Friday, January 7, 2022

Ted Rall: Student Loans, a Silent Scandal No More

 Student loans, long a nonissue that ruined countless lives, have finally become a political flashpoint in the conflict between progressive and moderate Democrats. Yielding to lefties' pressure after Sen. Joe Manchin torpedoed Build Back Better, President Joe Biden has extended former President Donald Trump's pandemic relief to 43 million federal borrowers by pausing payments another three months, to May 1. 

The issue isn't going away: 62% of Democratic and 57% of Republican voters age 18 to 29 told a Harvard Institute of Politics poll that student loan debt is a major problem -- a problem they think about when they pay their bills every month. 

Left-leaning lawmakers want to go far beyond Biden's stopgap extension as well as his long-forgotten campaign promise to cancel $10,000 of debt per borrower. (The average ex-student owes $37,000 in federal loans.) Chuck Schumer, Elizabeth Warren and Ayanna Pressley propose to wipe out $50,000 each; Bernie Sanders and Alexandria Ocasio-Cortez want to forgive all $1.7 trillion.

A bill proposed by Republican Sen. Marco Rubio would lower interest payments to zero, instead charging a one-time, noncompounding flat fee that student loan borrowers would pay over the term of their loan.

Our higher-education financing system is a scandal.

My grades and test scores were good enough to get into an Ivy League college. I was smart -- but I was still a 17-year-old kid. In 1981, I didn't know you were supposed to tip your barber, that your major field of study might have no bearing on your future career or that Manhattan and Long Island were different places. 

So, signing a student loan agreement committing to repay thousands of dollars from a salary derived from some imaginary job in a mysterious future was a surreal experience.

I sat next to my mom in the lobby of the big bank building in downtown Dayton, Ohio, clueless. All I knew was that I had to sign a sheaf of incomprehensible documents if I wanted to attend college. As my guidance counselor and teachers and parents had repeatedly warned, without a college degree I would be doomed to subsistence-level fast-food or manual labor -- and factory jobs were getting hard to find.

Don't forget to initial each page.

How much would I earn after graduation? What would be my monthly payment? How does compound interest work? Was 9% a reasonable rate? When would it begin to accrue? What if I became unemployed? I didn't know, and if the banker satisfactorily explained this stuff, it didn't stick to my hippocampus. I invisibly shrugged, hoping that I'd somehow muddle through.

I return to my state of mind 40 years ago whenever I hear someone deplore the ethics of the 15% of student loan borrowers who are in default at any given time. Is an obligation you don't understand when you agree to it an obligation at all? 

Honoring commitments is important. If you borrow money, you should pay it back. (I did.) But lenders have responsibilities, too. As we saw during the subprime mortgage crisis of the late 2000s, the economy suffers when banks recklessly issue loans to borrowers who don't understand the terms or won't have enough income or collateral to repay, which is the case for most college loans.

Student loan lending is predicated on the assumption that graduates will be able to pay back what they owe, plus compound interest, out of the higher income they will earn compared to nongraduates. But 57% of student loan borrowers never graduate from college. Most borrowers, therefore, are naive teenagers with bleak job prospects. Lending to them is as predatory as it gets.

Clemency proposals annoy people who already paid their loans, not to mention those who bypassed college rather than go into debt. Why should taxpayers foot the bill for others' luxurious college education? 

For one thing, postsecondary education is no longer optional: 65% of all job postings require a postsecondary education, according to a study by the Georgetown University Center on Education and the Workplace. As long as that's the case, Americans will believe there's a common economic interest in cranking out millions of freshly minted graduates.

Canceling student loans across the board would have a low multiplier effect and thus do little to stimulate the economy. But there would still be advantages for everyone, not just borrowers. 

Freeing a generation from debt slavery would provide flexibility and capital for new entrepreneurs and allow do-gooders to pursue work in helping professions with low wages. It would add liquidity to the nearly half of millennials who report that their loan debts forced them to delay buying a first home by an average of seven years. You may not have gone to college yourself yet you may get to retire earlier because you'll sell your home to a young couple at a higher price.

