A recent front page diary by my good friend Egberto raised an interesting point — what if Democratic candidates are all wrong about Student Loan forgiveness? What if, as his friend a professor pointed out, this is a moral hazard?
Having sat through programs with economists, educators as well as financial planners, I can tell you some of the concerns over hazards of complete loan forgiveness are certainly worth discussing; one of the largest being whether or not this is a bank bailout, or whether or not such programs over reward high level borrowers in professional occupations.
These are reasonable arguments worthy of debate. But in case after case, a lot of the arguments being used against student loan forgiveness are not focused on economic impact, statistics or real data — instead, conservative commentators and even liberal pundits use anecdotal stories to play out why student loan forgiveness isn’t ideal.
From Egberto’s piece:
- "As a professor, I pay attention to what students say. Not only in class but also outside of class. I listen and it has been very instructive. I have heard students talk about the new car they are going to get when their student loans come through. I see students buying the newest phone or moving into a nice apartment with student loan proceeds and often without roommates. Many students use student loans to study abroad. Essentially, many students are subsidizing their lifestyle by borrowing."
These arguments come across as: “I suffered, you should too..” with the implication if more students lived in crappier housing, ate ramen every day, worked two jobs and made it through with a cheap degree, they would be all better off. The problem with these anecdotes is that they are offset by reality — and the reason why so many students seek debt forgiveness.
Before we begin, we have to acknowledge that the background of a student, often more than their college performance, increases their likelihood of success. This article from The Hill effectively sums that situation up:
The “Born to Win, Schooled to Lose” report from the Georgetown University Center on Education and the Workforce lays out the inequities: Children with low test scores from high-income families have a 71 percent chance of being affluent adults by the age of 25, compared to only a 31 percent chance for poor children with high test scores.
This principle holds true for college too. Graduate with a good degree, strong performance, but you come from a poor household, or graduate as a C- student at best but you come from a rich household? Well, the US Presidency alone tells us the difference of how that can work out.
In truth, difficulties with student debt isn’t about your performance, your choice in a degree, or how well you performed. Often, the burden of student debt is felt by those with either direct hardships, or, you guessed it, persons of color who find that their earning power among other factors makes debt harder to retire.
From Education Next:
Long-standing racial wealth gaps are closely connected to education debt. Warren’s proposal specifically cites the racialized nature of the debt issue and seeks to narrow racial wealth gaps, pointing out that “across all colleges, black students were on average nearly 20 percentage points more likely to need federal student loans.”
Our analysis finds that the proposal would disproportionately benefit black families: 25 percent of cancelled debt dollars would go to black households (16 percent of all households) and 59 percent would go to white households (68 percent of all households). Hispanic and other racial and ethnic groups (which are combined in the SCF to protect respondent confidentiality) are both projected to receive benefits that are roughly commensurate with their share of the population.
The reality of how student loan debt impacts people is that for millions of Americans carrying significant debt in student loans they later in life make other decisions. They delay buying homes. They don’t own cars. They minimize other expenses in order to make sure that student loan companies receive their monthly payment when it is due.
Egberto’s professor friend offers thoughts on “the newest phone, nice apartment”, but as a professor and even if they were a fellow student, they have absolutely no way to know that people used student loan money on any item. In fact, in the case of new phones, it is far more likely that students engaged in a monthly upgrade program — like AT&T Next or Verizon trade in programs — rather than pay the cash price for a phone up front out of a loan.
More importantly, student loan values run through finance offices. Promoting the idea that students are buying cars outright with student loan debt is a ridiculous assumption — the auto industry would gladly finance them at lower rates, in a term that could be discharged through bankruptcy, and provide them an asset they can later sell.
In other words, despite the claims of darn these irresponsible students! They should suffer! The heart of student loan debt isn’t irresponsible kids. It is responsible adults and many Americans who ran into real hardships and find absolutely nowhere to go with debt they cannot dispose of or effectively renegotiate.
Predatory loan practices are unfair to all
In an audit report generated by Senator Warren, we discovered something most borrowers already suspected — that student loan providers were pushing their borrowers into programs that were not in their best interest and not always advising them of better options. The Associated Press gives a run down:
One of the nation’s largest student loan servicing companies may have driven tens of thousands of borrowers struggling with their debts into higher-cost repayment plans.
That’s the finding of a Department of Education audit of practices at Navient Corp., the nation’s third-largest student loan servicing company.
The conclusions of the 2017 audit, which until now have been kept from the public and were obtained by The Associated Press, appear to support federal and state lawsuits that accuse Navient of boosting its profits by steering some borrowers into the high-cost plans without discussing options that would have been less costly in the long run.
