On April 25, 2012, student loan debt in the United States will have already reached $1 trillion ($1,000,000,000,000), in excess of credit card and auto loans, say organizers with Occupy Student Debt Campaign, a group calling for a day of action to “celebrate” this momentous occasion. An article from Salon explains this further:
When there are Americans whose Social Security checks are being garnished to pay off their outstanding student loan debt, then it is clear that the United States has a problem. And the rising number of seniors who haven’t paid off loans taken out decades earlier is only one of several reasons to be alarmed by a report on student loan debt released by the Federal Reserve Bank of New York in March.
Total debt, as of the end of the third quarter of 2011, had reached $870 billion, a number, the Fed was quick to point out, that eclipses what Americans owed on their credit cards and on their auto loans. According to a more recent report from the Consumer Financial Protection Bureau (CFPB), the amount currently owed on both federal and private student loans has already broken the trillion-dollar barrier.
That’s not just bad for the people struggling to pay off their debt — people who, according to CFPB student loan ombudsman Rohit Chopra, are being punished for “doing exactly what they were told would be the key to a better life.” The burgeoning debt numbers also pose a growing threat to the larger economy: money spent paying back student loans is money that isn’t stimulating overall economic growth. Who will dare risk becoming a first-time home-buyer, for example, or buy a new car, when still struggling to pay back thousands of dollars on their education?
The ramifications of this are, as we can see, huge to say the least. Political response to this has, unsurprisingly, been half-hearted and incompetent at best. A slightly condescending article from the Washington Post shows us the reaction from Republican hopefuls, starting with Rick Santorum, recipient of a Juris Doctor from the Publicly-funded Dickinson School of Law:
Rick Santorum went so far as to label Obama “a snob” for urging all Americans to try to obtain some form of post-high-school education — even though some polls show over 90 percent of parents expect their children to go to college.
Front-runner Mitt Romney denounces what he calls a “government takeover” of the program. Newt Gingrich calls student loans a “Ponzi scheme” under which students spend the borrowed money now but will “have to pay off the national debt” later in life as taxpayers. And Ron Paul wants to abolish the program entirely.
Inept, out of touch politicians are hardly newsworthy, so instead of beating a well-dead horse, let’s address the root cause of the problem, as stated in the same article:
Lifting student debt higher and higher is the escalating cost of attending schools, with tuition increasing far faster than the rate of inflation. And enrollment has been rising for years, a trend that accelerated through the recent recession, fueling even more borrowing.
Mark Zandi, chief economist at Moody’s Analytics, argues that government loans and subsidies are not particularly cost-effective for taxpayers because “universities and colleges just raise their tuition. It doesn’t improve affordability and it doesn’t make it easier to go to college.”
“Of course, it’s very hard on the kids who have gone through this, because they’re on the hook,” Zandi added. “And they’re not going to be able to get off the hook.”
Here is the crux of the matter, it seems: a rising cost of education, far in excess of inflation, coupled with a stagnant job market make repayment of debt exponentially harder. This does not just affect the young of this country, however, as the crisis has gotten to the point that Social Security checks are being garnished in order to repay loans made 30 or more years ago, which in this writer’s opinion, is lunacy bordering on serfdom. It’s not just a coincidence it’s called a “Master Card” after all.
Since the government isn’t helping us, perhaps the market will provide? It has, in the form of a Debit Card that pays off your loans while you shop! Here’s a quote to enjoy while the writer empties his stomach:
Here’s how the card works: Cardholders get 0.5% rewards for signature-based purchases of up to $100 and 1% on anything over that amount. (Regular debit-card programs offer 0.5% on average in rewards, according to Bankrate.com.) To earn enough rewards to make a dent in their student loan balance, cardholders will need to spend — a lot. Someone who swipes for $1,000 in purchases per month can get up to $10 in monthly rewards. The company says those rewards can lead to real savings: If applied to a 10-year loan of $8,500 at 6.8% interest, it could help a borrower repay that debt 16 months faster and save up to $1,500. But for the roughly two-thirds of students who graduate college with loans, which are projected to average $28,700 this year, earning $10 a month in rewards will shave just five months off their repayment period.
There are also fees. Cardholders will incur a $2 fee if they use an ATM outside the card’s network, while the average out-of-network fee is $1.41, according to Bankrate.com. Checking account fees include a $5 fee to get a copy of their statement and a “research fee” of $25 per hour if the cardholder wants the bank to review their account — something many banks don’t charge for, says Ulzheimer. Some of the fees are no higher than the industry average, says Greg McBride, senior financial analyst at Bankrate.com. For instance, there’s a $25 charge for insufficient funds, when the cardholder tries to withdraw more money from their checking account than they have. The average fee is $30.83, McBride says.
The modus operandi of this scheme is about as opaque as an especially thin film of Saran Wrap. It’s hardly a secret that financial industries have been preying on student, especially desperate ones, for decades, but what is especially noteworthy is the fact that this, too, will contribute to the problem, given the prevalence of unpaid internships plaguing academic programs. As Esquire reports on page two of this article:
Once you’re out of college, you’ll have to intern. Again, no choice. The practice of not paying young people for their labor has become so ingrained in the everyday practice of American business that we’ve forgotten how bizarre and recent the development is. In the early 1980s, 3 percent of college grads had had an internship. By 2006, 84 percent had done at least one. Multiple internships are common. According to a survey by the National Association of Colleges and Employers, more than 75 percent of employers prefer students who have interned or had a similar working experience.
Employers have feasted on despair — and these aren’t internships for struggling small presses or rarefied design companies. Subsidiaries of General Electric, a company worth $200 billion, employ them regularly as an “important recruiting tool.” Disney uses eight thousand of them in dismal working conditions. Jennifer Lopez Enterprises uses them. So does The Daily Show. So does the pope. And because internship programs are sheltered from the violation of labor laws by the complicity of universities that give students “credit” for them — as long as the students pay thousands of dollars for those credits — American companies can operate these programs for the most part hidden from scrutiny. The best study of intern life in America found that companies save annually around $2 billion from pseudo-employment.
The bottom line is this: students are being preyed upon and used as cash cows to finance multiple corrupt industries, while being left with the bill for slaughter and cleanup and no means to pay it off in their lifetime. Inescapable student loans, rapidly disappearing employment prospects, and predatory groups have helped to maintain the status quo, riding the bubble until it pops under its own weight. If you thought the housing market pop was bad, this will make it look like a bad night in Vegas comparatively.