College expenses in the U.S. are too damn high -- it's the most expensive system of higher education in the world after the U.K. on paper -- but the U.K.'s are cheaper than ours when adjusted for grants and government-imposed price controls. When half of American borrowers continue to owe an average of $20,000 some 20 years after beginning as a freshman, reform is clearly called for.

One promising development is Secretary of Education Miguel Cardona's promise to fix broken Bush-era student loan forgiveness programs for those who work in public service, education, health care and social work. Byzantine rules and application processes resulted in only 5,500 out of potentially 1 million qualified applicants getting their loans erased in part due to "miscommunication between the Department of Education and the loan servicers, as well as between the servicers and borrowers," CNN reported about a 2018 General Accounting Office report. But that's only a start.

Someday, hopefully, college will be free. 

Until then, college loans need to be reined in. They're a big business with no inherent limit upon growth. Colleges and universities have raised tuition and other fees faster than inflation because they know that a wide array of loan packages are available to students and parents. Lenders enjoy a fixed interest rate scheme that not only guarantees them a profit over their own borrowing rates but also is low risk since it is virtually impossible to discharge student loans in bankruptcy.

These structural problems can be addressed by reducing lenders' incentives to lend money willy-nilly and by reining in tuition costs. Congress should cap the maximum amount each student can borrow per year at $2,500 for those attending community colleges and four-year public universities and $5,000 for those at private institutions. Bankruptcy courts should be given the option to discharge student loan debts. Any college or university that raises overall tuition, housing and other costs faster than inflation should not qualify for federally subsidized loan payments from their students and ought to lose any federal contracts.

And if it's really in the public interest for so many millions of young Americans to attend college and university, how does it make sense for educational financing to be a lucrative form of usury? 

The federal government ought to take over the lending business from banks, with zero-profit interest fixed at the same rates it pays to holders of Treasury bonds. No one should get rich off the backs of 17-year-old kids seeking to better themselves through education. 

Ted Rall (Twitter: @tedrall), the political cartoonist, columnist and graphic novelist, is the author of a new graphic novel about a journalist gone bad, "The Stringer." Order one today. You can support Ted's hard-hitting political cartoons and columns and see his work first by sponsoring his work on Patreon.



Anonymous said...

My wife paid hers anyway.

Anonymous said...

When my son was 5 years old I opened an MPACT college savings account and made monthly payments for years. While this program paid the tuition, as anyone knows who has had children in college, the tuition is just one of many expenses associated with attending a university. I worked two and three jobs at times so that when he graduated he would not have any debt.
I agree that attending a four year college is too expensive and that everyone doesn’t need a college degree. Some have no business attending college, others would be better off learning a trade or attending a junior college. But if someone took out a loan to attend college you need to pay it back. I am sure the program needs reforms. But If the federal government is going to forgive student loans and make college free for all, then I want a check from the government for all that I paid over the years.
One of the many lessons in life is that you should pay your debts.

Anonymous said...

Don’t feel sorry for the art history/philosophy/etc major who can’t find a job to pay off their 50k plus in student loans. If your parents can’t afford to pay for your school or you don’t have a bunch of scholarships go to a juco for 2 years and save money then major in something you can find a job in after school. I started college as the recession hit and majored in accounting because I knew I could get a job. Paid off my student loans a few years later. Do I love accounting nope not at all am I totally debt free in my early 30s yep. It’s called not being an idiot.

Anonymous said...

Higher education, the outrageous cost of books, and telling everyone they need a college degree is a much more covert scam that needs looking into. I dont agree to canceling debt, these people knew what was going on, but a near 0% interest rate with a simple fee to coverage costs is the answer. If they cancel debt and the people that paid don't get any kind of "credit" for paying theirs, there will be an uprising. Canceling debt is vote buying.

Anonymous said...

