Reporting
Drowning In Debt: The Sad State of Student Loans
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After Alan Collinge earned undergraduate and graduate degrees in aerospace engineering at the University of Southern California in 1998, he consolidated $50,000 of student loans with Sallie Mae—an education finance corporation which, at the time, he believed was part of the U.S. government.
Collinge found work as an aeronautical research scientist at the California Institute of Technology the next year. But as his cost of living rose, he started having difficulty making loan payments. In what he now acknowledges was one of the worst mistakes of his life, he quit his research position at the university hoping to land a more lucrative job in the defense industry.
But he wasn’t able to find employment quickly enough. His loans approached default, and he felt like his life was falling apart. In a financial sense, it was. By his early thirties, he found himself slapped with more than $100,000 of debt and penalties, yet unable to qualify for an economic hardship forbearance.
At the same time, he says, he was subject to increasingly aggressive harassment by collection agencies. In his 2009 manifesto, “The Student Loan Scam,” he says he was “verbally assaulted, intimidated, and humiliated,” by collection agents.
It was a formative experience for Collinge. Talking with him, you get the sense that it pushed him to the edge and that he hasn’t yet made it back. He talks like he writes: in starts and stops, punctuated by ellipses, and sometimes bitter.
And what's chilling is that Collinge’s story is not unusual. As he began to research the state of student debt, Collinge became worried the high default rate on student loans was a central part of a predatory student loan system. Above all, he couldn’t stop thinking about other victims like himself—wondering how many others there were, and whether some were in even worse trouble.
In the decade since, Collinge has channeled his anger into a campaign for consumer rights called Student Loan Justice. Through the group, he advocates for student loan reform and chronicles loan default horror stories from across the country. Its primary goal, he says, is establish bankruptcy protection for student loan borrowers.
“I think that we can pretty much all agree that the return to minimum bankruptcy protection is vital to the functioning and fairness of the lending system,” Collinge said.
Growing evidence supports the concerns of critics like Collinge. A recent, glum report [PDF] on the state of student debt by Moody’s Analytics details a system in stagnation. While delinquency and loss rates on outstanding student loan balances have held steady during the recession, the report finds, there have been few signs of recovery in tandem with other loan segments.
Higher education is an unusual investment, according to the Moody’s report, because under normal circumstances it makes sense for a student to enroll during an economic recession. That way, she can gamble on riding out the tough job market while picking up new skills.
But that model starts to fall apart when the risks begin to outweigh the benefits.
“With the cost of education continuing to rise rapidly, the value of schools’ endowments still well below their peaks, and state funding to universities being cut, students are being asked to shoulder an even larger share of tuition and fee increases,” writes Moody's Cristian Deritis. “Unless job market uncertainty turns around quickly, the outlook on school enrollment and consumers' desire to borrow to fund their educations will further weaken.”
Jeffrey Williams, a longtime unionization advocate and professor of English at Carnegie Mellon University, is careful to connect the suffering of individuals to what he sees as a systemically flawed system of education.
The structure of higher education, Williams argues, resembles the system of indentured servitude in early colonial America.
At British settlements like Jamestown, the early joint-stock Virginia Company would pay for an immigrant's passage to America—in exchange for a lengthy period of labor for a landowner. As the Moody’s report illustrates, the game theory is similar to that which motivates college students to take out hefty loans to finance a college education.
“I was startled to learn that there were so many resonances between student debt and indentured servitude in the 1700s,” he said. “It bred this system of contract, in which there is this enormous system of student loans in banking, which didn’t exist before.”
Williams also argues that we sacrifice a valuable service to the electorate when we treat education as a commodity. He worries that just as Thomas Jefferson’s ideal of the educated citizenry began to seem feasible in the mid-twentieth century, the investment model of education caused it to recede again.
He is particularly critical of the long hours many students need to work in order to finance their educations, from students at state schools balancing college and a full-time job to graduate students with so many responsibilities that they can’t dedicate themselves to their work.
“It’s not just quibbling about the money, quibbling about the rates. The fact is that there is something profoundly wrong with the system,” Williams said. “It seems un-American. It doesn’t seem free.”
Marc Bousquet, an outspoken critic of higher education, author of How the University Works and associate professor at Santa Clara University, agrees the problem is bigger than the lending industry. Like Collinge, he blames lenders, regulators and university officials for letting the situation get this bad.
And at the center of that problem, he says, is the fact that the rising cost of college is funding a lot more than tuition.
“The big picture is not that the evil corporate management came in and corrupted the innocent university,” Bousquet said. “Rather, clever corporate management observed the enormous efficiency with which university management extorted super-cheap labor from university workforce, and said ‘That’s how we have to run our business.’ ”
Bousquet is circumspect about other notorious villains in higher education. While for-profit colleges are guilty of flagrantly profiteering from educations that students are unlikely to complete and degrees that are likely worthless in the job market, he says those practices were pioneered by not-for-profit universities.
“In most cases, the for-profits do most of the same things that the not-for-profits do. They just do them more shamelessly and with the explicit purpose of accumulating profit,” Bousquet said. “The for-profits will say ‘We are collecting this money, and stuffing it in our pockets.’ But the not-for-profits are doing that as well.”
So what needs to happen to fix student debt?
Many advocates, like Collinge, propose bankruptcy protection for student borrowers. Williams wonders if eliminating the need for students to fund their education with grueling, concurrent employment would free up jobs in non-college sector. And some even argue for radical reform that would socialize the entire education system, or at least for highly subsidized education.
In the meantime, a useful first step would be to make the student loan system easier to assess for prospective students.
Debt and student dropout are usually assessed by examining students’ graduation and student default rates—but without context, each measure is flawed.
An unscrupulous institution could get a great graduation rate, for example, by lowering its academic standards and giving out low-value degrees. Or, it could report a low student default rate by lowering tuition rates at the expense of useful training and a worthwhile degree. Neither prepares students well for the job market, but selective marketing can make either look like a great deal.
A proposed hybrid measure [PDF] by Education Sector looks at the two rates in a ratio, which could help separate the wheat from the chaff among universities claiming to provide options for students from lower- and middle-class backgrounds.
Even many well-known institutions, authors of the Education Sector report Kevin Carey and Erin Dillon observe, “are riding a wave of student debt to fame and fortune.”
There is little question that the student loan industry is rife with moral failings. (In 2007, Sallie Mae tried to use the Freedom of Information Act to leverage personal information on students from their universities.)
The question is how to reform the system into as humane a form as possible.
And if there are many competing suggestions for how to do that, at least the ground for reform is fertile—a point that is crystal-clear to individuals like Collinge, who find themselves drowning in debt even as highly-trained professionals.
“The biggest point where we went wrong was when we decided to pretend that more and more education is the solution to every social problem,” Bousquet said. “Plenty of countries around the world achieve the things that Americans achieve through education in better, more rational ways.”
And beyond every policy consideration, there is the fact that there are flesh and blood victims of student debt—students like Collinge, who is still fighting for reform more than a decade after he found himself slapped with more debt than he could handle.
“A lending system can’t work this way,” Collinge said.
Jon Christian is a staff writer with Campus Progress. Follow him on Twitter @Jon_Christian.
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