Every Graduate A Potential John Dillinger: An Incomplete History Of Student Loan Repayment

Banks seestudent loan defaulters as white collar bandits

Back in 1981, a New York friend of mine went to the bank shortly after payday to find that hir checking account was abso-total-lutely empty.  Zero.  Zed. Nada.  In the course of an inquiry that began with outrage and ended in shame, ze discovered that the federal government had attached hir salary to begin reclaiming a thousand dollars or so of the student loan arrears ze had amassed since graduating three years earlier.

This was back in the day when student loans for an Ivy League education might top out at around $10K for a degree that had cost under $50K in 1970s dollars.  Prior to Ronald Reagan raising the interest rate from 3% to 9% in 1982, and eliminating the deduction for student loans in 1986, my guess is that the payments were a couple hundred dollars a month (go here for Kelly Phillips Erb's excellent history of student loans in a recent issue of Forbes.)

I cannot recall the details of this person's circumstances. However, back in the day, I knew a great many people who didn't pay their students loans, and there were three reasons for it.  The first was that many of us earned very little money. We graduated into a recession job market, we went into artsy, theatrical or literary fields, and people like us could be had for salaries of less than $12K a year.  This translated into a paycheck of around $450 every two weeks, half of which had to be banked for rent.  The second reason people didn't pay was that they could get away with it.  The federal government did a very poor job of monitoring who paid and who didn't pay, and didn't report people to credit agencies for years after they had broken all contact.  This latter action would have had immediate consequences in a city where landlords routinely ran credit reports to screen out potential deadbeat tenants who, under consumer-friendly New York housing laws, were nearly impossible to evict.  Hence, I knew a number of non-payers that -- after missing a couple payments and suffering no consequences -- stopped paying entirely even when they could easily afford to do so.  The third reason people didn't pay was that, because there was no means test for awarding student loans, anyone could walk into the financial aid office and walk out with $5K, minus an exorbitant processing fee of several hundred dollars.  In other words, some people who had taken out student loans had used them to enhance their standard of living.  I am just speculating, but I believe this category of borrowers may have regarded student loans as free money all along.

Back to the empty bank account:  I must say, all of us who met this friend at a bar later and chipped in what we could from our own paychecks to help hir make rent, were seriously impressed by the possibility that an entire bank account could be seized.  By moving against one person, the government made a dramatic impression on a whole friendship network of twenty-something middle-class people.  Several rushed in to various financial institutions on the following day to ask for mercy and make arrangements to pay up.  Although I had no student loans, I made a mental note at the age of 22 that I would never default on a bill.  You might ask, why would you have ever defaulted, Tenured Radical?  The answer is that I was at the beginning of my financial life, had never had a conversation about money with my parents or anyone else, and was just learning to pay bills in the first place. 

One of my Google alerts is "student loans." It will be no surprise to anyone that students -- many of whom are adults -- are taking out more money in educational loans than they ever have, which I believe has a reverberating, depressing effect on the economy as a whole whether the money is repaid or not.  For-profit institutions make borrowing particularly easy in exchange for degrees that may or may not translate into a job at all, much less one with a high enough salary to guarantee repayment.  On-line universities and technical academies can be the worst offenders, siphoning tax dollars in the form of uncapped debt into inflated executive salaries paid out of tuition revenues that are 90% loan driven.  Non-profits have constant institutional discussions about what the caps on student debt ought to be, but despite that, many students graduated this spring from Ivies, state unis and liberal arts colleges that aren't trying to cheat anyone with as much as $50K in loans.  

Students, needless to say, were defaulting on unsustainable education debt at very high rates even before the job market became so tight.   But unlike other debt, as Megan McArdle points out in the June 14 edition of The Atlantic, whether they are government or private, student loans are forever:

There are only two ways to erase the debt: prove you're permanently disabled and will never again earn more than a pittance; or die.  [Note:  I had a friend who chose the latter strategy of dead-beatism.  After hir death, I discovered a shoebox of dunning notices from the federal government -- another branch of which had been paying hir disability and welfare -- that dated from hir diagnosis with a then-fatal disease. But I think there are also some programs in the military that also pay down debt, which has become an incentive to become cannon fodder among people who have no other reason to serve.]

Moreover, student loans are large, which means they're worth suing over. Creditors can correctly assume that most people with a college diploma, or a law degree, are eventually going to have something worth taking: a bank account they can seize, a salary they can garnish. Everything I have ever heard indicates that there is little chance of settling a student loan for less than the principal, and that even that is far from a slam dunk. If the interest has been accruing for a decade or so and is now multiples of the original value of the loan, the lender may waive some of it, but not necessarily all of it. Moreover, most of the amount forgiven counts as taxable income, including a lot of the back interest (any amount in excess of $2500--or all of it if you make more than $75,000 a year.)