(1) Make the actual recipient, I.e., the college/university, co-sign as borrower on the new loans going forward.
(2) Tax the college/university endowment funds an annual amount to recover losses on existing loans.

Problem fixed.

Anonymous said...

I have a very close friend who has been in college for nearly 20 years and still hasn't graduated. I don't know how they keep getting student loans but I doubt they could ever pay them back.

Anonymous said...

Free college. How about free law school, grad school, medical school? If one is good more is better. After all, you cannot live without a college degree and we all have a right to live. Right?

We are raising a nation of wimps and this is lesson one in wimpism. Make it clear that this is a LOAN and you MUST pay it back. Make the terms clear and renewable each year and treat the little snots like adults and make them prove their NEED for each dollar before lending it. When you borrow money and don't pay it back, who is the predator?

Anonymous said...

Ha. This has NOTHING to do with students or their loans.

This is about keeping the bloated higher education fraud alive.

Keep b@$&;:/ about “art majors” you curbs.

This is about the boomer professors and their 403(b)s.

Anonymous said...

Boomers need to STFU about "back in my day I paid my way through college while working 2 full time jobs blah blah blah"

Tuition was like 1/32 the cost back then.

Anonymous said...

@6:28pm - Obviously this is way over the heads of the uneducated rednecks in here and their Fox News talking points.

Anonymous said...

Higher education is a scam. One more item for the public to buy now and pay later.

Instead of that Art degree, or master's in music, you should have learned how to burn a welding rod, or teach school.

Pay up sucker.

Anonymous said...

@7:21. Exactly 1/32! Why? Because fed loan and grant money allowed universities to raise and raise and raise tuition etc!!! Same argument for daycare in BBB. Feds start paying for it cost will double!

Anonymous said...

7:21 I'm a boomer who ain't shutting up. I stroked the checks for my kids who graduated debt free. I planned ahead for my kids. I know multiple boomers who took out home equity loans so their kids could pay the bloated private schools costs in order for the little darlings to play Division 3 sports. If you are that undisciplined then don't expect the disciplined people to bail you out.

You signed up for the debt, you are responsible for the debt. If you want relief, get the college/university endowments bail you out. That is who overcharged you.

Anonymous said...

January 7, 2022 at 7:21 PM = Perpetual crybaby

Anonymous said...

Yes I will agree many use this system to live lavish & above their means with no intention of repayment of loans. Many though are trying to better themselves with college being too expensive. Most families cannot absorb another persons debt as they are struggling too just to put food on their table, pay utilities and such. I once told an engineer I worked with not to apologize because you chose to go to college and others did not make that choice. College graduates worked hard to earn degrees but should also pay their bills like everyone else.

Anonymous said...

The trillion dollar student loan debt was used primarily to build hundreds of little kingdom campuses around the country. It's been a boon for junior colleges and higher education. It's a deep dark little secret for a couple of decades, but it comes out every so often. The hundreds of duplicative, and unnecessary administrative positions alone in Mississippi making close to - and many well over - six figures is obscene. These are all "non-profit institutions", yet they spend billions on things that have no relation to education.

Anonymous said...

want to know why college costs are soaring?

first of all, most college courses are taught by adjuncts making 3k a class. (about 24k a year with no benefits). it’s rare to find a tenure track position these days. it’s disappearing. so the cost of faculty labor is being reduced and it’s not the cause
of the skyrocketing costs

administration has grown exponentially-what used to be done by one staff person now has an entire department. for example-food services. used to have one contact person. now there’s staff members that supervise each dining location. each with staff support and assistant managers…

and the majority of students want granite countertops and memory foam beds. a worn bunk bed with scratched furniture and three showers for the hall don’t cut it anymore.

maintenance and upkeep on old buildings is expensive.

athletics- apart from the power 5 conferences, they don’t make money. in fact it costs a lot to run athletics-and it’s paid for by student fees and tuition.

look for college closures in the near future. MS has less and less go to college each year and there’s a student number cliff in 2024..

