.
The US Treasury can fill the ATMs, with our money.
Let those killing us in the multinational banks, Holding Banks, Stop Holding Our Currency now that they have their own.
We can make it on our own better with the USPO Banking that we have paid for over and over.
Thanks to Naked Capitalism as an institution Yves Smith & Lambert for allowing comments. I apologized to Yves for myself awhile back.
Great piece, Lambert – thanks! Ever since Bernie uttered the words “free tuition” I’ve been thinking, what about the millions of graduates who will never be able to pay off the debts that have already been strapped to their backs?
Student loan debt by itself isn’t bad. It’s the fact that the good paying jobs at the other just aren’t there anymore. Everyone going to school or signing that application knows this. Debt as an investment instrument for a better future.
Didn’t work in my case, that’s for sure.
The debtor-creditor relation, which is at the heart of this book, sharpens mechanisms of exploitation and domination indiscriminately, since, in it, there is no distinction between workers and the unemployed, consumers and producers, working and non-working populations, between retirees and welfare recipients. They are all “debtors,” guilty and responsible in the eyes of capital, which has become the Great, the Universal, Creditor.–from The Making of the Indebted Man Lazzaratto
Read it
I recently watched “Jobs for the Boys”, and liked it so much I watched all of the “Yes Minister” series. Thanks for the tip. Next up is “Yes Prime Minister”
Thanks, Lambert. My daughter and friends have been wondering about this for a while and after a couple of beers, their pervasive cynicism bursts out towards Bernie, too. Honest cynicism is painful to see in people still in their 20s.
Otherwise, they feel quite positive towards Sanders, and wistful. But there’s no hero-worship of any sort among them. They have not been afforded a chance to become authoritarian, which part is good.
I seem to recall predicting this a few years back (the SLAB concept).
The fundamental issue is that the poor and middle class (by virtue of bearing the brunt of the cost of the GFC) have been squeezed to the point where they have no more money to spend. That is hurting consumption and therefore business profits. The PTB need a way to get them spending again but are constitutionally opposed to actually giving up any of their ill-gotten gains. So how do you get people to spend money they don’t have? The answer is debt, as much of it as possible. Expect the parasitic financial sector to take every opportunity available to load people up with debt by coupling it with the basic necessities of life. This is already well established in the housing and education sectors and I expect we will see it increasingly in other sectors as well. Healthcare is prime candidate after the disaster that is Obamacare, and I’m sure they would love to replace food stamps with food loans for example.
That does present the minor problem that many or most of the new debts will not be repaid, but the GFC offered a blueprint for addressing that. There will be a lot of pain for taxpayers and debtors and some pain (not too much) for shareholders, but executive pay and bonuses will be preserved.
Why didn’t borrowers read the loan agreement before signing?
Instead of sending my children to schools in the USA, I sent them both to free colleges and medical schools in Europe. This way, the kids each bought beautiful apartments in Paris with funds we had saved for them, and went to university and medical school “free”.
Better to use the money on buying an apartment in Paris than paying for an inferior American education.
“Why didn’t borrowers read the loan agreement before signing?”
If you’ll read the whole of Samual Garner’s post, you’ll see why (for one family).
Evolution is known to work in near-real time. We should think carefully about whether being “good with money” as adaptive behavior for the species as a whole (as opposed to aristocracies of inherited wealth).
US colleges charge foreign-born students the full ticket price for tuition. It really surprises me your kids enjoyed such a bargain. Fortunate for them you taught them fluent French and paid for them to live overseas. I somehow doubt such a solution generalizes to all 20 million college students in the US, though.
If I had know that was an option I would have done it in a heartbeat. Unfortunately, I just assumed that all schools cost money and back in 2003 the internet wasn’t what it is today so researching my options was tedious and the language barrier with other countries compounded the difficulties.
Great piece. I agree with all of the sentiments about how terrible the system is for students today. One quibble regarding the anecdote of Mr. Garner & his slow balance reduction. I think that is how debt works, for instance a mortgage. At the beginning you pay only interest, at the end only principal. Quibbling aside, he should not be in that position.
