What’s With Student Loans?

obama state of the union 2013

“It’s a simple fact:  The more education you’ve got,
the more likely you are to have a good job
and work your way into the middle class.”

2013 State of the Union Address

President Obama was repeating an enduring cultural belief. Maybe it was still true when he said it, but not anymore — for a lot of reasons we’ve looked at throughout this series, but especially in light of today’s social and economic calamity of soaring higher education costs and student loans.[1]

student debt graph

Chart from Next Gen Personal Finance (May 30, 2015)

Student debt grew steadily 2000-2014. Toward the end of that period, a revenue provision tacked onto the 2010 Affordable Care Act gave the Federal government a monopoly on the student loan business. Since then, total loans have risen exponentially — by 50%, to $1.52 Trillion.

Nationalizing student debt has been a government money-maker, in terms of both capital and income:

“The trillion plus in student debt that the state holds makes up a plurality of its financial assets — 37 percent, far more than national reserves officially held in gold or foreign currency.

“Because the government’s borrowing costs are so low, student lending is incredibly profitable. The Department of Education expects to reap $18.99 in profit on evert $100 in loans originated in 2014… and we’re talking over $25 billion in projected negative subsidy — that is, profit — off the 2014 cohort alone.”[2]

Kids These Days: The Making Of Millennials, Malcolm Harris (2017)

Meanwhile, educational costs have also soared.

educational costs

Tuition data from National Center for Education Statistics. Inflation data calculated using 1963–1964 tuition and tuition increase at rate of inflation from CPI Inflation Calculator. Graph by Noa Maltzman

Today, average undergraduate loans are $30,000. Paying them off represents a 21-year mortgage. What’s the ROI from the students’ point of view? Answering that question requires examining (1) the loans themselves — how they’re originated, paid off, etc., (2) what higher education is doing with the loan proceeds students are handing over, and (3) the cultural belief Pres. Obama articulated. For all of that, I refer you to the book Kids These Days, cited above, and to a 70-minute film Broke, Busted, and Disgusted, which I just watched.[3]

What’s to be done? The remedies in the film are prospective — they’re too late for the $1.52 Trillion already in place. Going forward? Well, it is an issue in the election coming up — at least for the Democrats — and here are summaries of candidate proposals:

Writing this makes me revisit my own experience with student loans and the cost of higher education.

I went to an expensive private college. My financial aid package included scholarships, work study, and student loans. I paid off the loans in five years. The relief was tangible. I vowed never again.

My financial aid package at DU’s MBA/JD program included scholarships and student loans. I declined the loans and worked a lot, sometimes full time. I made it through the first three years without loans and would have finished that way. An accountant friend told me I was crazy — it was cheap money. I took out a loan my fourth year. I paid it off in six years. The relief was tangible. I vowed never again.

In 2009, just after the Great Recession and an ill-timed, ill-advised, and poorly executed exit from law practice, I was short of funds to pay for two of my kids’ final years at expensive private colleges (they’re two years apart in age, but their final years coincided). I took out $30.000 in “parent plus” loans to make up the difference. I declared bankruptcy the following year, and found out student loans hadn’t been dischargeable since 2005.

In 2013, as part of an attempt at mid-life reinvention, I was accepted into a graduate program in sports psychology at DU. There was no way to pay for it other than student loans. I decided not to attend. The relief was tangible. Lesson learned.

In 2016, I qualified for disability income. I used most of my back-pay award to pay off my parent-plus loans. The relief was tangible. Lesson learned. I vowed never again.

It’s easy for me to feel entirely responsible for my own history. But as for today’s reality, as a young friend said recently, “I’m starting to believe it’s not all my fault.” Coming up, we’ll look at more economic support for that thought.

[1] As I write this, the headlines today show Felicity Huffman entering prison for her role in the college admissions scandal.

[2] Citing Department of Education Student Loans Overview Fiscal Year 2014 Budget Proposal. Click here for the 2020 numbers

[3] Of course the documentary has an agenda, but it’s well-done and worth watching.

Whatever Happened to Working For a Living? (Cont’d.)

“Politically, every transformation has begun
with a repudiation of the certainties of the previous age.”

– Economist Guy Standing

Last time, I quoted at length from economist Guy Standing’s analysis of how the notion of working for a living has historically fared under the social democracy and neoliberalism economic models. Prof. Standing believes that, as a result of the developments chronicled there, a new class system now dominates the working world. Again, I’ll quote from his book The Corruption of Capitalism (2016):

“Globalization, neo-liberal policies, institutional changes and the technological revolution have combined to generate a new global class structure superimposed on preceding class structures. This consists of a tiny plutocracy (perhaps 0.001 per cent) atop a bigger elite, a ‘salariat’ (in relatively secure salaried jobs, ‘proficians’ (freelance professionals), a core working class, a precariat and a ‘lumpen precariat’ at the bottom. The plutocracy, elite, salariat, and proficians enjoy not just higher incomes but gain most (or an increasing part) of their income from capital and rental income.

“The three classes below them gain nothing in rent. Indeed, increasingly they pay rent in some form to the classes above them. First, there is the shrinking proletariat, relying mainly on labour in stable, mostly full-time jobs, with schooling that matches the skills their jobs require. The precariat, which ranks below the proletariat in income, consists of millions of people obliged to accept a life of unstable labour and living, without an occupational identity or corporate narrative to give to their lives. Their employers come and go, or are expected to do so.

“Many in the precariat are over-qualified for the jobs they must accept; they also have a high ratio of unpaid ‘work’ in labour — looking and applying for jobs, training and retraining, queuing and form-filling, networking or just waiting around. They also rely mainly on money wages, which are often inadequate, volatile, and unpredictable. They lack access to rights-based state benefits and are losing civil, cultural, social, economic and political rights, making them supplicants if they need help to survive.

“This precariat is all over the world… For instance, more Americans today see themselves as in the lower classes. In 2000, according to Gallup polls, 63 percent saw themselves as middle-class and 33 percent as lower-class. In 2015, 51 percent saw themselves as middle-class and 48 percent as lower-class. Similar trends have been reported elsewhere.

“Below the precariat in the social spectrum is what might be called a ‘lumpen-precariat,’ an underclass of social victims relying on charity, often homeless and destitute, suffering from social illnesses including drug addiction and depression. … Their numbers are rising remorselessly; they are a badge of shame on society.”

Prof. Standing’s unique contribution to the conversation about work, happiness, and meaning is his identification of the new social strata. The balance of his analysis is not unique — as he says above, it has been reported “all over the world.” In the coming weeks, we’ll look at various implications of these findings:

  • The old job market’s last stand — “bullshit jobs”;
  • Whether the middle class is truly vanishing;
  • Whether a rising tide truly does float all boats;
  • Why this might be a good time for a new vision of utopia; and
  • Why law firms might want to make their next associate hire a robot.

And much more. Stay tuned.