Thursday, May 12, 2016

The Definition Of Insanity (America's Student Loan Bubble)


<Be Seeing You....>

<i.>
"Insanity: doing the same thing
over and over again and expecting different results."
<Albert Einstein>

Here's how it worked, once upon a time, for yours truly. I spent seven years between two different colleges -- starting at a small rural school often derided as "three buildings in a cornfield." To which I invariably responded: "It's a dozen buildings in a cornfield, actually." That experience took two years of my time. 

I then transferred to a Big Ten perched in my state's capital city (population: 130,000-plus then, 100,000 now). Alas, the new institution only took half my credits, essentially forcing me to start over academically....silly me, eh? Why hadn't I taken
 that issue into account? (On the plus side, it gave me a handy one-liner -- "Hey, there, I'm a second-year junior" -- depending on which friend I wanted to make, or woman I'd try to chat up.)

When I graduated, Communism was on its last legs. The Berlin Wall's future looked dicey, so the mainstream media plumped up the rosy glow of capitalism accordingly; the "giant sucking sound" of all that globalist outsourcing (as Ross Perot  would label it during the 1992 campaign), hardly merited a tinny whoosh in any headline writer's ear. With 40-plus years of Cold War paranoia fading into history, nobody wanted to hear such alarmist talk.

I graduated with $1,850 in student loan debt to my name. No, that's not a typo: that's $1,850, not $18,500. Though I hadn't lined up a job, and the thunder clouds of recession were gathering, I felt reasonably confident about the future.








Exhibit A: National Direct Student Loan papers for College #1, including (from left to right) the amount that I borrowed, when I borrowed it, and the dates of their credit to my account ($1,100 in all).

<ii.>
Student loan issuers are notorious bird dogs: if you don't believe me, just scan the Internet. You'll find any number of outrageous stories about shadowing people at some relative's funeral, or phoning up a delinquent borrower's friends before a high school reunion, telling them that they're associating a deadbeat (nice one, eh?)...to name two examples that I've read myself.

I got a minor taste of this phenomenon when I decided to skip the whole post-graduate paper chase (as in, job, mortgage, massive debt load). Instead, I ventured overseas, and spent six months in the UK. During my tenure, my family indicated those bird dogs had come knocking: imagine their disappointment to find out I wasn't anywhere near their firing range.

Of course, this is the U.S. government we're talking about, and they don't stay upset for long. Eventually, as my sister told me (during our weekly transatlantic phone chat), she wrote on my behalf, and succeeded in scoring a deferment until I came back to the States -- a small favor that, in today's feverish bubble climate, is distressingly common, as the Wall Street Journal suggests.

According to the 
Journal, 43% of Americans borrowing from the federal government's main student loan program are either missing payments, or falling behind. The U.S. Department of Education reckons the total amount owed at $200 billion (and climbing) on its $1.2 trillion portfolio. 


One in six borrowers (3.6 million) have defaulted on $56 billion (missed a year or more of payments), while three million are running a month or more behind ($66 billion). An additional 110 million have cut a forbearance/deferment deal that allows them to temporarily stop paying due to an emergency (such as unemployment, notes the 
Journal -- always the master of understatement, right?).



Exhibit B: National Direct Student Loan papers that I signed for College #2, the high-profile state school ($750 in all). Apologies for the quality, but the paper has gotten a bit faded over the years (though not the memory, obviously!).



<iii.>

By any measure, those are scary numbers. However, the dialogue on this issue gets downright surrealistic, as the Boston Globe noted of a 65-year-old man, Robert E. Murphy, who's challenging the undue hardship test that remains the sole legally sanctioned escape from student loan debt. Murphy, a former manufacturing company president, is trying to shed himself of a $246,000 debt incurred to fund college tutition for his three children.

As the Globe reports, Murphy considers the debt an "undue hardship" since a) his job evaporated after his employer moved overseas 14 years ago (where've we heard 
that one before?), which b) depleted his retirement savings, leaving him c) in foreclosure. He and his wife are surviving on her $13,200  teacher's aide salary. What's that saying? Stick a fork in him, he's done.

