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Rachel Signer: The Trillion-Dollar Question (Part I)

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April 6, 2012

America’s student debt reaches the one trillion-dollar mark this month. How did we get here and why?

Image courtesy Rachel Signer

By Rachel Signer

In September 2010, student loan debt surpassed all other forms of debt in the United States—edging out consumer debt for the first time in history. Each year, the cost of tuition at American universities is rising—it rose 5.9 percent in 2008 at public universities and 6.4 percent at private ones. This month, the amount of student debt in the U.S. will reach 1 trillion dollars.

I first became aware of the problem of student debt when I was considering graduate school, in 2008. Waves of anxiety overwhelmed me as I debated whether to pursue the master’s degree that I desperately wanted, knowing that it would land me in at least $40,000 of debt. Ultimately, I felt that the potential benefits of the program—entry into doctoral programs; training in critical thinking and analytic literacy; access to grants for academic research—outweighed the financial burdens.

Tuition alone for a master’s degree in anthropology at The New School, which I completed in 2010, ran me around $23,000 per year. When I began the degree, at the age of 24, $23,000 was effectively a symbolic number—it was either pay that amount, or don’t do the degree. I had little concept of how much it would or would not weigh me down later on, despite playing around many times with that handy online “loan calculator.” At the time, I had friends who were earning around $40,000 in entry-level positions, and I assumed that I, too, would someday merit such a salary. I also told myself, perhaps naively, that with a graduate degree, I would surely be more qualified for a full-time job than I was with my undergraduate degree.

Then, the housing bubble burst and the market crashed; over the next year, unemployment rose to 9 percent nationwide. When I graduated from my master’s program, I spent seven months applying to full-time jobs in my field and related ones and networking incessantly, but no opportunities came about. While I gradually became a full-time freelance journalist, I still lived paycheck-to-paycheck, especially when I began paying my loans at $550 per month (if you’re playing the world’s smallest violin for me, go ahead: I’m listening). I took on random jobs—substitute teaching in elementary schools, babysitting—to supplement my journalism gigs. There were consecutive nights spent sobbing in a hot bath, wondering if I would ever find interesting, worthwhile work. Meanwhile, I watched my peers, who had received the highest marks in our graduate program, juggling three mind-numbing jobs at once, or moving into their parents’ homes, or, in one case, enlisting in the National Guard to obtain a meager stipend.

Unlike other forms of debt, student loan debt will never disappear; it is carried by the debt-holder until he dies and even then can be passed on to a spouse or next-of-kin.

These people—like me, in their late twenties—who had flourished in a demanding academic environment where we wrote lengthy papers on Derrida and Lacan, organized successful conferences on current issues, and debated sophisticated matters alongside our professors, were paralyzed by the prospect of paying back loans. A few years later, some of my friends have sunk into depression; others have given up hope of finding a job they love and simply prefer to scrape by. Most of them are now deferring payment because they can barely meet even the daily costs of living. A few of them will likely join the ranks of loan defaulters, resulting in their credit being ruined for life. If this happens, they will never be able to get loans for down payments on home mortgages.

One of the difficult things about discussing student debt is that it is so nuanced. Do we have the same sympathy for someone who was the first in his family to go to college and later became a doctor—all the while racking up hundreds of thousands of dollars in debt—as we do for someone who decided to go to NYU because she desperately wanted to live in Manhattan or attend Tisch? Not necessarily. And the burden of student debt is not carried equally by all: It affects people from lower-income families in different ways. I called social psychologist and Swarthmore professor Barry Schwartz, who has written extensively about decision-making in the context of hyper-capitalism (where options are limitless), and told him I was researching the problem of student debt in America.

“Here’s the psychological issue: How much debt is a lot of debt? How do people evaluate it?” said Schwartz. “One thing we know is that people can’t evaluate it in an absolute way—they evaluate it in a relative way. Chances are good that if you are working class, the number that counts as a lot of debt is much lower than it is if you’re not working class.” The main problem with student debt, Schwartz thinks, is that it limits peoples’ options when they are out of school—they take a job they dislike in order to earn money, rather than doing what they love.