And of course getting a principal-only settlement requires you to amass a sum equal to the original principal of your student loan--without the creditor finding and seizing it.

So if you are a college graduate who thinks ze needs another degree to even imagine getting an interesting job, someone who wants to complete a degree, a mother considering a return to the workforce, or someone who simply wants to change directions, you need to have a plan for paying that money back before taking the loan out.  Smart colleges and universities will begin helping students learn to plan this kind of strategy, as well as working ethics courses into the curriculum so that students won't feel so free to step away from an obligation they have contracted when the full impact of that contract becomes clear.

How Many Administrators Does It Take To File A Department Of Education Report?

Two. One to file the report, one to respond the barrage of stupid newspaper articles written about the report after the data is crunched by a non-profit conservative think tank.

This half-assed joke is a response to an article by Tamar Lewin in today's New York Times that ran under the headline "Staff Jobs On Campus Outpace Enrollment." The data, taken from Department of Education reports filed by 2,782 colleges and analyzed by the Center for College Affordability and Productivity, shows that public and private colleges have about the same ratio of staff to student (8 and 9 per 100, respectively) and have bloated at about the same rate since 1987. Lewin writes,

In the 20-year period, the report found, the greatest number of jobs added, more than 630,000, were instructors — but three-quarters of those were part-time. Converted to full-time equivalents, those resulted in a total of 939,00 teaching jobs, up from 614,000 in 1987.

The largest number of full-time jobs added, more than 278,000, were for support staffs, and grew to more than half a million positions in 2007, from 292,000 in 1987. Colleges also added some 65,000 management positions, almost all of them full time; all told, they had 185,000 managers in 2007, up from about 120,000 managers 20 years earlier.

“Colleges have altered the composition of their work force by steadily increasing the number of managerial positions and support/service staff, while at the same time disproportionately increasing the number of part-time staff that provides instruction,” the report said. “Meanwhile, employee productivity relative to enrollment and degrees awarded has been relatively flat in the midst of rising compensation.”

Blah, blah, blah. Nowhere does Lewin suggest that fewer instructors could have been added if more of them had full-time jobs, or that actually most schools are actually understaffed. In fact, the way that this number is simply dropped into the piece as a comparative figure suggests that hiring hundreds of thousands of professors at servant wages and no benefits is not such a bad model for higher education, and perhaps something we might want to think about for administrators too.

Lewin notes that CCAP doesn't claim tuition increases are caused only by administrative bloat; cuts in state financing for higher education are also a factor she mentions (briefly). But - irresponsibly, in my view -- Lewin emphasizes the report's finding that students are paying the price of bad management decisions all the same, decisions that are the wasteful outcome of students' intense desire to be pampered, to be coddled and play! In other words, just like homophobia and mortage rates that adjust beyond people's ability to pay, tuition increases are a lifestyle issue.

Interestingly, CCAP seems to be located at The Ohio State University. Ohio is a state that has set the pace for destroying alternative education by its onerous accountability regulations. The authors of the report actually name the constant need to respond to government agencies as a critical factor in administrative bloat ("I've got an idea, boys," the economist said brightly. Let's get rid of the people who adjudicate racial and gender bias on campus and make room for more statisticians who do 'outcomes assessment.'")

And yet, much as I find this position dishonest and irrelevant to major issues in higher education today -- like the desire to escalate the testing mandate to include college students, the tax dollars that have been shifted to incarceration rather than education, and the ways in which the poor are structurally excluded from even imagining a college education -- it is a position and Lewin ignores it almost completely. It takes going to the CCAP website to figure it who they are, and reveal that the CCAP are not impartial observers with no agenda. What Lewin privileges in her article instead is the increase in student services that students are being "forced" to pay for -- but that they have foolishly demanded all the same. That's right -- blame the student/consumer: not cuts in public funding and financial aid, higher enrollments that are necessary to keep a college or university afloat in a politically hostile environment, or the many administrators who are hired to respond to idiotic questions about "degree productivity." Instead, we have this quote from the report's author that does not characterize the majority of the CCAP findings:

“A lot of it is definitely trying to keep up with the Joneses,” said Daniel Bennett, a labor economist and the author of the center’s report. “Universities and colleges are catering more to students, trying to make college a lifestyle, not just people getting an education. There’s more social programs, more athletics, more trainers, more sustainable environmental programs.” Read the report for yourself here.

Neither the article or the report talks about actual education, however. Indeed, and my comrade Margaret Soltan over at University Diaries is gonna love this, "more athletics" is just dropped in there, as if it is men's wrestling or women's crew that is jacking up tuition dollars, not taking your crappy, third-rate football team up to D-I and building them a $3 million stadium; or paying a coach $1.6 million a year.

Yeah, let's blame Title IX. Or better yet, let's just be direct and blame women, throwing in the men who aren't masculine enough to play big money sports for good measure.

