What kind of society is our student-loan mess producing?

"College graduates who borrowed for bachelor’s degrees granted in 2012 have an average student loan debt of $29,400, the highest average student loan debt on record."

-- finding of the Institute for College Access and
Success, quoted by Allison Kilkenny

"For this story, I interviewed people who developed crippling mental and physical conditions, who considered suicide, who had to give up hope of having children, who were forced to leave the country, or who even entered a life of crime because of their student debts."

-- Matt Taibbi, in his August Rolling Stone report,
"Ripping Off Young America: The College-Loan Scandal"

by Ken

And if the above news isn't bad enough, Allison Kilkenny (in "2012 Grads Have Highest-Ever Student Debt") quotes Debbie Cochrane, research director of the "independent nonprofit" Oakland institute that produced this report:

The graduates of 2012 left school and entered repayment at a time of high unemployment. In many ways, these graduates were hit from both sides. They went to college during a recession when their family’s ability to pay for college was likely reduced. Now they are graduating from college and may be experiencing substantial challenges getting a job to repay the loans.

Back in the days when dinosaurs trod the earth and college costs were orders of magnitude lower than they are now, I collected my degree bearing a fairly modest amount of debt. Oh, it probably seemed like a lot to me in those more innocent times, but it didn't really change my way of life, and in time it was paid off. I definitely remember the feeling when I got my first paycheck that would once have had a chunk directed to Alma Mater but was now all mine (except for all those "permanent" payroll deductions, which I'd gotten used to).

I bring this up only to contrast my antique experience seems with that of modern-day college grads. Or, still more frighteningly, graduates of medical, law, and other graduate schools. It terrifies me just thinking about it. I don't see how it's possible for than not to condition every life decision they make.

Allison Kinney provides expert confirmation from Mike Morrill, executive director for Keystone Progress, an activist network:

Even if you are able to get a good job, it means that if you're graduating with $30,000 or more in debt, that means it's going to be a long time before you get rid of that debt. It makes it harder for you to buy a house harder to start a business.

And that's just for starters. Can you even make the decision to go to a movie without thinking about it? Or do you perhaps train yourself not to think about it, thinking of the debt burden as a semi-permanent burden that isn't going to lift anytime soon and therefore shouldn't be allowed to spoil such fun as you're able to "afford" in the here-and-now?

Institute for College Access and Success

More ominously, at every point when you have to make a life choice like how you actually make a living, can you ever afford to make a choice in favor of anything but the highest cash return? If we had overwhelming numbers of our talented young people making career or job decisions this way, why kind of society would we have? Or should I say, what kind of society do we have?
And, says Allison, the student-debt situation seems much likelier to get worse than better.

Lynn O’Shaughnessy, an expert on college issues who lives in La Mesa, says the trend isn’t likely to reverse itself anytime soon because the price of higher education continues to rise while incomes remain flat.

"College costs have always gone up higher than inflation, but the problem we face now is that family incomes are stagnant and they can't afford it anymore, if they ever did," said O’Shaughnessy, author of the book The College Solution and a blog of the same name. "It used to be much more affordable."

Allison points to a July editorial in the Times Herald of Montgomery County, the second-richest county in Pennsylvania -- a state that boasts one of the country's highest levels of college debt. The editorial, headed "Pa. tuition increases putting college out of reach," said in part:

College expenses have become outrageously high over the past decade, fueled in part by the "easy money" of student loans and government financial aid. Schools haven't had much incentive to rein in costs. And so tuition increases have far outpaced the rate of inflation.

Nowhere is the situation more noticeable than in Pennsylvania, where state colleges and universities are among the most expensive public schools of higher learning in the nation. Last week, Penn State officials were patting themselves on the back for in-state student tuition hikes of only 3.39 percent, touting that as the second-lowest rate increase since 1967.

That’s still about twice the current rate of inflation.

While the causes for the skyrocketing cost of higher education are complex and widely discussed and argued, the "easy money" factor can't be discounted. And the "easy money" matter brings us back to a basic fact of life: Student loans have become a humongous business. Alison notes: "[S]tudent debt, like subprime loans, is a huge moneymaking scheme from which the government is making a pretty penny. Rolling Stone’s Matt Taibbi reports the federal government is poised to make $185 billion over the next 10 years on student loans."

Matt T had a lot more to say in that predictably massive August report, "Ripping Off Young America: The College-Loan Scandal," for which, he wrote:

How is this happening? It's complicated. But throw off the mystery and what you'll uncover is a shameful and oppressive outrage that for years now has been systematically perpetrated against a generation of young adults. For this story, I interviewed people who developed crippling mental and physical conditions, who considered suicide, who had to give up hope of having children, who were forced to leave the country, or who even entered a life of crime because of their student debts.

They all take responsibility for their own mistakes. They know they didn't arrive at gorgeous campuses for four golden years of boozing, balling and bong hits by way of anybody's cattle car. But they're angry, too, and they should be. Because the underlying cause of all that later-life distress and heartache -- the reason they carry such crushing, life-alteringly huge college debt -- is that our university-tuition system really is exploitative and unfair, designed primarily to benefit two major actors.

And those two players? "First in line are the colleges and universities, and the contractors who build their extravagant athletic complexes, hotel-like dormitories and God knows what other campus embellishments." And "next up," he said, "is the government itself."

This goes back to the Obama administration's "reform" of the student-loan business, an attempt to push greedy entrepreneurs out of it. Among the many people Matt T talked to was Warren Gunnels, "senior policy adviser for Vermont's Sen. Bernie Sanders, one of the few legislators critical of the recent congressional student-loan compromise." Gunnels described the federal government's haul as "basically a $185 billion tax hike on middle-income and low-income citizens and their families."

Gunnels notes with irony that a few years ago, when Obama moved to eliminate private-lender middlemen from the servicing of federally backed loans, much hay was made out of the enormous profits private industry had long earned on the backs of students. The Congressional Budget Office issued a report estimating that Obama's program would save $86.8 billion over a 10-year period by eliminating private profits from the system. Obama said taxpayers were "paying banks a premium to act as middlemen," adding that it was a "premium we cannot afford."

The outrage over profits, however, was short-lived.

"It was wrong when banks were making an $86 billion profit on students, but somehow it's OK when the government makes a $185 billion profit on them," says Gunnels.

It's not that nobody has noticed. Allison Kinney reports:

Before Christmas, senators Elizabeth Warren (D-MA), Jack Reed (D-RI) and Dick Durbin (D-IL) released a slate of proposed reforms aimed at lowering student debt, including a student borrower’s bill of rights that would put more emphasis on getting servicers to offer students affordable repayment plans, and a provision that would require schools with lots of struggling borrowers to compensate the government for loan repayment losses.

Businessweek reports the penalty proposed in the Protect Student Borrowers Act of 2013 would affect schools at which at least a quarter of students take out loans, a threshold that would include most institutions. Community colleges would be exempt, along with historically black institutions, according to Inside Higher Ed.

The question is whether there is enough will to override the interests of the well-connected people who have a close personal interest in maintaining the status quo -- if not making it worse.

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