**

Of course, in this recession, most people would be glad to take a job they dislike, to be able to pay off their debts. In a healthy economy, students would ideally find salaried jobs upon graduation and pay their loans back without experiencing much hardship as their careers evolved and their salaries increased over time. But with unemployment in the U.S. hovering around 9 percent since 2009, many former students are struggling to pay back loans or defaulting.

To get a qualitative view of the magnitude of this problem, one need only look at the “We Are The 99 Percent” tumblr blog where supporters of the Occupy Wall Street movement share their stories of economic injustice. Most of the conversation is about the burden of student debt. One woman on the site writes, “I am a 31-year-old college graduate with $65K+ in student loan debt. I’ve been unemployed for six months. Last August I lost my job and because of the circumstances, I can’t collect unemployment. Before that I worked odd jobs here and there, but nothing substantial. I haven’t been able to find a job in or out of my field.”

Another: “i am 22 years old. i am currently in college and have a $60,000 debt in student loans so far. i took out a $20,000 in private loans to help my parents with the bills and mortgage that is sucking us dry. we are possibly on the preforeclosure list. My mom works two jobs and she is sick. my dad is retired with no pension.”

And another: “I want to get my M.S. in counseling. I am being forced to turn down [an] acceptance into my dream school because I make $11/hr helping people who are poor (not just low-income like me), barely got any financial aid and simply cannot afford to go $100K in debt. Instead, I hope to ‘only’ take out $50K to go to a state school.” It goes on, and on; at the time of writing, the blog extended 226 pages.

Since the industry benefits from its borrowers not managing to pay back their loans, it has no incentive to ensure that people are borrowing responsibly.

Unlike other forms of debt, student loan debt will never disappear; it is carried by the debt-holder until he dies and even then can be passed on to a spouse or next-of-kin. Bankruptcy protection has been removed from student loans. Student lending is also a massive industry that brings in significant revenue for banks, collecting agencies (often owned by those very same banks), and the U.S. federal government. Collecting agencies profit from defaulted loans—and since lending agencies, including the government, often owns these agencies, they, too, profit.

Since the industry benefits from its borrowers not managing to pay back their loans, it has no incentive to ensure that people are borrowing responsibly. No matter that the job market is a shadow of what it was in the booming 90s—the industry says, borrow away, dear students! Lending massive amounts of money to young people in a recession has only added to the already-existing “education bubble” in which the value of university or college degrees is artificially inflated. In 2008 alone, 67 percent of students graduating from four-year colleges and universities had student loan debt. That represents 1.4 million students graduating with debt, up 27 percent from 1.1 million in 2004. The average debt for graduating seniors at private non-profit universities was $27,650. With the 2005 cohort, 41 percent of student loan borrowers have faced delinquency or default, and 15 percent of that cohort has already faced default.

The default rate for student loans is currently close to nine percent—up from 7 percent in 2010. The largest increase in default is found at for-profit private institutions, according to data from the Department of Education; more than half of the students at for-profit colleges are African-American or Latino.

**

In his 2009 book, The Student Loan Scam: The Most Oppressive Debt in U.S. History and How We Can Fight Back—the founder of StudentLoanJustice.org, Alan Collinge describes Sallie Mae’s rise to power from a government-sponsored entity to a for-profit corporation, through vicious lobbying. The result of Sallie Mae’s ascendency was the removal of bankruptcy protection from student loans in 2005. In 2003, Sallie Mae’s record profits were attributed by their CEO, Albert Lord, to penalties and fees collected from defaulted loans.

I met Collinge last fall in Zuccotti Park, where he was camped out until the protesters were evicted in November. He told me about how Sallie Mae had defaulted him on his loans when he had requested forbearance, due to unemployment. They claimed that they had lost his application. As a result of the default, his debt doubled instantly. Collinge sank further into depression, having already arrived there as a result of long-standing unemployment—despite holding a graduate degree in science. He began to hear stories from people who had had similar experiences with Sallie Mae, and he started StudentLoanJustice.org to advocate for a reinstatement of bankruptcy protection for student debtors.

