Gunnels notes with irony that a few years ago, when Obama moved to eliminate private-lender middlemen from the servicing of federally backed loans, much hay was made out of the enormous profits private industry had long earned on the backs of students. The Congressional Budget Office issued a report estimating that Obama's program would save $86.8 billion over a 10-year period by eliminating private profits from the system. Obama said taxpayers were "paying banks a premium to act as middlemen," adding that it was a "premium we cannot afford."
The outrage over profits, however, was short-lived.
"It was wrong when banks were making an $86 billion profit on students, but somehow it's OK when the government makes a $185 billion profit on them," says Gunnels.
One of the reasons the money has kept flying out the government's door over the years is that data about student-loan-default rates has been carefully concealed from the public and from Congress. For years, when it reported statistics about student defaults, the DOE relied upon a preposterous arbitrary calculation called the "cohort default rate," which essentially measured the rate of default only within the first two years of graduation. In 2008, Congress passed a law forcing the DOE to switch to a theoretically more accurate three-year measurement, which it sent to Congress for the first time last year. Overnight, the picture looked a good bit grimmer. The 2009 number, based on the old two-year 2009 "cohort" rate, was 8.8 percent. When the new three-year number came out, the rate had jumped to 13.4 percent.
The Department of Education refuses to release more accurate default numbers. But outsiders think the DOE is lowballing it. The Chronicle of Higher Education charges that the government "vastly undercounts defaults." In 2010, it estimated that one in five had defaulted on their loans since 1995, that 31 percent of community-college students default and that an astonishing 40 percent of students attending for-profit schools end up defaulting. A report by the Inspector General of the Department of Education has come to similar conclusions about the reliability of the absurd and arbitrary "cohort" figure.
However high that default number really is, what's clear is that the state is still able to turn billions in profit on its lending, and expects to continue to do so for the next 10 years. The reason for that, again, lies in something everyone who has a student loan understands implicitly – the state and its collectors are not squeamish collecting the money they're owed. The government is in the pain business, and business is good.
"They called me at work, sometimes two to three times a day, doing all the stuff they aren't supposed to do: threats, et cetera," says 41-year-old Shawn FitzGerald, who owes $300 a month and says he expects to be paying off education loans into his sixties. "They told the receptionist at my job that I was in legal trouble. . . ."
"Sallie Mae has started sending letters to my deceased mother," says Thomas Daggett of Chesterfield, Massachusetts, who left school in the Nineties and owes $35,000.
"I have been told I made the wrong decision going to college, as well as being told I was a failure, an idiot and a mooch," says Larissa, a young woman from a blue-collar town outside Chicago. "I've had ex-boyfriends that I never even lived with contacted by collection agents, my childhood friend's distant relatives contacted by them, as well as distant relatives of my own. . . ."
"I try not to look at the balances because the prospect of paying them off with my shit salary is so goddamn depressing it makes me want to chug vodka until I pass out," says Robert Boardman, a proud but underemployed owner of a doctorate from the University of Michigan.
There's a particularly dark twist to the education story, which is tied to the collapse of the middle class and the overall shittening of our economic landscape: College degrees are actually considered to be more essential than ever. The New York Times did a story earlier this year declaring the college degree to be the "new high school diploma," describing it as essentially a minimum job requirement. They found an Atlanta law firm that requires even clerks, secretaries and runners to have four-year degrees and cited research that everyone from hygienists to cargo agents needs to have graduated from college to get hired.
You can look at this development in one of two ways. One way is to see a college degree as a better investment than ever, which was the conclusion of the Organization for Economic Cooperation and Development, which noted that the difference in earnings between the poorly and well-educated has risen in recent years with the worsening economy.
But another way to look at this new truth is that, because of the poor job market, young people may have less of a chance than ever to actually get a good job commensurate with their education. If they don't have the degree, then they have no chance at all. So if they even want a clerking job, they must dive face-first into the debt muck and take their chances that they won't end up watching the federal government take bites out of disability checks while their law degree gathers dust downstairs somewhere. So, yes, a college education is a great thing, and you probably need one now more than ever – the problem is that it may very well be mandatory, may have less of a chance of ever getting you a job, and you may still be paying for it on your deathbed no matter what.
There are powerful reasons for both the left and the right to be willfully blind to the root problem. Democrats – who, incidentally, receive at least twice as much money from the education lobby as Republicans – like to see the raging river of free-flowing student loans as a triumph of educational access. Any suggestion that saddling befuddled youngsters with tens of thousands of dollars in school debts is somehow harmful or counterproductive to society is often swiftly shot down by politicians or industry insiders as an anti-student position. The idea that limitless government credit might be at least enabling high education costs tends to be derisively described as the "Bennett hypothesis," since right-wing moralist and notorious gambler/dick/hypocrite Bill Bennett once touted the same idea.
"It is wrong to suggest that student aid is a cause for growing college costs, in any sector," David Warren, president of the National Association of Independent Colleges and Universities, wrote in The Washington Post last year, bemoaning the "re-emergence" of the Bennett theory. "To argue so is counterproductive to the goal of making higher education accessible and affordable."
Conservatives, meanwhile, with their usual "Fuck everybody who complains about anything unless it's us" mentality, tend to portray the student-loan "problem" as a bunch of spoiled, irresponsible losers who are simply whining about having to pay back money they borrowed with their eyes wide open. When Yale and Penn recently began suing students who were defaulting on their federal Perkins loans, a Cato Institute analyst named Neal McCluskey pretty much summed up the conservative take. "You could take a job at Subway or wherever to pay the bills," he said. "It seems like basic responsibility to me."
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