Why didn’t borrowers read the loan agreement before signing?
Instead of sending children to schools in the USA, why not send them to free colleges and medical schools in Europe? This way, the kids can buy beautiful apartments in Paris with funds saved for college, and attend the university and medical school “free”.
Better to use the money on buying an apartment in Paris than paying for an inferior American education.
I don’t know about student loans, but banks are VERY unwilling to let borrowers see the entire mortgage agreement. My father had to make a huge stink with his bank, wheen he’d been a customer for decades, to get to see the docs when he was thinking of putting a mortgage on his house to finance building a retirement cottage before selling the house. When he finally got the agreement, he cancelled the deal because the contract was so one sided.
The success of the “investment” ultimately depends on the ability of the debtor to earn enough money to pay the principal of the loan, plus interest and fees.
Except, of course, in the case of credit default swaps, where the success of the “investment” ultimately depends on the inability of the debtor to earn enough money to pay off the principal of the loan, plus interest and fees.
The main goal of Obamacare was to reify, as you put it, the policy justifications for EVERYTHING going forward.
My biz is education, and all of these dreadful neoliberal bullet points you captured comprise every policy “conversation.”
Silly people, you just don’t get it. As long as the banksters get theirs, nobody gives a crap about “affordable tuition”. Least of all the federal government.
Or employers. If they need someone with a college degree, they will hire an H-1B / immigrant who had their degrees paid for by the oligarch parents, or by some other government who provides “free tuition”. Another subsidy, thanks to the Bank of Mom And Dad.
The repeal of the ability to discharge school debts by bankruptcy didn’t happen by accident. “Education” is the bubble that replaced Subprime/Liar Loans.
All three of my daughters are doing okay……..mainly because they saw too many people with college degrees and $100K-200K in debt working for the same paltry $12-15 bucks an hour as they were making. You can squeak by in flyover making that much, as long as you don’t have any kids, or have student loans, or ever plan on contributing to a 401K, or buying a new car.
Forget the college scam. The biggest scam out there is “Technical training”. Notice the number of “Learn how to fix airplanes” ads out there? The size of the ripoffs in aviation tech training boggle the mind.
For starters, you can’t even get a license with any kind of felony conviction, or any kind of drug conviction. Do you think this is explained before these kids sign the dotted line? Or the fact that the school is paid for “up front”, so the school “gets theirs”, even if the kid flunks/drops out/discovers the scam?
The business of America in the 21st Century is devising multiple ways to rip off the poor/wretched refuse. Or become a business/monopoly with a “moat”. Anybody seen any Indian/Mexican doctors hanging up shingles at low cost clinics, creating a “free market” for health care?
The only businesses thriving in America are defense, money shufflers, college education and health care. All protected/insured/subsidized by the Federal Government. Everybody else can go pound sand.
Killing the Vampire Squids one way or the other is the only way things will get turned around. But I’m not sure killing them is possible at this point. Too many people pointing fingers in the wrong directions.
But wait! I thought “technical training” solved the “jobs mismatch” problem! BWA-HA-HA-HA-HA!!!!!
One thing missing from the discussion is that fewer people go to college where it is free. About 60% of high school graduates matriculate. That’s right, almost 20% of college students are of below average intellect.
In Germany and Denmark, for example, less than half even pass the entry exams into Gymnasium — the college-track high schools. The rest are put into vocational schools or worse. Then, they have to graduate from Gymnasium and pass an exit exam. Only then can they go to college free.
Like it or not, the fact is that Blacks score about one standard deviation below Whites in academic work and test. So in a system where half of Whites would get into college, only 16% of Blacks would. Will democrats put up with that to get “free” college?
Lambert:
David Simons talking about another form that corruption takes beyond the world bank definition:
https://youtu.be/nRt46W3k-qw?t=541
If there are no jobs. Why do you need to go to college ?
When I started the University of California in 1966, tuition was $81.50 per quarter. We were up in arms when Governor Reagan raised it to $108.50.
If you want free college now, you have to go someplace like Germany.