Sallie Mae is the embodiment of the philosophy that borrowers, not lenders, should bear the risk and financial burden of education—whether the economy is healthy and provides jobs, or not, borrowers are responsible for paying back their loans, even if they are completely broke. And the student loan industry profits from their unchecked, risk-free lending. According to the founder of FinAid.org and one of the leading experts on student lending, Mark Kantrowitz, from an initial loan of $10,000 the government stands to earn around $2,000 more in interest if it defaults than if it’s paid in full over 20 years. On that same loan, a default will bring in over $6,000 more than if it had been paid back in 10 years. On FinAid.org is the counter that ticks upward every second, as student loan debt in the U.S. climbs closer and closer to 1 trillion dollars.

On Monday, read Part II of “The Trillion-Dollar Question”—how the student debt crisis weakens the philosophical underpinnings of education.
________________________________________________________________________________________________________

Rachel Signer is a freelance writer based in Brooklyn. She has written for n+1 and The Brooklyn Rail, and has reported on Occupy Wall Street for The Nation. Her fiction is forthcoming in Construction Magazine. Her website is rachelsigner.com.

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7 comments for Rachel Signer: The Trillion-Dollar Question (Part I)

  1. Comment by asdf on April 6, 2012 at 3:27 pm

    Sounds like your problem is the same one a lot of people are facing: the degree you want isn’t necessary worth anything anymore. Kids these days have to get a degree that’s connected to part of the job market. Engineering and computer science degrees are worth 40K in debt, but a PHD in Hitler Studies might not be.

  2. Comment by Rachel Signer on April 7, 2012 at 3:51 pm

    asdf–Point taken, but you’ll see in Part II of my article that I disagree with the notion that everyone should pursue degrees in what the job market demands. That would leave us with a very narrowly-focused society. And just FYI, generally speaking, I really wanted this article to be about a general problem, not my particular one, so I hope people take away more than just my story by reading it.

  3. Comment by Steven Tran-Creque on April 7, 2012 at 6:30 pm

    One post in you and you already have the standard reaction:

    “Student: I’m not going to go to college because I don’t want to go into debt.
    USA: YOU USELESS PIECE OF SH*T. YOU’RE GOING TO AMOUNT TO NOTHING YOU F*CKING SCUMBAG. YOU’RE THE REASON WHY MY TAXES ARE SO HIGH.

    Student: I’m just going to attend a small community college instead.
    USA: HAHAHA YOU WERE TOO STUPID TO GET INTO A GOOD UNIVERSITY. ENJOY YOUR MCDONALD’S DIPLOMA.

    Student: I attended a four year university and received a diploma in a field I am interested in. Now I am $50,000+ in debt.
    USA: YOU DUMB*SS. WHY THE F*CK DID YOU GO TO COLLEGE WHEN YOU KNOW YOU COULDN’T AFFORD IT? YOU DIDN’T EVEN CHOOSE A USEFUL MAJOR EITHER. GOD PEOPLE LIKE YOU MAKE ME SICK.”

    http://thatdangergirl.tumblr.com/post/19941690797/the-united-states-of-america-on-college-education

  4. Comment by Richelieu on April 11, 2012 at 8:25 pm

    It is absolutely ridiculous (historically speaking) to suggest that people should only strive for higher training in fields that happen to be currently valorized by a so-called ‘free’ market (which is very clearly not free) and which is notorious for its vagaries. Were that to be the historical norm, we would never be where we are today. Merely 50 years ago someone like Ms. Signer would have sailed into a top-tier Ph.D. program, and thence to a successful academic career. That in itself is enough evidence (empirical) of how whimsical the American ‘free’ market is. However, the moral argument is also a powerful one: higher emphasis solely on those subjects ‘valued’ by the ‘free’ market (which can only ever value that which feeds itself; witness the comically inflated salaries of 23 year old “quants”) will inevitably lead to a society of heavily skewed knowledge, which will then continue to feed upon itself until collapse.

    Rather than idiotically and short-sightedly attack those among us who are not solely driven by the glitter of dollars, the system that sets up dominos to make them fall over needs to be restrained by a higher power (in this case, the government). Rather than allow private profiteering entities to drive up prices by astutely gaming the so-called ‘free’ market, restrain them from their impulse toward profit. They do not serve to advance America’s education, but rather to milk them dry.

