Debt Servitude and the Student Loan Bubble
In 2011, the U.S. Department of Education issued its first annual “shame list” of colleges and universities. The list was supposed to pressure schools classified as exorbitantly expensive into reducing their total cost of attendance, or at least to curb the growth in student costs. Unfortunately, the DOE’s impact was less than impressive. Average student loan debt hit a record of nearly $30,000 per student last year, and has grown well beyond the rate of inflation for decades. In late February, the New York Times reported that the state of education in the U.S. was worsening. About 12 percent of student loans were considered “seriously delinquent,” and this was not counting many of those loans in forbearance because of graduates’ inability to make payments. Total student loan debt in the U.S. is now a staggering $1.2 trillion. The problem continues to worsen, as the growth in seriously delinquent loans grew by nearly 100 percent from 2010 to 2013. In 2011, Obama announced via executive order that students borrowing money for college (from 2012 onward) would be eligible for an “income based repayment” plan (which was originally passed under the Bush administration) in which college grads would pay no more than 10 percent of their income (compared to the previous 15 percent under Bush) back into student loans. The effort is likely to ease the future suffering of some, but it’s kind of like putting a band aid on a massive wound when we look at the threat growing student debt poses. In late February, for example, the New York Times reported that the student loan crisis appears to be harming the housing industry. Their report concluded that loan applications for homes fell by 20 percent by late 2013 compared to one year earlier. The trend specifically relates to recent college graduates: “First-time buyers, the bedrock of the housing market, are not stepping up to fill the void. They have accounted for nearly a third of home purchases over the past year, well below the historical norm, industry figures show. The trend has alarmed some housing experts, who suspect that student loan debt is partly to blame. That debt has tripled from a decade earlier, to more than $1 trillion, while wages for young college graduates have dropped.”
Is the student loan debacle comparable to the housing bubble collapse of 2008? There should be little doubt that it represents a massive, unsustainable bubble, considering how rapidly and unsustainably this debt grew. The likely payoff of getting a four year degree is looking less enticing compared to the cost of obtaining the degree. Debt servitude is a future no one wants to embrace. Federal officials are seemingly trying to head off a mass collapse in the trillion dollar loan bubble with income based repayment plans that transfer much of the cost of these debts to taxpayers more generally. Short of another major economic crisis, student loan borrowers are unlikely to default all at once, as happened with the Wall Street bubble crash in late 2008. But there should still be great concern that the taxpayer burden of these loans is increasingly unbearable. And a mass default (followed by bankruptcy of companies holding these loans) is possible in the future if there is another economic crisis accompanied by growing unemployment.
The negative effects of this mountain of debt are disturbing. The average student borrows $30,000 to pay for college, and parents typically borrow (on average) more than $20,000. The average public university in Illinois where I teach (for example University of Illinois or Illinois State University) is nowhere near affordable for the “average” family. A family putting one child through college (and earning, for example, $60,000 to 70,000 a year) will need to cover an average of about $23,500 in total cost of attendance per year. This translates into a tremendous burden for parents and children – nearly $95,000 per student for four years. Half of that cost realistically materializes in the form of student loans (adding the average parental and student loans together), with the other half being paid for by parents who deplete their earnings and savings. The actual costs per family are likely to be much higher than $96,000, as recent estimates suggest that recent high school graduates on average will take nearly six years (not four) to graduate. Add to this the growing cost of living in America – covering rapidly increasing costs of food, health care, and consumer products – and student loan debt contributes to a “death of a thousand cuts” assault on America’s shrinking middle class.
As a professor with ten years experience teaching in higher education across a variety of colleges and universities (public and private) in Illinois, it saddens me to see in real time the unfolding of the higher ed crisis. Most faculty sat idly by as this crisis emerged. Complacency was the norm in the social sciences, where faculty are encouraged not to get involved in “real world” issues (that would threaten their alleged professionalism and “objectivity”). The ivory tower is largely divorced from the real world concerns of students who are struggling to find careers (or even jobs), while facing the dual blows of student loans and the other cost of living increases. Perversely (and embarrassingly), some faculty I speak with are so delusional that they refuse to even recognize that there is a problem. Yes, incompetence is a problem in the ivory tower too.
Among the forces contributing to the skyrocketing cost of education include: bloated administrative salaries and the rapid growth in administrative employees, the significant increase in college staff as part of the larger bloated college administrative apparatus (administration and staffers now outnumber full-time, tenure track and tenured faculty), and the massive budget cuts across American states, which forced huge increases in student tuition to offset those cuts. Perhaps most toxic is the administrative race to the bottom, personified in schools’ growing “competition” for students, in the process turning campuses from humble places where students learn into gloried day spas. The rise of the luxury campus is seen most clearly in massive allocations spent on new recreational facilities, on frivolous amenities such as rock climbing walls, state of the art work out facilities, and brand new dorms (constructed instead of renovating older dorms). Administrators recklessly and incompetently upsized their campuses amidst state budget cuts, knowing full well that their revenue stream would not shrink due to federal bankruptcy laws that prevent students from wiping away their student loan debts. They preyed on the ignorance of students and parents who had not stopped to consider the massive debt burden with which they would be saddled. In the process, administrators also created a highly inefficient, bloated, and unnecessary educational bureaucracy. I have no problem with renovating older, worn-out facilities, but what exactly is to be gained from completely transforming colleges into high-end hotels if no one can afford to go to them?
Sadly, faculty refused to mobilize against the student loan crisis, and administrators have been happy to hammer the nails into the coffin of higher ed. State officials played a damaging role by redefining higher education from a public good into a private one. In cutting funding for colleges, they forced that cost onto individual students. In the process of privatizing schools, many seem to be ignorant to the reality that these institutions are no longer affordable to the masses of Americans. In short, the system is broken. We desperately need of a revolution in the way we look at higher ed if there is to be any future for, or sustainability in American colleges and universities.
Anthony DiMaggio holds a Ph.D. in Political Science from the University of Illinois, Chicago. He has taught U.S. and global politics at numerous colleges and universities, and written numerous books, including Mass Media, Mass Propaganda (2009), When Media Goes to War (2010), Crashing the Tea Party (2011), and The Rise of the Tea Party (2011). He can be reached at: firstname.lastname@example.org.