And this is where Lewin's decision to produce this article as if it were written in an ideological and conceptual vacuum is, in my view, truly bad journalism. To quote from CCAP's mission statement, it "is dedicated to research on the issues of rising costs and stagnant efficiency in higher education, with special emphasis on the United States." It goes on to explain:

“Affordability” means not only rising tuition and other costs to the consumer of education services, but more broadly the burden that colleges impose on society. “Productivity” refers not only to the costs and resources needed to educate students and perform research, but also to the measurement and quality of educational outcomes. CCAP is also concerned about finding new ways to do things better – to improve affordability and productivity. In particular, it is interested in how the forces of the market can be used to make higher education more affordable and qualitatively better.

In other words, CCAP isn't actually interested in how teaching or learning actually happens, or indeed, what it means to be a student, a teacher or an administrator. It is interested in minimizing "the burdens" education places on society and maximizing the production of the cheapest degrees possible.

Credit Card Nation, Chapter the Third: In Which An Agreement Is Reached

The National Association of Student Financial Aid Administrators (NASFAA) has settled with Andrew Cuomo, the New York State Attorney General, over the financial aid scandal. So has Columbia University, which will pay either $1.1 million (so says the New York Times) or $1.125 million (so says Inside Higher Ed) into a national fund that will "educate student borrowers" about their options in the student loan market. You can read about it here. Part of the agreement with Columbia clearly includes the university being allowed to say that no one did anything wrong, since their lawyers are adamant that the sum they have paid does not constitute a "fine." Which is technically true, as no one has gone so far as to say that the marketing practices the university collaborated in, and individuals were paid under the table for, were more than unethical. In other words, part of the scam was to identify a grey area in the law and exploit it. Who says the Sopranos are going off the air?

This is the kind of thing that makes me hate the law, even though I know so many lawyers who do good in the world, and who love the law for what it can accomplish in making the world more just. As far as I am concerned, this settlement falls into the category of the "voluntary contributions" that large, wealthy universities pay to the often impoverished towns where they occupy prime space "in lieu of" taxes, space that often includes commercial and residential properties from which they get substantial income. But whatever: it's probably good that the state did not have to spend all that money and time prosecuting Columbia too.

But here's my question: doesn't this outcome suggest that we are supposed to believe that the students and their parents are partly to blame for having become victims of what were essentially predatory lending practices? Because no one I have read so far (except an anonymous writer named Linda who commented on the Inside Higher Ed piece) has suggested that the universities might have any responsibility for re-negotiating loans that the students have actually taken out and will be paying back for the next twenty or thirty years. Or reimbursing former students for fees and interest already paid that they were tricked into taking responsibility for in the first place.

I understand Cuomo may have a reason not to want to go there (like years of litigation and a conservative Supreme Court) but how about hitting the lenders with an anti-trust suit, or a class action lawsuit that goes after them for conspiracy to defraud, and settling with them on behalf of the students? Because yes, a few financial aid directors have fallen, but as usual, the bankers have made off with the money, and will continue to do so for the life of loans taken out under these deceptive conditions.

More On Credit Card Nation: Perspective from A Student Who Is Now One Of "Us"

I often get great comments, but if you don't go back to older posts to see who has checked in, look at comment number eight on my last blog entry. It is from a former Zenith student, who I am happy to say, has finished graduate school and has a job. It offers a thoughtful perspective on all of the issues my post, and the comments, raised about student debt. It also discusses the ways faculty can assist students in need without stigmatizing any individual who is underfunded. I particularly like the part where she uses the teaching of economic history to help students think about the ethical dimensions of being in a debt relationship, and her mentoring of students trying to become more powerful and knowledgeable in relationship to debt. But as she also points out, faculty need to take an ethical stance in the debt situation as well, and we can make choices in our teaching, without compromising high-quality pedagogy, that support students who are trying to keep to a budget. We can also be alert to how student services of various kinds are, or are not, actually meeting the needs of underfunded students and, in the spirit of a queerer analysis, not presume that the "normal" student is able to meet the financial obligations of an education without formal and informal help.

And the part about not having enough food is something that I had honestly never thought about. If that is true -- and I have no doubt it is -- then I would add that another thing department chairs like myself can do is make sure that when we have receptions, make sure the food is good quality, so that students in need are not living on potato chips, soda, cookies and pizza. Always make sure students are invited to take extra food home with them after events. And be very aware that it is at the end of term, when students need their energy most, that the money for food may be running out.

One of the issues this comment also raises implicitly, which I did not talk about in the earlier post, is that students can be very focused on the present, and have very little concept about what it means to repay a debt that is larger than a mortgage, perhaps larger than the income their parents see for three or four years running. They are, in other words, sitting ducks for predatory lenders.