  5. Comment by Sarah on April 20, 2012 at 12:10 am

    The debate over “useful” versus “useless” degrees makes no sense to me as education in areas like the liberal arts has a place in society as well. However another thing to keep in mind is that the debt prevents those with even so-called “useful” degrees from using that education where it is needed.

    Take law for example. I know plenty of friends who went to law school because they wanted to do legal aid and public service, but with the debt they graduated with there is no way they can get by on $30K a year. Are more legal aid lawyers needed? Yes. Are there people who want to do this work? Yes. Could (and would) they do it if they didn’t have $1500 a month in loan payments? Yes. But can they with the debt? No. I suspect the same could be said in medicine and other high education fields.

    The debt has societal consequences that we are all going to pay for someday.

  6. Comment by Sean on April 25, 2012 at 9:42 pm

    This is primarily a response to Richelieu:

    I made a decision to attend a funded, middle-ranked PhD program as opposed to a highly selective, unfunded master’s program (which I would have attended in the hope of gaining admission to a top 10 program upon completion). If one is interested in academia (Richeleu: “Merely 50 years ago someone like Ms. Signer would have sailed into a top-tier Ph.D. program”), one should either apply to PhD programs, or have done so while attending an unfunded master’s program. Government-sponsored student loans do not presently accrue interest or require payments when one is in education. At the same time, one enrolled in such a graduate program, i.e., a program “certain individuals” claim has no utility, might change one’s mind. If that terminal master’s degree does not have marketability, one will find oneself in serious trouble (I should admit that mine did have marketability, but I was to afraid of taking the risk, i.e., having $20k in nondischargeable loans).

    Why do I say this? Many master’s programs in America and England are more often than not a joke (in my opinion) – they are not funded, do not guarantee entry to PhD programs, and cost a fortune. Those enrolling in them need to be warned of the risks involved. Almost all PhD programs are funded – one must work on the side as a teaching assistant, but one also does not build up debt. We can debate problems re graduate programs (MA/MSc/MBA), diploma “inflation,” and debt incurred; however, the real problem at this juncture nationally is at the undergraduate level. A bachelor’s degree is often required of secretaries these days in major cities, and many people find themselves incurring debt simply to qualify for jobs that may not pay enough to service the student loan.

  7. Comment by Stephen Zielinski on April 27, 2012 at 2:44 pm

    I defaulted on my student loans — which, by the way, I generated at the ever-expensive NSSR/GF! — because I never could gain a job that paid enough to enable me to do pay off those loans. Yet I do not regret having an education, even an expensive one. I once did. The loans and the education seemed to be burdens. But I grew up. And I would never counsel anyone to act responsibly — that is, to choose an educational path with a future instead of one without long-term monetary value — when selecting a school. I would counsel them to go to a school which would enable them to get the degree they wanted without having to indenture themselves to a bank. There are other ways to get the education one needs to have.

    I remain dissatisfied that I defaulted on my loans. It is an embarrassing fact I mostly hide. In fact, I once found my debt situation very nearly intolerable and thus depressing, almost as depressing as my academic job prospects, the historical impasse and the political situation in the country when I was in graduate school. I do not like to manage problems I cannot solve. My debts and my life path were such problems.

    Capitalism is an anti-human economic system, and America’s education system reflects that well-founded fact. I eventually accepted that I had chosen the life I have lived. I also accepted that my life demanded that I recognize that I should not expect to beat a system designed to exploit individuals while keeping them ignorant of their real situation. The “lesser people” (Alan Simpson) in America are meant to be worker bees, professors and writers included. Some would-be worker bees even become members of the surplus population, superfluous and a burden to society. They are products of the American system as we know it. The production of these superfluous worker bees is inevitable during an ‘austere age’ such as ours. Gaining an advanced, credentialed education does not provide a certain escape path from America’s old and new ghettos.

    The political issues generated by a capitalist economic system remain viable today just as they were during Marx’s time and during the time when social democracy took off as a viable political movement. Today the struggle for democracy under capitalism appears interminable. This is what the newest social movements are all about.

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