How profitable has this been for Navient, one of the largest student loan handlers in America?
Unlike your car loan, your home loan, or any personal loan, Student Loans are almost impossible to discharge through bankruptcy, no matter what the cause.
From CNBC:
In the 1970s, policy makers and pundits raised concerns that students would rack up a bunch of loans and then try to discharge them after graduation. As a result, lawmakers added a stipulation that student loan borrowers would have to wait at least five years after they began repayment to file for bankruptcy. In 1990, that waiting period was upped to seven years. Almost a decade later, the rules changed again, and now people with federal or private student loans can walk away from their debt in bankruptcy only if they can prove their loans pose an “undue hardship.”
...
Stanley Tate, a student loan lawyer in Missouri, said the ambiguous definition makes it almost impossible to advise student loan borrowers on whether it would be worthwhile for them to file for bankruptcy. “What one judge feels is an undue hardship may be a simple hardship to a judge across the country, or in the same circuit, or even in the same building,” he said.
What constitutes an undue hardship is so impossible to determine that most judges simply refuse consideration. Take it from someone who knows, directly. My college experience wasn’t quite the same as others — while I was an honors student, had completed the meat of my main degree, I found myself leaving college after being impacted by a violent crime. I left college with roughly a semester of credits left, but outside of some student loan debt, piles and years worth of medical debt would soon follow.
Before the ACA, medical debt and getting coverage for issues that stemmed from a violent crime was difficult to impossible. And eventually, medical debt of the entire ordeal was discharged through a bankruptcy. What couldn’t be discharged, or even touched, was student loan debt — which I still pay to this day — for a degree I couldn’t complete. Not because I dropped out with lack of interest, or because I was a poor student, but simply because life intervened.
Don’t worry — I still make my ~$500 a month payment to Navient. And, 25 years later, I’m glad to report my student loan debt is only, well, damn, it’s almost three times what it was when I left college. Le Sigh. If I made only the minimum required payment, it would be paid off by the time I’m 64.
This is the story of millions of Americans. Life steps in and changes them. This also points out the problem with the assumptions made in a blanket about why students have debt, framing students as always the one who was irresponsible in their choices.
Skin in the Game is the worst argument
Over the past few years, I’ve attended meetings regarding a program geared at community colleges. College Promise, is an initiative to try and provide many students with free or debt free community college and associate degrees. This is a way to give many students a head start and to help them if they choose to go on to a 4-year degree.
In 2017, I was happy to assist a candidate who made College Promise her top goal for our local community college, and who has continued to raise the issue. Speaking to Angeliina Lawson, now a trustee for Johnson County Community College, I was informed that College Promise may come into play for JCCC finally, but there are some hiccups:
There is such an assumption about who needs access to college promise that I fear we target to the smallest potential group of people rather than a lot of the population that could directly benefit from the opportunity.
There are a lot of single mothers, older adults, and others who could benefit from a second chance. There are young students as well. I hear repeatedly that the fear of programs like College Promise is that if colleges impliment programs like these, it gives less reason for scholarship donors to give. Right now, though, students could care less about who can claim credit for their success. They just want a chance to succeed. So, we have to keep working to provide a path to success for them.
When I hear “skin in the game” and how students who aren’t paying in are a problem, I have to remind others that these people are putting everything at risk by coming back to school or by attending. Single mothers often pay childcare and have to clear their schedules. Older adults are gambling that a retraining may get them a job. They are taking a risk on education. They could go work anywhere paying near minimum wage work.
They pay tax dollars to travel to our college. They pay property and sales taxes. And they pay the ultimate tax — time away from their family and children and friends. Skin in the game? We are talking about human beings, not chattel! They are putting everything on the line in the hope that education will make them more successful in our community. Their success is our success. They have the hopes we all have: buy a home, live a better life, have children. What is the result of their success? They pay more taxes into our community. They help our businesses succeed. Well educated communities attract better business.
Saying people have no skin in the game because they cannot afford to go in debt is like saying a person has no worth outside of what is in their bank account, and that we imagine their education has no benefit to our community. Both of those ideas are absolutely false.
Egberto’s conclusion also reflects real problem with classism. By asserting that students receive a gift upon graduation, it neglects the fact that many of the issues students have are from those who do not graduate but retain debt. And while changing the debts to interest-free is certainly an option that should be provided — after all, you can get near interest-free car loans, and yet many student loans are handled at an above market interest rate, America deserves a legitimate discussion of student debt forgiveness.
In 20 years, I’ve paid into student loan companies far more than I borrowed.
But what do I know. I’m just an American who once upon a time borrowed $24,000 for a college degree and will end up repaying over $120k for it.