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The New Student Loan System: How Screwed Are We? [UPDATED]

"The word bipartisan means some larger-than-usual deception is being carried out." — George Carlin

To great establishment fanfare, the Bipartisan Student Loan Certainty Act has now passed both Houses of Congress, and should be signed by President Obama shortly. [UPDATE 1: President Obama has signed the bill.] This new law changes the previous regime of fixed interest rates and allows them to float — to a certain degree.

Now, the interest rate on your student loan will be set at whatever the 10-Year Treasury bill rate is, plus a fixed percentage. Here's the percentage breakdown, with the caps on how high the interest rate can get:

 Type of Loan Previous Rate New Rate Cap
Undergrad Stafford subsidized 3.4% (6.8% as of July 1) T-bill + 2.05% 8.25%
Undergrad Stafford unsubsidized 6.8% T-bill + 2.05% 8.25%
Grad Stafford 6.8% T-bill + 3.6% 9.5%
GradPLUS/Parent 7.9% T-bill + 4.6% 10.5%

You'll remember the great wailing and gnashing of teeth around the July 1 rate hike, particularly on the liberal/progressive side of the debate, when the 3.4% interest rate expired. It was a very similar to the wailing and gnashing of a year before, when the 3.4% rate was originally scheduled to expire. But because 2012 was an election year, we saw a very different outcome: both Obama and Romney came out in favor of extending the interest rate another year, and it passed both houses easily.

This year, without the pressures of a Presidential campaign, Congress let July 1 come and go without a fix. Given how malleable deadlines are with a legislative body that can pass laws with retroactive effect, as they did in this case, apocalyptic cut-off dates seem to have much more to do with public perception of lawmaking than with lawmaking itself.

Based on how low the T-bill rate is now, that means undergrads get a halfway decent deal this year: 3.86%, only slightly up from where it was before July 1st. However, there's a problem. The T-bill rate is not just low, it's historically, ludicrously low. The yearly average T-bill rate for the past two years has been so low that you'd have to go back to 1941 to find another that low. That means that the 3.86% rate will be gone very soon: according to rough CBO estimates, we could very likely see T-bill rates of 5.2% in 2017, which would bump up the interest rate of undergrad loans to a painful 7.4%.

While past results are no guarantee of future performance, it is the best benchmark we can go by. I've pulled together these stats, along with what the average student loan interest rate would have been over the past 20 and 30 years, had the new law been in effect then. The results aren't pretty (see the infographic below).

17 of the most reliably progressive and pro-student members of the Senate voted against the bill, along with 25 mostly progressive Democrats and 6 Republicans in the House. It makes one wonder why progressive student-oriented groups like Generation Progress (formerly Campus Progress) and Rock the Vote pushed so hard for the passage of a bill that 1) will make the student loan crisis worse, 2) will do nothing to help those straining under the $1.2 trillion in debt already out there, and 3) was hailed by Speaker Boehner as "almost identical" to what the House GOP wanted.

Perhaps it's because they're not democratically accountable to actual students? The United States Student Association's newly elected President, Sophia Zaman, has come out very publicly against it. [UPDATE 2: Kalwis Lo, Leg Director for USSA, co-penned a favorable statement about the bill's passing, in an apparent reversal of position. I imagine there's an interesting story behind this move.]

Some say that this is just a temporary stopgap, meant to help students now but will be fixed soon (some say as soon as this fall, when the Higher Education Act is up for renewal). Do we really need to remind these folks of the "pass it now, fix it later" slogan used to get progressives behind the Affordable Care Act? As Jon Walker put it:

Inertia is an overwhelming force in Washington. Things rarely get improved later even when politicians say improvement is needed. That is why it is so important to fight to get the design right to begin with, or we end of living with the design flaws for a very long time.

Student loan debt infographic

Student Loan Debt: The Really F*cking Scary Number Hidden in the NY Fed Report

There's been quite a bit of chatter about the latest report on student loan debt out by the New York Federal Reserve Board. You can check out a PDF of the findings here. All the bad numbers are up: the total amount of student loan debt, the number of students taking out loans, and the number of those who have stopped repayment. But there's one figure that I haven't seen many people in the news really highlight, and it's the scariest. It's also buried in the second half of the report.

First off, the expected bad news:

Everyone across age groups now has significantly more student loan debt

Chart of total student loan balances by age group


 

Student loan debt is the only kind of debt that's consistently increased during the recession:

Chart of student loan debt vs other debt


 

There are a ton more borrowers, and the amount they're borrowing has leaped as well:

Chart of student loan borrowers and balance per borrower


 

Now here comes the truly scary part you've been waiting for. Below is a pie chart of those who have student loans, and what their repayment status is.

