College students are losers in the game of student loan debt

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Information courtesy of Public Campaign, Consumer Financial Protection Bureau, The Center for College Affordability & Productivity and Wall St. Journal
Graph by Jennifer Luxton/ Visual Editor

It has been proclaimed that this piece of paper is the pathway to a richer life. The ‘American dream’ can be realized; securing a well paying job, buying a house and accumulating savings.

But this is far from the truth. In fact, this piece of paper, a college degree, is increasingly becoming a path to a lifelong servitude to debt for many college students. And this is not by choice.

As the higher education system has dramatically changed to become a profit-oriented business. The meaning of earning a degree has been reshaped to benefit the few while hurting students. Not only are students trapped in a vicious cycle of life-long debts when leaving school, they also need to face a reality of underemployment and stagnated wages.

However, most leaders in this country fail to realize that by making students slaves to yet another debt system, they are hurting our capitalistic society. It cannot and will not survive without good customers who regularly posses the credit or capital to consume.

Student loans are not a financial epidemic that only have a micro level impact. This perpetual cycle will slowly demolish this nation as a whole.

In 2010, President Obama addressed the issue of student loans and stated that “no one should go broke because they chose to go to college.” Yet, the president has not only made it easier to take out student loans, but also continues to neglect the issue, a political rationale heavily influenced by lobbying efforts of related parties, the winners in this exploitative cycle.

The student loan industry has had a disproportionate impact on how the future for a college student should play out. They have spent prodigious time and money to make sure that their envisioned future of indebted fellow citizens continues to be highly profitable.

A 2012 report by Public Campaign, a nonpartisan organization, show that since 2000, the student loan industry has spent more than $50 million on lobbying to advance their interests. The biggest private student loan provider Sallie Mae (SLM) has spent more than $32 million lobbying since 2000 and “its PAC and employees have given almost $4 million in campaign contributions during the same period.” Without any doubt, the hard work of lobbying is certainly paying off for the industry.

According to the 2012 report by the Consumer Financial Protection Bureau, the student loan debt has now hit the one trillion dollar mark. Unlike “other consumers credit products, student debt keeps growing at a steady clip.” Consequently, the outstanding student loan balance has now surpassed the total credit card balance and the total auto loan balance.

More than 20 million Americans attend college each year and close to 12 million, or 60 percent, borrow annually to help cover the cost that continues to rise. The younger generation whom we supposedly invest in to become the next productive members of our society, are instead becoming the lost, barren generation.

The 2012 report by the Federal Reserve Bank of New York shows that among people under 30, more than 40 percent have outstanding student loan debt and almost $580 billion of the debt total is owed by people younger than 40. Perhaps more importantly, more than $80 billion of the outstanding debt is past due and unlike credit card debt or car loans, bankruptcy can rarely, if ever, be utilized by those who struggle to pay back student loans to clear their outstanding debt.

This has not always been the case.

Before the bankruptcy code was significantly altered, college students were able to discharge their educational loans, but after 1976, this came to an end. That year, Congress changed the code so that loans made by the government or a non-profit college loan could not be filed for bankruptcy during the first years of repayment. However, the biggest change came in 2005 when Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act which rendered federal or private loans ineligible for bankruptcy, a law that groups student loans with other ineligible debt such as child support and criminal fines. Lobbying certainly pays off. In fact, now you have a better chance to file for bankruptcy for gambling than with student loans.

But why are borrowers having such difficulty in paying back their loans?

Undoubtedly, most people enroll in college because they presume that the golden key to a better future is a college degree. We are constantly told that without a college degree, one’s future can only be condemned. Like most leaders, Obama has constantly employed education as a political focal point. Through speeches and his administration through policy have stressed that higher education is “the prerequisite for the growing jobs of the new economy.”

However, the younger generation are not only being punished for trying to succeed in life, but they have to face a job-market where the “growing” job opportunity ends in underemployment and unsustainable wages that can barely pay the rent, let alone the principal on student loans.

A 2013 report by the Center for College Affordability and Productivity explicate that almost 50 percent of employed U.S. college graduates are currently working in jobs that the Bureau of Labor Statistics (BLS) say requires less than a four-year college degree. Furthermore, about five million college graduates are in jobs that require less than a high-school education.

