Sunday, March 3, 2013

The Student Loan Debt Morass: Swallowing the Nation Whole

A Loyola University frosh (ca. 1966, note slide rule) tries to master a chapter in his Mechanics & Heat text. The average yearly total cost at Loyola then was $3,000/yr. (From Loyola WOLF Yearbook, 1967)

The news that student loan debt has metastasized to a cancerous fiscal dimension, cannot be sanguine for this nation. Along with the impending austerity, it likely means an accelerated slide into third world-ism and much greater inequality than ever seen before.

To fix ideas, the total student debt now stands at $966 billion as of the end of 2012, with a 70 percent increase in both the number of borrowers and the average balance per person. The overall number of borrowers past due on their student loan payments has also grown, from under 10 percent in 2004 to 17 percent in 2012.

The Huffington Post, referencing a recent New York Federal Reserve report, pointed out that the proliferation of indebted students and their families has knock -on effects on multiple other areas of the economy:

- Fewer people with student loans are buying homes

- Fewer people with student loans are able to secure and maintain decent credit ratings

- Delay in buying a car, hence having lower access to job availability

- Postponement of marriage

- Inability to rent because of high debt to income ratio, so having to live with parents

- Too many graduates (and even non-graduates) encumbered by student loans can't pay them off efficiently because they can't access the quality jobs to do so (half of all the grads are found in jobs that don't require a college degree). They may then be prey to loan sharks or having liens placed on accounts, property.

More worrisome, is the nature of the loan debt, which is radically unlike the mortgage debt crisis. The latter engendered a bubble which we always knew had the potential to burst with fallout we are still seeing. The student loan debt bubble has no such evident trip-wire for a massive burst and could go on for decades.
As Malcolm Harris has long pointed out, since most student loan debt is government- backed and can never be discharged, the type of meltdown the student loan explosion could precipitate will take a different shape than the mortgage crisis, with the victims (student borrowers) already in place and struggling.

Make no mistake that all the hallmarks of a bubble are there, including massive securitization and seemingly risk-free financial products. But, as the financial analysts remind us, the vast majority of this debt is government-backed. What’s the worst that could happen?

As far as investors are concerned, this line of thinking works just fine, but it should look less rosy for the Treasury. If it turns out the subsequent work of student debtors isn’t worth as much as the markets figured, another trillion-dollar bailout may be required, and the taxpayers can hardly afford it. Yet, strangley,  neither investors nor the Treasury seem particularly concerned. This may be because there’s no escape from student debt, and the government and financial markets both know it. This then, is the real plan for the education bubble: student debtors will be forced to fill it in come Hell or high water.

The unspoken meme here is that not only are student loans not a burden on the federal government, they’re a good investment. They mean securitization of gov't debt through bonds issued, with interest to cover other holes.  So, we've got a bubble set for unfettered expansion and it’s in neither the government’s nor investors’ interest to intervene. Strike Debt activist campaigns meanwhile have proposed collective debt resistance, but their efforts have not yet made a significant dent in the national or even New York City-wide picture.

As Malcolm Harris pointedly noted in the Boston Review last November, “Short of suicide, expatriation, or revolt, there’s not much 37 million American student debtors and counting can do about it.”

Can this really be true? Well, how about not getting into this morass of debt in the first place! The true fact, which too many Millennials and their parents may not wish to believe, is that the evidence shows most college (4-year) degrees aren't even worth the money paid anymore.   The book Academically Adrift: Limited Learning on College Campuses, by Richard Arum of New York University and Josipa Roksa of the University of Virginia, sadly highlights how students going into debt are getting screwed.   For example, gains in critical thinking, complex reasoning and writing skills are " or either exceedingly small or non-existent for a large proportion of students". Many students haven't managed even minimal critical thinking skills by the end of their third semester! What the hell are they paying for? They'd do better to just go to a community college and graduate with an Associate degree!

Thirty -six percent of students experienced no significant improvement in learning (as given by the Collegiate Learning Assessment) over 4 years of education. This means these kids could have essentially saved their money and not gone into massive debt most will now take the rest of their lives to pay off.  No wonder government and financial markets are clucking at the prospect of never ending streams of debt!

During my college days, a core of subjects was required to be taken by all students, including: language and literature, philosophy, logic, calculus, one science course (physics, astronomy, biology or chemistry), one foreign language (e.g. German, Russian or French) and either macro-economics or political science. Meanwhile, a review of more than 1,000 colleges and universities today found that 29% of schools require two or fewer core subjects. That means there's been a quality decline in almost one third of the schools!

Do college students feel they're getting short changed? A Roper survey recently found that nearly 50% of graduates didn't feel they got their money's worth. That is a massive crisis by any definition. It shows that universities are not seriously doing the jobs for which they've been charged. Indeed, as the authors noted in a mass-circulated letter, those schools not demanding a rigorous curriculum "are actively contributing to the degradation of teaching and learning".

In his article, 'The Myth of Higher Education' Dr. Steven Mason in an issue of Integra (No. 9, Oct. 2009, the journal of Intertel), notes that a huge error of American education is orientating it explicitly for the utilitarian purpose of making money or getting a job. As he writes:

"the bottom line regarding a well -rounded education is that it has nothing to do with any kind of bottom line. Its value (non-monetary) is to be found in the quality it adds to one's life. It allows one to better appreciate music, art, history and literature. It contributes to a better understanding of language and culture, nature and philosophy. It expands rather than limits horizons and replaces faith and belief with reason and logic"

Mason adds that it "teaches a person to live - not to earn a living" and that living encompasses an impetus for further learning just for its own sake. If a fantastic, well-paying job also comes with it, that's icing on the cake. I totally agree. To me the measure of whether one obtained a degree worth the cost is how well one is motivated to use his learning as a base to expand it further: to delve into new or unfamiliar areas, or use the techniques mastered (say in a research area of one's specialty) to apply to other arenas. If these skills are only limited, and above all if one's fundamental working knowledge base is limited - whether in economics, American government, history, science or numerical literacy-  then one can rightly complain he or she didn't get one's money's worth.

It would appear self-evident then, that students seeking college entry first inquire as to their motives, or at least their primary objective to attend college. If it is only to "make money from a great job" they'd be better off downscaling their college choice, and even considering a community college, given that basically all the quality jobs they seek will have vanished, never to return. (In an austerity or low aggregate demand  environment, quality jobs must be kept to a minimum because of the high remuneration and benefits burdens.)

One has to therefore picture a jobs pyramid in this country. It will have an enormously vast base (likely the service sector where 1 in every 5 is stuck in some capacity) and only a tiny, micro-peak at the top where perhaps 1 of every 10,000 grads will find a home - say working at Google, or Facebook, Yahoo or maybe the CIA, NSA (Forget about scientific arenas, as the austerity programs to come will slice all of them bare bones dry.)

Is it really worth it to plow $50,000 or $100,000  into a dream that has about as much chance of being realized as me winning 100 grand at the Bellagio black jack table? Think about that!

If, on the other hand, the potential college candidate wants to use the degree to enhance his quality of life, her exposure to grand ideas, and the ability to learn further, that's a different matter. Go for it, by all means!

Even with a college sheepskin, people will not work all their lives. It's what they do with their time when they cease working that really indicates the quality of the higher education they received.

Prospective students of today and their parents need to think long and hard about that, before taking out thousands of dollars of loan debt for an expensive education that may not deliver all they expect.


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