Chart of student loan borrower repayment status delinquent

At first glance, the percentage of those with delinquent balances seems pretty bad — 17%, one in six — but not the end of the world. But as the report casually mentions later in the report, this chart is deceptive in that it includes people who are not expected to make a monthly payment: either they're in school, or have a deferment or forbearance. So if we take those people out of the equation (the blue and purple slices), that modest 17% becomes a gigantic 30%! Join me in the next paragraph, as I reiterate this for dramatic effect.

ALMOST ONE OUT OF EVERY THREE PEOPLE WITH STUDENT LOANS DUE HAVEN'T PAID UP FOR MORE THAN 90 DAYS.

The Fed didn't create a pie chart highlighting this, so I went ahead and made one, because this is the number that shows how unsustainable our current system is. With other forms of debt, it's easy to see the breaking point: look at the bankruptcies. However, since Congress loves its Wall Street benefactors so much, student loan debt is (with very few exceptions) not dischargeable in bankruptcy. The 90+ day delinquency rate is the variable to watch for student debt.

Chart of student loan holders more than 90 days past due

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 If you haven't already begun organizing to wrench power away from those who are actively putting you in financial shackles, I reckon you ought to start.

From Student Debt to Student Power

I recently sat down with The Daily Agenda to chat about student loan debt and how it relates to larger activist movements on- and off-campus.


Patrick St. John is a graphic designer by trade and student organizer by love. Patrick has been organizing and agitating since high school; as an undergraduate at Moravian College, he continued to agitate for student rights and power as both Editor-in-Chief of the student newspaper and later as student government president (where he advocated abolishing the position).

Like so many other young Americans, he left school thousands of dollars in debt. During his off hours Patrick is still organizing and writing a book on student power. He blogs at forstudentpower.org.

We interview Patrick about the state of student debt and the prospects of breathing new life into the student movement.

DA: As student debt has now climbed to over a trillion dollars, who exactly benefits from having so many students owing so much money?

Patrick St. John: It’s always important to ask that question, because it’s certainly not the students and it’s clearly not the faculty. However one winner is the administration, including the Board of Trustees. The size of university administrations have soared over the past 40 years, far outpacing the regular growth of faculty and support staff.

There has been an increasing emphasis on running the university like a business. As a result you get a ton of administrative overhead and you get administrators who are more interested in growing the bottom line than in education. Right now a lot of campuses, especially the higher profile universities, hire President’s that have no experience in the classroom. They come from business backgrounds, or sometimes from the military or politics.

Often times funding decisions are not based on the consideration of the students or even the professors, but either the university in its quest for prestige or the vanity of big donors. You see this dynamic where trustees and other wealthy donors make donations that go into physical projects like new buildings, new facilities, or new sports stadiums. You can’t bolt a plaque onto a scholarship; but you can bolt a plaque onto a building. In the University of California system, the Regents have made it quite clear that they prefer tuition dollars over state-issued dollars, because they have much freer range in their use — so we see on campuses across the state massive physical projects, either completed and unused, or frozen in mid-construction. It’s yet another predictable result of the people most affected by university decisions having the least amount of say in making those decisions.

You also predictably see an increase in official corruption, with Trustee boards often including the heads of the very businesses the college contracts with (usually banks and construction firms).

DA: Do you detect any sort of change in what is being taught in our universities because of the increased role of private corporations in higher education?

PSJ: It’s a funny kind of feedback loop. On one end, as parents and students see rising increasing tuition combined with a sluggish economy, you see an emphasis on the “career ready majors”: the majors that are guaranteed to get a good-paying job above all else. Students begin asking themselves, “why am I taking this literature class when I could be taking another economics class?” It has that sort of effect.

On the other end of the feedback loop, universities are trying to attract more — and wealthier — students by touting the fact that “if you go here, we’re sure that you will get a job after you graduate.” There is actually an interesting case where a woman who attended a for-profit school went through school and of course racked up a ton of debt. When she graduated she sued the school because the school had essentially promised, through their advertising materials, that she would get a job. Her lawsuit failed, but the point she made is here to stay.

DA: Student loan debt rates are set to double in 8 days if Congress (at the time of this interview. It now appears that Congress will freeze student loan rates for one year). How meaningful are the Democrats’ proposals to stop this from happening?

PSJ: It’s a smart political move for Obama because he might be able to re-energize many of his supporters on his left flank. But we all need to be clear: this is not a fight between progressive and conservative policy positions. This is a fight between conservative and very conservative policy positions.

The interest rate on student loans is already too high, even at the current rate. For comparison, it’s roughly 450% more than the rate the Fed loans money to banks. The President is trying to spin this so that he can attach it to his “usual hope and change” mantra, when in reality it’s just a holding position. It’s keeping the conservative status quo intact in the face of something even more conservative and more corporate.