Anonymous said...

If existing student debt is forgiven, then reparations should be made to the parents of students who made sacrifices and paid their children's college tuition so that they wouldn't have future debt.

Anonymous said...

Free money

Anonymous said...

4;50 makes a great point. there are thousands of people out there that have spent their entire adult lives going to college.

Anonymous said...

8:57. masters in music-useless?

church music director or worship pastor (some pay 6 figures in the metro area), music educator in k-12, and piano/voice teacher studio owner (50-75k) are all things that that degree train you to do.

and there's two Mississippians who just landed regular gigs on Broadway in the last two months. both have a master's degree in music..

and, according to the US Bureau of Economic Analysis, the arts contribute 763.6 billion to the US economy. More than agriculture, transportation, or warehousing. (4.2 percent of GDP)

so facts dont support the argument that those who get degrees in arts are a waste.

Kingfish said...

One friend of mine, well his life kinda sucked as he wasn't where he thought he would be at age 40. Blamed Republicans for it all. Seriously.

Want to guess what his college background was? Two music majors. Yeah. And don't go down a party debate. I would've said same thing to same dude blaming Democrats if he did.

Anonymous said...

@10:24 AM
You are correct. You need talent as well. And that is something that a degree can’t provide.

Anonymous said...

10:24 here. probably a music performance major.…voice??

Anonymous said...

10:24 "...the arts contribute 763.6 billion to the US economy." No way they drive that much annually. Give us the link. Also, how much of the money the arts generate come from the taxpayers' pockets?

While we are at it, I don't think there has ever been a televangelist that begged for money more than Public Television, despite the hundreds of millions that they pluck from the taxpayers.

Anonymous said...

I'd like know know which churches pay six figures to the music director. I go to a big church and we don't pay anywhere close to six figures.

As for a music studio owner making 50-75k annually, that is not much money for a small business owner of an established business. Small business owners don't get the PERS pension either.

Anonymous said...

easy loans from government made college costs skyrocket, no reason the cut useless programs, anything labeled 'studies'. No drive to be competitive. Such a bad risk banks would not loan money was a reality not a problem. Stop federal student loans and see costs drop and a new generation not view college as high school 2.0.

Anonymous said...

Lol, the comment about music majors with no talent………Awesome. I know way to many…..45/50 years old still at mamas or their plump unattractive girl lady friend they’ve conned. No job but a “smart “ vocabulary . Music snob to boot.

Anonymous said...

Shut it down and watch tuition drop dramatically. Like everything the gov't does, screws up more than it was supposed to fix. Because the gov't isn't supposed to do anything like this. The founding fathers knew why.

Krusatyr said...


Yes college costs were lower back then, as were the wages it took to pay for it. There was less of a hustle for big loans inflating all costs of college. Now, even online courses are a rip.

Maybe we could institute a periodic testing system and let students self-study online, with used books, etc., hire tutors as needed, then pay for the tests. Of course some classes require a science lab in a controlled environment, but math, business and liberal arts sure do not.

Krusatyr said...

Completely accurate. Now pigressives want to cancel those inflated debts for free college. Tuition and faculty salaries will grow astro if those democrat wastrels succeed.

Anonymous said...

that's for the arts and economic impact 6:07

6:12. there's several 100k music people in the jackson area. most have the title 'minister of music' or 'worship pastor'. they are paid on the same salary level as a senior associate pastor. i'm sorry if you don't believe that, but its true. i do this for a living and know

i know it's a hard concept for people in this state to understand, but the arts are a viable way to make a living.

and yeah-many people who have music degrees arent nearly as talented as they think they are and you don't really need a collegiate degree to succeed in the arts.

Anonymous said...

"Of course some classes require a science lab in a controlled environment, but math, business and liberal arts sure do not."

NEWSFLASH: Science Labs are mostly online now. Colleges are scamming the shit out of everyone, and education ain't happening.

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