The hidden truth about student loans

The president's proposal to combat the student loan debt crisis is a good start. But let's get real about its cause

Topics: Barack Obama, College, Student Loan Debt, student loans, Congress, Financial Aid, ,

The hidden truth about student loans (Credit: AP/Pablo Martinez Monsivais)
This article originally appeared on The Suffolk Reserves.

News outlets across the country were abuzz yesterday after the New York Times revealed a plan by the Obama White House to give a series of highly publicized speeches addressing the student loan debt crisis “aimed at making colleges more accountable and affordable by rating them and ultimately linking those ratings to financial aid.” Obama is crisscrossing New York and Pennsylvania in an effort to highlight the student loan crisis and suggest a number of solutions he hopes to implement – some via executive action, others through legislative compromise (ha!) with the GOP:

A draft of the proposal, obtained by The New York Times and likely to cause some consternation among colleges, shows a plan to rate colleges before the 2015 school year based on measures like tuition, graduation rates, debt and earnings of graduates, and the percentage of lower-income students who attend. The ratings would compare colleges against their peer institutions. If the plan can win Congressional approval, the idea is to base federal financial aid to students attending the colleges partly on those rankings.

Unfortunately, the amount Obama is able to accomplish is tied to the willingness of Congressional Republicans to work with the president at crafting legislation, no easy task. But Alec McGillis of The New Republic offers some hope that bipartisan compromise might be possible, noting that, “when Republicans do rise against Obama’s cost-control plan as another example of heavy-handed big government, they should be aware that his plan has firm roots in George W. Bush’s White House.”  Meanwhile, at New York Magazine, Jonathan Chait suggests that the GOP’s hatred of the Affordable Care Act – another traditionally conservative policy proposal – could serve as a blueprint for how Congressional Republicans might oppose Obama’s new education agenda:

Finding ways to get the government to spend less on education sounds pretty conservative. On the other hand, so did finding ways to get the government to spend less money on health care, a goal Republicans now deem a socialistic nightmare so terrifying they are mulling which catastrophic hostage threat they should use to destroy it.

The president’s initiative is a valuable – albeit limited – step in the right direction. Obama should be applauded for using his “bully pulpit” to draw attention to this enormous problem rather than just contentedly back-patting House Republicans for their exemplary and bipartisan work jacking up student loan interest rates on tweens. As an aside, it’s not unlikely that many of the friends of Obama’s daughters Sasha and Malia will be the victims of a student loan interest rate that quickly soars to 7 percent or 8 percent at the precise moment the economy finally starts to recover.

Despite the awful student loan interest rate “compromise” that Obama brokered, he deserves credit for his newest initiatives: if successful (and that’s a big “if,” considering the practical challenges of implementing his program) his reforms could help millions of teenage Americans avoid catastrophic, uninformed choices made far, far too young. And while the president’s plans don’t go nearly far enough, this may be evidence of the considerable constraints on his political capital, and not some cynical unwillingness to help tens of millions of desperate students, graduates and dropouts.

You Might Also Like

Still, Obama seems intent on selling the notion that colleges are unscrupulously raising costs in a vacuum, without any external incentives that might motivate their behavior. The president is effectively using his enormous mouthpiece to conceal his own role in the debt crisis. As Matt Taibbi recently highlighted in his damning appraisal of the “student loan scandal,” Obama enacted a new loan bill in 2010 that has only served to exacerbate the problem of rising tuition costs:

While it’s not commonly discussed on the Hill, the government actually stands to make an enormous profit on the president’s new federal student-loan system, an estimated $184 billion over 10 years, a boondoggle paid for by hyperinflated tuition costs and fueled by a government-sponsored predatory-lending program that makes even the most ruthless private credit-card company seem like a “Save the Panda” charity. Why is this happening? The answer lies in a sociopathic marriage of private-sector greed and government force that will make you shake your head in wonder at the way modern America sucks blood out of its young.

Much like the changes to bankruptcy law in the late ’90s and early 2000s that largely created the current crisis, Obama’s student loan bill brought to the federal government the same broken misincentives that corrupt the interests of loan originators and universities. As Taibbi explains, the Department of Education learned to love student loans exactly at the point when they started to earn a sizable profit:

[...] the government can essentially lend without fear, because its strong-arm collection powers dictate that one way or another, the money will come back. Even a very high default rate may not dissuade the government from continuing to make mountains of credit available to naive young people.

“If the DOE had any skin in the game,” says [StudentLoanJustice.org Founder Alan] Collinge, “if they actually saw significant loss from defaulted loans, they would years ago have said, ‘Whoa, we need to freeze lending,’ or, ‘We need to kick 100 schools out of the lending program.’”

Turning down the credit spigot would force schools to compete by bringing prices down. It would help to weed out crappy schools that hawked worthless “degrees in bullshit.” It would also force prospective students to meet higher standards – not just anyone would get student loans, which is maybe the way it should be.