But there is a lot that he could do. He could lobby and push to allow student loan debt to be dischargeable in bankruptcy court. This could actually energize lots of students and alumni, those who are most pro-Obama but least likely to vote. There are many Democratic Senators and Congresspeople who are more progressive than Obama on this. So it’s not like this is something out of nowhere. It doesn’t tackle the systemic problem of why higher education is so unaffordable, but consumer-side student debt reform would be a step in the right direction.

DA: Among the four demands put out by the Occupy Student Debt movement was “a one-time debt forgiveness, or “jubilee.” What would this entail?

PSJ: Wiping away all current student debt would be wonderful, and not just because I’m saddled with it myself. It’d be a huge boon for the economy, and it’s a much more helpful use of government funds than throwing trillions at banks. While it has a snowball’s chance in hell of happening, it’s still a useful demand to organize around, for two reasons. First, it engages students in a concrete way and encourages them to start thinking outside the box in terms of what is possible. Second, the act of pushing and agitating for a debt jubilee allows you to change the tone of the conversation. And it’s always a plus when you can tell conservatives that the thing you’re agitating for is right there in the Bible!

In America’s fragmented and decentralized system of higher ed, students may actually find more success tackling this issue at private colleges and state university networks. If you can establish, one way or another, a certain slice of the student population who can have their debt eliminated by the university, such as those with low-incomes, who do public service, and so on, that’s a foothold, or fulcrum, that can potentially be used to widen that slice until it encompasses all students.

But in terms of the big picture, if the person on the street or your local representative rejects the idea, you already have them talking about student debt. You can change the conversation, which is I think one of the lasting legacies of the Occupy movement: changing the political narrative not necessarily to get some 12-point plan through, but to create openings for individuals and groups to push for actual change.

DA: In an article that you wrote for ForStudentPower.org, you say that:“when electoral democracy is this broken, it's never that straightforward, and we are demobilized by thinking it is. We need to throw out the old playbook and pick up a new one (or two).”
What is the new playbook and what does it have to say about building a more vibrant democracy?

PSJ: Right. So if the framing of the problem is that the laws on the books are simply incorrect, by either mistake or malice, and that the solution is simply to correct the laws, then our paths of organizing are pretty limited. We have a sort of knee-jerk deference to people in power that often comes along with a very warped idea of how change comes about. Hopefully the protests in Québec right now will disabuse students of that deference. Québec tuition has been consistently among the lowest in the Western world for decades now, the only reason being that students and allies took to the streets in mass numbers and prevented every attempted increase, even minimal ones.

It’s also about changing the facts on the ground until elites catch up. If you look at the labor movement, workers didn’t wait until the Wagner Act in 1935 to actually start organizing unions. Everything from basic union recognition to the 8 hour work day, those were examples of Congress catching up with the facts on the ground. Huge swaths of the American workforce had fought for and won an 8 hour work day by the time Congress made it law. Many African-Americans didn’t wait until the Civil Rights Acts to eat at whichever lunch counter they wanted, or sit wherever they wanted on the bus. Through radical, direct action to change the facts on the ground, everyday people were able to spur sweeping historical changes.

All the wonderful things liberals like about the New Deal and Great Society got done by a Democratic President because he had immense pressure from his left flank in the form of more progressive Democrats, socialists, communists, and anarchists — with youth in the mix in all these groups.

Unfortunately, through the fog of history, a lot of liberals think that you do not need a far left to get liberal reform done. You absolutely do. Change doesn’t come about by voting for a specific person, change comes about when whoever happens to be in office is pressured by the people to do what’s right. Obama famously told bankers in a private meeting in 2009 that he was the only one standing between them and the pitchforks. Given the state of things, and the track record of both the banks and Obama in the years since, it seems clear to me that we need a hell of a lot more people with pitchforks.

For people wanting to get involved in this fight, one of the most exciting developments is the upcoming National Student Power Convergence this August in Ohio. Students and youth from across the country will be there, and it’s where we may get a glimpse of the future of student organizing.


Read the rest of the interview at The Daily Agenda! >

Review of DEFAULT: The Student Loan Documentary

I left higher ed with roughly $50,000 in student loans. That debt, by way of the sometimes staggering monthly payments, has restricted where I can live, what I can do as a career (and specifically what kind of jobs I can afford to take), and what I can do with my free time.

That particular $50k was thanks to one single year of law school. One.

I was one of the lucky few as I left college -- I had zero student loan debt, a combination of commuting from home and tuition remission thanks to my father's faculty position. I had grand visions of walking in the footsteps of other radical lawyers, who eschewed the limousines and corner offices (and 100-hour work weeks) and instead used the law to at best help (at worst, mitigate the harm to) those most beaten down by the powers-that-be.

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