Very smart, and a very highly developed ethical sensibility. And if I am not mistaken as to who this former student (now colleague) is, you should have your own blog, Girl. The Radical glows with reflected joy at your obvious accomplishments as an intellectual at this stage of your career.

College in Credit Card Nation

Having just made it through one college admission season in Credit Card Nation, I am bracing for the next. One of the down sides of being involved in the Higher Ed Biz is that people with college-age children believe or hope that we who are on The Job can give some kind of useful advice about how to get into a great school. This often leaves the Radical in a tough spot. For example, I honestly don't know why people do or do not get into Zenith, since I imagine, like everything else, it changes from year to year and I haven't seen a first-year file for four years. And even if I had, I still couldn't tell you. Different applicants fill different instutional desires, and those desires are not always predictable. My students exhibit a range of talents and abilities about which I cannot generalize in any useful way, or translate into a "good" application. Some write well; others write poorly. Some are good at managing school; others might be better off renting a loft and creating art full-time. Some seem like unusually original thinkers, others are as conventional, and as successful, as Hillary Clinton or Barack Obama. But I have no idea *why* any of them got in. Or why other talented students whose heart's desire was to climb Zenith's heights did not.

And of course there is that nice lady at MIT who could get other people into college, but didn't go herself. Maybe that's the ticket: work your way to the top instead of going to college, like Horatio Alger.

But I digress. This summer, the aspirants will begin to descend again: the children of friends; or the children of friends of friends; or the children of colleagues at Big Research Institutions, people who would never want to work at anything but an R-I school but who are clear that their children will get a better shot at a good education at a small school. And at least half of those who actually come to Zenith will be paying the bill with borrowed money, something they will try not to think about now.

I will admit that I do know some things about the choices available in higher education: for example, why you would choose a place *like* Zenith rather than an equally selective big university. I can also offer my view on, specifically, what the specific strengths and weaknesses of Zenith are at this moment in time. But honestly, much as I do think we offer an excellent education, I don't know why anyone would choose a private school over a public school nowadays, when the bill for a student entering Zenith and its peer institutions in the fall will be close to $200K for four years. And when they are going to pay up to 9% interest on at least half that money for several decades.

Note: this is one reason why some of us don't have children. If I had that much money, I would want to spend it on myself. And now that I have seen Julie Christie do the mental dissolve in front of her husband's eyes in "Away From Her" I also know I wouldn't spend that money on assisted living either.

I'm thinking Paris. Or early retirement. Or early retirement in Paris.

Anyway, back to colleges. Thanks to the muck-raking Andrew Cuomo and the string he pulled in New York state that is unravelling the national sweater, I would advise everyone who is sending a child to college to shop for a student loan like they would shop for a gas grill or a car. How about those Republican bastards, having cleaned out the elderly, the sick and the poor, going after students too? The latest bunch of criminals to fall into the net are Sallie Mae and JP Morgan. Of course, the name Morgan should all make us think "robber baron" anyway, so who's surprised? And Sallie Mae, in addition to making loans to captive audiences that will never make a nickel without a B.A., also issues a credit card, which should cause people to smell a rat. Presumably, you can also charge your books and airline tickets at up to 30% interest, now the highest legal commercial lending rate permitted by -- you guessed it, a Republican Congress that repeatedly raised the ceiling on interest rates.

Come to think of it, why have we made student loans a for-profit industry at all? Sorry, I forgot. The free market. An end to government supporting the weak, the poor and the oppressed. Better to be Credit Card Nation than Wimp Nation.

Well wait -- back off the cynicism a minute, Radical. I guess we *were* surprised that the colleges and universities themselves, non-profit institutions all, were actually getting paid to allow education lenders to rip off college and graduate students. Who knew?

Surprise! As it turns out, the Department of Education in a Republican Administration knew at least four years ago, although this is a story that has not been particularly well covered except on National Public Radio, where you can listen to part of the hearings. Secretary of Education Margaret Spellings who, like everybody else in the Bush cabinet now spends her time either testifying before a congressional committee or preparing to do so, was unable to respond adequately last Thursday when George Miller (D-California) asked her why the Department knew about the "gifts" (aka, graft, or kickbacks) given to financial aid officers and did nothing to stop it. You can also read about it here, thanks to a link to the Guardian's story from Anya Kamenetz's excellent blog Generation Debt (methinks there is a book too, but start with the blog.)

You will be glad to know the Democratic Congress has just passed legislation to stop this gift-giving, although they have not yet taken action to end the gifts they and their re-election campaigns receive. Another day, perhaps.

You will also be glad to know that, luckily for the students who are already saddled with these loans, there is a built-in way to pay them back in less than twenty or thirty years. You can join the military and earn from partial to full repayment of your loans by getting parts of your body shot off in Iraq or Afghanistan.