Much like the Affordable Care Act and the attempt at “fixing healthcare,” Obama’s new proposals are barely even a stopgap compared with the enormous tidal wave of unsustainable debt young Americans are accumulating. Even if fully enacted, this would only be the tiniest first step down a very long road – but if we want to fix the student loan crisis before it imperils the entire American economy, we need to introduce greater transparency and accountability to our unconscionably expensive (and secretive) university system. Obama’s newest proposals aren’t a bad place to start.

Tim Donovan is a freelance author who blogs about Millennial issues at The Suffolk Resolves. Follow him @tadonovan.

More Related Stories

Featured Slide Shows

  • Share on Twitter
  • Share on Facebook
  • 1 of 13
  • Close
  • Fullscreen
  • Thumbnails

    The 12 most incredible pint-size look-alikes in "Orange Is the New Black" season 3

    DAYA  
    Young Daya has yet to become entirely jaded, but she has the character's trademark skeptical pout down pat. And with a piece-of-work mother like Aleida -- who oscillates between jealousy and scorn for her creatively gifted daughter, chucking out the artwork she brings home from summer camp -- who can blame her?

    The 12 most incredible pint-size look-alikes in "Orange Is the New Black" season 3

    MORELLO   
    With her marriage to prison penpal Vince Muccio, Lorna finally got to wear the white veil she has fantasized about since childhood (even if it was made of toilet paper).

    The 12 most incredible pint-size look-alikes in "Orange Is the New Black" season 3

    CINDY   
    Cindy's embrace of Judaism makes sense when we see her childhood, lived under the fist of a terrifying father who preached a fire-and-brimstone version of Christianity. As she put it: "I was raised in a church where I was told to believe and pray. And if I was bad, I’d go to hell."

    The 12 most incredible pint-size look-alikes in "Orange Is the New Black" season 3

    CAPUTO   
    Joey Caputo has always tried to be a good guy, whether it's offering to fight a disabled wrestler at a high school wrestling event or giving up his musical ambitions to raise another man's child. But trying to be a nice guy never exactly worked out for him -- which might explain why he decides to take the selfish route in the Season 3 finale.

    The 12 most incredible pint-size look-alikes in "Orange Is the New Black" season 3

    BOO   
    In one of the season's more moving flashbacks, we see a young Boo -- who rejected the traditional trappings of femininity from a young age -- clashing with her mother over what to wear. Later, she makes the decision not to visit her mother on her deathbed if it means pretending to be something she's not. As she puts it, "I refuse to be invisible, Daddy. Not for you, not for Mom, not for anybody.”

    The 12 most incredible pint-size look-alikes in "Orange Is the New Black" season 3

    SOSO
    We still don't know what landed Brooke Soso in the slammer, but a late-season flashback suggests that some seriously overbearing parenting may have been the impetus for her downward spiral.

    The 12 most incredible pint-size look-alikes in "Orange Is the New Black" season 3

    POUSSEY
    We already know a little about Poussey's relationship with her military father, but this season we saw a softer side of the spunky fan-favorite, who still pines for the loving mom that she lost too young.

    The 12 most incredible pint-size look-alikes in "Orange Is the New Black" season 3

    PENNSATUCKY
    Pennsatucky had something of a redemption arc this season, and glimpses of her childhood only serve to increase viewer sympathy for the character, whose mother forced her to chug Mountain Dew outside the Social Security Administration office and stripped her of her sexual agency before she was even old enough to comprehend it.

    The 12 most incredible pint-size look-alikes in "Orange Is the New Black" season 3

    CHANG
    This season, we got an intense look at the teenage life of one of Litchfield's most isolated and underexplored inmates. Rebuffed and scorned by her suitor at an arranged marriage, the young Chinese immigrant stored up a grudge, and ultimately exacted a merciless revenge.

    The 12 most incredible pint-size look-alikes in "Orange Is the New Black" season 3

    HEALY
    It's difficult to sympathize with the racist, misogynist CO Sam Healy, but the snippets we get of his childhood -- raised by a mentally ill mother, vomited on by a homeless man he mistakes for Jesus when he runs to the church for help -- certainly help us understand him better.

    The 12 most incredible pint-size look-alikes in "Orange Is the New Black" season 3

    NORMA
    This season, we learned a lot about one of Litchfield's biggest enigmas, as we saw the roots of Norma's silence (a childhood stutter) and the reason for her incarceration (killing the oppressive cult leader she followed for decades).

    The 12 most incredible pint-size look-alikes in "Orange Is the New Black" season 3

    NICKI
    While Nicki's mother certainly isn't entirely to blame for her daughter's struggles with addiction, an early childhood flashback -- of an adorable young Nicki being rebuffed on Mother's Day -- certainly helps us understand the roots of Nicki's scarred psyche.

  • Recent Slide Shows

Comments

Loading Comments...