Stiglitz: Student Debt and the Crushing of the American Dream

[ProSense]

Student Debt and the Crushing of the American Dream

By JOSEPH E. STIGLITZ

A CERTAIN drama has become familiar in the United States (and some other advanced industrialized countries): Bankers encourage people to borrow beyond their means, preying especially on those who are financially unsophisticated. They use their political influence to get favorable treatment of one form or another. Debts mount. Journalists record the human toll. Then comes bewilderment: How could we let this happen again? Officials promise to fix things. Something is done about the most egregious abuses. People move on...The crisis that is about to break out involves student debt and how we finance higher education. Like the housing crisis that preceded it, this crisis is intimately connected to America’s soaring inequality, and how, as Americans on the bottom rungs of the ladder strive to climb up, they are inevitably pulled down — some to a point even lower than where they began.

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According to the Federal Reserve Bank of New York, almost 13 percent of student-loan borrowers of all ages owe more than $50,000, and nearly 4 percent owe more than $100,000. These debts are beyond students’ ability to repay, (especially in our nearly jobless recovery); this is demonstrated by the fact that delinquency and default rates are soaring. Some 17 percent of student-loan borrowers were 90 days or more behind in payments at the end of 2012. When only those in repayment were counted — in other words, not including borrowers who were in loan deferment or forbearance — more than 30 percent were 90 days or more behind. For federal loans taken out in the 2009 fiscal year, three-year default rates exceeded 13 percent.

America is distinctive among advanced industrialized countries in the burden it places on students and their parents for financing higher education. America is also exceptional among comparable countries for the high cost of a college degree, including at public universities. Average tuition, and room and board, at four-year colleges is just short of $22,000 a year, up from under $9,000 (adjusted for inflation) in 1980-81...the problem of student debt worsened during the Great Recession: tuition costs at public universities increased by 27 percent in the past five years — partly because of cutbacks — while median income shrank. In California, inflation-adjusted tuition more than doubled in public two-year community colleges (which for poorer Americans are often the key to upward mobility), and by more than 70 percent in four-year public schools, from 2007-8 to 2012-13.

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To its credit, the Obama administration tried to make it tougher for these predatory schools to lure students with false promises. Under the new rules, schools had to meet one of three tests, or lose their eligibility for federal student aid: at least 35 percent of graduates had to be repaying their loans; the typical graduate’s estimated annual loan payments could not exceed 12 percent of earnings; or the payments could not exceed 30 percent of discretionary income. But in 2012, a federal judge struck down the rules as arbitrary; the rules remain in legal limbo.

- more -

http://opinionator.blogs.nytimes.com/2013/05/12/student-debt-and-the-crushing-of-the-american-dream/

Senate Republicans Unanimously Support Repeal of Student Loan Reform Law
http://www.democraticunderground.com/10022557183

Elizabeth Warren: Students should get the same loan rate as big banks
http://www.democraticunderground.com/10022815060

President Obama's budget proposed a permanent fix to interest rates for student loans
http://election.democraticunderground.com/10022821334

[Buzz Clik]

1. This is not a new problem, and banks and interest rates are only a part of it.

The cost of in-state tuition has exploded because state legislatures have de-funded higher education. You want affordable education? Elect people at the state level who will correct the problem.

[ProSense]

3. So

"This is not a new problem, and banks and interest rates are only a part of it. The cost of in-state tuition has exploded because state legislatures have de-funded higher education."

...you don't want to address the part resulting from "banks and interest rates"?

Also, it is a new problem. Banks were not involved in federal student loans.

Since the bank-based loan program began in 1965, commercial banks like Sallie Mae and Nelnet have received guaranteed federal subsidies to lend money to students, with the government assuming nearly all the risk. Democrats have long denounced the program, saying it fattened the bottom line for banks at the expense of students and taxpayers.

“Why are we paying people to lend the government’s money and then the government guarantees the loan and the government takes back the loan?” said Representative George Miller, Democrat of California and chairman of the Education and Labor Committee.

Democrats celebrated the legislation, a centerpiece of President Obama’s education agenda, as a far-reaching overhaul of federal financial aid, providing a huge infusion of money to the Pell grant program and offering new help to lower-income graduates in getting out from under crushing student debt. Still, the final bill is less ambitious than the original proposal.

http://www.nytimes.com/2010/03/26/us/politics/26loans.html

And that's not to mention private student loans.

[ProSense]

5. More info:

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The average debt levels for graduating seniors with loans rose almost 82 percent from 1996 to 2008, based on data from the National Postsecondary Student Aid Study, conducted by the Department of Education every four years. Students at private for-profit colleges borrowed the most in 2008.



http://www.consumerreports.org/cro/magazine/2012/04/student-debt-grows-to-alarming-levels/index.htm#amount

[Orrex]

2. It is common on DU to blame the victims for their inability to escape debt

I look forward to another chorus of the usual recriminations.

[abelenkpe]

4. K&R nt