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