Thursday, July 7, 2016
We Sure Hate Our Children
Year in and year out, for decades (as the above Bloomberg chart illustrates), the cost of college continues to rise beyond the cost of living. Grants (scholarships) have fallen during this period as government austerity programs have both increased state-college tuition and pushed loans slowly to replace most once-available scholarships. Even as true earning power has fallen for 70% of working Americans consistently for two and a half decades, the financial pressure on families to pay for their children to attend college has steadily increased, with parents often having to co-sign on their kids’ student loans.
If you happen to live in very-productive Germany, whether or not you are a citizen, you can get a pretty awesome university degree (with many courses and majors in English) virtually for free. It’s a similar story in many countries where building for a solid future is a priority… just not here. As I have blogged in the past, too many America private and public universities are either building branches overseas or opening up more slots for foreign students whose families are able to afford “full freight” tuition with no financial aid required. Of course, those slots not only take spaces from American residents but actually favor those paying full costs over those needing any form of financial aid. Upward social mobility? It’s what use to define the United States. No longer.
Reacting to pressure from the Wall Street financial community in pre-Great Recession times, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 under the George W. Bush administration. One particular provision of the amendment was focused on students: “The 2005 changes to the bankruptcy code gave private student loans the same preferred, and non-dischargeable, status as government-guaranteed student loans. Both types of student loans are non-dischargeable debt except in very limited circumstances where the debtor can prove that repayment would impose an ‘undue hardship’.” TotalBankruptcy.com Very, very few students qualify under an extreme interpretation of “undue hardship,” although there has been a slight improvement applying an income-earnings standard to reduce monthly payments to a tiny few.
You might recall that Bernie Sanders garnered a particularly heavy constituency among college students and younger recent college grads, in substantial part with a platform making college education cheaper if not free and having the federal government take over and discharge the bulk of existing student loans. Hillary Clinton, while not going as far as presidential candidate Sanders, also acknowledged that the current system for paying for college in this country no longer works.
As state coffers emptied under the above-noted austerity programs, when Congress was controlled by the Democrats (in 2010), the Obama administration pushed to have the federal government take over the student lending burden from the states. “For decades, states served as middlemen for federal student loans. Most of the loans were made by banks and were handled and backed by regional and state-based agencies as well as by the federal government. The arrangement was unwieldy, expensive and marked by scandal.
“After Pennsylvania’s student loan agency lost a public records lawsuit in 2007, documents revealed that the agency had spent nearly $1 million on things like fly-fishing, facials and falconry lessons… That same year, New Jersey’s agency was caught in what amounted to a kickback scheme. The state attorney general found that the agency had improperly pushed one company’s loans in exchange for annual payments of $2.2 million. A subsequent investigation by the state’s inspector general found that the agency was in ‘disarray.’
“In 2010, Congress and the Obama administration decided to effectively eliminate the role of state agencies by having only the federal government lend directly to students… Some states, like California, decided to downsize and transferred their federal loan portfolios. Others, such as Pennsylvania, won contracts from the federal government to service debt from the federal loan program.
“New Jersey chose a different path. In the years leading up to the end of the federal program, New Jersey sharply expanded its loan program, slowly replacing the federal loans it once handled with state loans. From 2005 to 2010, loans from the agency nearly tripled, to $343 million per year. Since then, the agency has reduced its loans by half, but its outstanding portfolio has remained roughly the same, about $2 billion.” New York Times, July 3rd. For New Jersey, the 2005 amendment to the bankruptcy laws had converted student loans into a major profit center, backed by Wall Street bond issues, and they weren’t about to give that up. The results for their own residents have been nothing short of Wall-Street-greed-driven catastrophic.
While one family that lost a son to murder would have found student loan forgiveness under a federally-administered program, when they attempted to walk away from co-signed student debt for their deceased son, they got this reply from the N.J. student loan administrators (the Higher Education Student Assistance Authority): “Please accept our condolences on your loss… After careful consideration of the information you provided, the authority has determined that your request does not meet the threshold for loan forgiveness. Monthly bill statements will continue to be sent to you.” Under New Jersey’s practices, this example is hardly exceptional.
“New Jersey’s loans, which currently total $1.9 billion, are unlike those of any other government lending program for students in the country. They come with extraordinarily stringent rules that can easily lead to financial ruin. Repayments cannot be adjusted based on income, and borrowers who are unemployed or facing other financial hardships are given few breaks… The loans also carry higher interest rates than similar federal programs. Most significant, New Jersey’s loans come with a cudgel that even the most predatory for-profit players cannot wield: the power of the state. New Jersey can garnish wages, rescind state income tax refunds, revoke professional licenses, even take away lottery winnings — all without having to get court approval.
‘It’s state-sanctioned loan-sharking,’ Daniel Frischberg, a bankruptcy lawyer, said. ‘The New Jersey program is set up so that you fail.’… The authority, which boasts in brochures that its ‘singular focus has always been to benefit the students we serve,’ has become even more aggressive in recent years. Interviews with dozens of borrowers, who were among the tens of thousands who have turned to the program, show how the loans have unraveled lives…
“One reason for the aggressive tactics is that the state depends on Wall Street investors to finance student loans through tax-exempt bonds and needs to satisfy those investors by keeping losses to a minimum… The [student loan default] cases are handled by debt collectors, who can tack on another 30 percent in fees on top of the outstanding debt…
“A spokesman for Gov. Chris Christie said the governor did not control the authority and declined to respond to questions about the loan program. But Mr. Christie, a Republican, appointed its executive director, Gabrielle Charette; he also has the power to appoint at least 12 of the agency’s 18 board members and can veto any action taken by the board.” NY Times.
There is movement among Democrats, nothing from the GOP. Candidate Sanders has pressed for free tuition and forgiveness of student debt, while Hillary has advocated eliminating “college tuition for students from many middle-class families who attend public colleges and universities, as part of a broader goal of making higher education debt-free for all Americans. Washington Post, July 7th. But there is very limited likelihood of moving any part this legislative program through a GOP-controlled Congress.
Bottom line: not only are we particularly cruel to the young people seeking to better themselves for productive careers (and their supporting families) through higher education, but such “student loan” programs deprioritize investing in our own national best interests for future productivity in favor of protecting the highest earning (wealthiest) private financial institutions and their wealthy owners.
I’m Peter Dekom, and this constant refusal to invest in what truly can sustain America’s greatness in order to insure that the one percenters maintain the worst income inequality in the developed world is clear evidence of why populism in America, left and right, will only grow… and ultimately unravel the United States of America.