A federal appellate judge sided with Murphy, saying, "If this [situation] doesn't constitute undue hardship, what would?" However, the U.S. Bankruptcy Court ruled against Murphy, saying he's healthy and well-educated enough to find a job. How a person past the wrong side of 50 re-enters the job market isn't clear. Even if he managed it, however, the meter will keep running on fees and interest, making it difficult -- if not impossible -- to catch up.

That's how a bankrupt, bedridden social worker saw their '80s-era loan balance balloon from $13,000 to $70,000 (to name one of several examples from the Reuters article). How defensible is it to shove people down these rabbit holes, especially when the "undue hardship" definition has remained largely unchanged for decades? That's like your local hospital basing its cardiac arrest treatment on '70s-era reruns of "Emergency," down to the suitcase-sized devices that its heroic paramedics lugged everywhere. (Suffice to say, we'd probably go elsewhere if confronted with such absurdities in real life.)

Apparently, these big questions don't bother the appellate justices, who are suggesting that Murphy settle with the Educational Management Corporation, the entity that the feds hired to fight him (presumably, all on the taxpayers' dime, though the article doesn't explain how much that little endeavor has cost).

Maybe he can bargain them down to $245,000, or $244,000, or -- if they're in a really generous mood -- $243,000.Why, that's a steal, right? You never know, I suppose. I just thank my lucky stars that my own educational habit never grew quite this large....but then again, it was a different era. 



A letter from College #1, acknowledging my clean slate (as of 8/29/91). Ironically, the more expensive institution, College #2, signed off five months earlier (3/22/91).


<iv.>
The saddest part of this whole mess, of course, is that it's not a mystery how we got here. As Reuters' article notes, college tuition has risen more than 900 percent since 1978, when Congress began making it harder (and then, nearly impossible) to discharge student loans through bankruptcy. By contrast, median male income has risen 165 percent, yet the percentage of Americans who hold bachelor's degrees has gone from 20 percent to nearly a third. Those statistics reflect how the mission changed from the post-war affluence of the '50s, when returning GIs looked for ways to make themselves more marketable, to a simple way of keeping young people off the unemployment rolls (as some of my professors stated, during an unguarded moment or two, back in the day ).

Even so, common sense alternatives do exist. We don't have to keep doing the same damn thing over and over (and thus, making the same mistakes over and over). Re-evaluating the hardship standard, and how it's determined -- as I've already suggested -- would be a start. With so many millions patching together part-time jobs just to survive, it's the least that we can do. How about capping interest rates, or at least tying the loan repayments to the type of job that you get -- as Australia does, for instance? (See the link below for an extended look at how the student loan system works Down Under.)

If nothing else, it's also high time to tell America's colleges and universities that they can't have it both ways anymore. For example, just 25 percent of U.S. professors are full-time employees. That leaves the remaining 75 percent work as adjuncts, with no benefits, no health insurance, no retirement, and (as the Sex Pistols said): "No future....No future....No future....for youuuuu!" In short, we need to tell them, quite forcefully -- and empathically -- that you cannot preach 21st century ideals of diversity, inclusion and openness, yet leave most of your workforce languishing in the 19th century.

And for those who trust the donor classes to take care of our business, I leave you with this quote, attributed to the British Prime Minister, Winston Churchill: "Americans can always be counted to do the right thing....after they have exhausted all other possibilities." While it's doubtful that Churchill actually, "then he should have," as Senator Mark Warner (D-VA) jokes. 
At any rate, you get the picture....it doesn't have to be this way. --The Reckoner


Links To Go (By The Time You Read This,
Your Interest Rate Will Have Gone Up):
Boston Globe:
Bankrupt Duxbury Dad Battles To Get Student Loan Forgiven:
https://www.bostonglobe.com/metro/2016/03/13/bankrupt-dad-battles-get-student-loan-debt-forgiven/cYGo9MeCZ5hj1oPdCqezbO/story.html

Reuters.com:
Column: The Student Loan Crisis That Can't Be Gotten Rid Of:
http://www.reuters.com/article/us-student-loan-crisis-idUSBRE87E13L20120815


Slate:

Wall Street Journal:
More Than 40% Of Student Borrowers
Aren't Making Payments:


http://www.wsj.com/articles/more-than-40-of-student-borrowers-arent-making-payments-1459971348

(As always....cut 'n' paste into your browser if the links themselves don't work.)

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