I Want to Be A-Loan

America borrows. Forget about corporate debt. Consumer credit card debt now tops a trillion dollars with average outstanding balances approaching $6.5 thousand. 70 million Americans don’t pay off their monthly balances, carrying credit card debt at an average APR of 16.6%. All according MagnifyMoney.com, January 23^rd. But that pales in comparison to the aggregation of outstanding student loans, often carried for decades. As America’s college graduates amass personal debt – now well-past the aggregate $1.5 trillion mark, averaging over $30 thousand per graduate – they get married and start families later, buy homes later, often buy cheaper cars or do not buy cars at all and tend to consume at a lower level than past generations. For those attending professional schools – medical, law and business schools, where debt is the major source of tuition – that debt can easily spiral into six figures. See the March 2^nd Student Loan Report from StudentLoans.net.

As rich families bribe and lie their teenaged children into prestigious colleges and universities (the purported Huffman/Loughlin path), or “donate with wink-wink expectations” (the Trump/ Kushner path), such “expectations and privileges of the mega-rich” dominate the headlines. But the bigger story is how ordinary young people who do get into their respective colleges afford their education. How they graduate and enter the most expensive housing market (as an average percentage of income) in our history facing jobs that are threatened with near-term artificially-intelligence-driven obsolescence… and pay off their student loans, severely impacted by bankruptcy laws amended in 2005 specifically to protect lenders against student loan defaults. It is just another side of the “privileged classes” being better-prepared for and able to pay for higher education without burdensome loans or distracting job school-term requirements.

Other than token charges and housing, anyone going to school in Germany – anyone! – can get a magnificent education (even in English) for free. Good schools, academically prestigious with outstanding professors and curricula. There was a time in the United States where a high school grad could at least attend a local community college for free and often a state college or university without any significant tuition charges. Once upon a time, long, long ago.

Despite political platform pledges, austerity and the bizarre need to reduce taxes for the rich (which absolutely does not create solid new jobs) have pushed state legislatures into a seemingly never-ending path of raising state tuition fees. Recently, there has been a trend to stabilize those costs, but tuition in the United States – fully corrected for inflation – has never been higher. At both public and private institutions. And since we live in an increasingly complex, technologically/financially-driven world, going beyond high school at some level is almost a prerequisite to getting a decent job these days. This job trend has fueled the exceptionally-high demand for post-secondary education, which demand has only driven tuition costs higher faster.

Everybody understands that this rising debt is a huge problem for the country as a whole. Not only does it exacerbate already-horrific income inequality, but without serious increases in our national skill-sets and education, the United States will continue to fall behind vis-à-vis its once-heralded competitive advantage. Unable to grow its own expertise and facing serious restrictions as to importing qualified and educated professionals from overseas because of current immigration policies, the United States would paint itself into a corner of significant disadvantage.

The Trump administration, despite major cuts to education in its 2019 budget request to Congress, is aware of the student debt issue, but what we can glean from there statements – assuming they reverse their budget request – their focus is a mixture of good and bad news for students. The March 20^th Los Angeles Times explains:

“The biggest debt holders are not the students who attend the nonprofit and public institutions that dominate in higher education, but those who go to for-profit colleges. These students account for only about 13% of all college students, but they are responsible for more than half of all student loan defaults. One reason for the high level of defaults is that many for-profit colleges promise students far more than they deliver in marketable skills, leaving them without the careers they had expected.

“For better and worse, President Trump addressed both of these issues in a plan for higher education announced Monday. The details are sketchy at this point, but there are enough good ideas to start a discussion in Congress — and enough worrisome elements to merit caution.

“Among the most promising requests by the administration — requests, because they would need congressional approval — are the ones that would streamline both the application and repayment for federal student loans. There would be one income-driven repayment plan for each level of higher education: Undergraduates would pay 12.5% of their discretionary income for 15 years; anything unpaid at that point would be forgiven. That’s a reasonable pace, allowing them to finish five years earlier than current plans do. But graduate students would pay for 30 years at the same rate, five years longer than they currently do. Borrowers would also receive more financial aid counseling at the front end, so that they understand the terms of their loans (and the chances that they won’t be able to pay them back), enabling them to make more informed financial decisions.

“Of more concern is the proposal to limit how much graduate students can borrow in federal loans; there is currently no restriction. The goal is partly to reduce some of the crushing debt — much of which ends up being a load on taxpayers. The administration also hopes that if graduate students can’t borrow up to the full cost of the program, as they can now, graduate schools will have less incentive to continually raise prices.

“The effect of this change on students, however, could be drastic, especially for low-income students. Rather than reducing their borrowing, many students and their families would probably turn to private, rather than federal, lenders, receiving less favorable terms. Low-income families might not be able to get these loans at all, limiting the ability of the people who need the most help to attend graduate school…

“The majority of loans at for-profit colleges go into default, yet Trump has gone out of his way to free the schools from Obama-era regulations intended to crack down on shady marketing and low performance. Trump’s emphasis on efficient, short-term vocational training is welcome; not everyone needs to go to college. But loans should be provided only for accredited programs with strong records of sending their students on to successful careers. The president surely should know the difference between that and the kinds of programs that should not qualify for federal loans; he ran a real estate training business that closed after paying $25 million to settle lawsuits claiming misleading marketing practices. Taxpayers shouldn’t be footing loans for institutions that resemble Trump University.” Yet education is the real job creator in this nation!

Until we make post-secondary education more accessible and affordable, the biggest loser will be the United States as whole. Rich families don’t have access/ affordability issues, so the income gap can only widen under the weight of the current system, even if adjusted in accordance with the Trump proposals. And protecting fraud-meisters has to stop, even though that goal has been a major effort from Trump’s Department of Education Secretary, Betsy DeVos.

              I’m Peter Dekom, and the Piper has entered the building and is demanding payment.