Although we tend to see student loans as an individual issue, it’s imperative to remember that this is a burden that undoubtedly forestalls things such as auto and home purchases, industries that can create jobs and spur further economic growth.

According to the 2012 report “Denied? The Impact of Student Debt on the Ability to Buy a House” by the youth advocacy group Young Invincible, “the average single debtor will likely be ineligible for the typical home mortgage due to their debt-to-income ratio.” The report also show that the future is equally grim for couples looking to buy a house if both buyers have student debt. But student loans also have a long-lasting effect that is increasingly becoming a hardship for the family as a whole.

In 2000, there were only six cases in which the federal government withheld money from Social Security recipients who had fallen behind their on their federal student loans. In 2012, that number had grown exponentially when the “government reduced the size of roughly 115,000 retirees Social Security checks on those grounds,” according to Wall Street Journal.

Sadly, many retirees are not even indebted for their own education. Some borrowers went into debt later in life to cover education cost for their children or other family members.

Thomas Jefferson once said “the end of democracy and the defeat of the American revolution will occur when government falls into the hands of lending institutions and moneyed incorporations.” Little did Jefferson know that he had predicted the future of this country. If a society cannot foster a well-educated population that perceives higher education as an investment, how can this nation ever progress? In the end, everyone will lose if this country continues to take the same irrational path with higher learning.


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  • BurgerLess

    Getting a student loan without collateral was the greatest thing that ever happened to me. I couldn’t have come to CSUN without it.

  • Jon Soto

    In addition to my prior statement, there is not a problem Capitalism cannot solve. Learn to be a Capitalist and not a Marxist. Applying Capitalism can solve your debt problems. Invest in your own ideas. It doesn’t get any simpler.

  • Jon Soto

    Just either start a business or get a job to pay back your loans. Don’t think the world owes you a living. Follow in the footsteps of great Americans like Edison, Disney, Ford, et al. If you’re a creative writer, get published and earn $$$$$$$$$$ from royalties. But, first Copyright your work. If you are determined, nothing prevents you from earning an honest dollar from doing what you love. Even if you have to sell iced tea and lemonade to CSUN students at campus events, nothing stands in the way of the enterprising individual. Minority students, don’t be a culture victim, be an entrepeneur. But then, you’d have to believe in Capitalism. Capitalism can make your dreams come true. Stop being Liberal Socialists, and be self sufficient Capitalists. Marxism, Communism, etc. won’t let you get what you want out of life, only Capitalism and Liberty will. When you apply the American principles of Liberty, Entrepeneurship, and Independence your loans will be a footnote to your life.

    • http://www.facebook.com/people/David-Griffin/1598275297 David Griffin

      Jon, let’s bring capitalism back to student lending, by all means. The irony is unbearable here. You, the purveyor of capitalism and entrepreneurship, conveniently forgot to mention that ALL of the basic free market, capitalistic mechanisms of consumer protection; fair debt collection practices, truth in lending, usury laws, right to refinance/consolidate, statute of limitations, bankruptcy protections and many more have all been curiously stripped from this debt instrument. So here is a bit of capitalist logic, let’s do with student loans what capitalists do for those when their businesses fail, give them an opportunity to learn their lesson and start over.

      • Jon Soto

        Opportunity is for all, that is the gift of a capitalist society. You can get out of debt if you’re enterprising. And yes, there will be times when businesses fail, but other ones take their place. One should take the opportunity to aspire to something. Life is a gamble, but if people keep thinking that the government has to be the one to bail them out lacks vision and we need visionaries in America. Debt is not inescapable. When a person chooses to find his/her course in life and set goals, using the things I mention will dig them out of debt. People do deserve a fresh start, but the government cannot do it for you all the time. Often the best thing to do is consolidate all one’s debt into a managible payment, even if you pay the student loans $50.00 a month for 24 years. There are ways to make money, even if, it’s not the way you thought you’d make it. Getting into debt and having the government bail you out is unsustainable for you and John Q. Taxpayer and even more so for the government. I’m suggesting that students bail themselves out before asking the government for help that could take forever to get.

        • http://www.facebook.com/people/David-Griffin/1598275297 David Griffin

          Jon, this one chance at success in life approach (unless you are privileged of course) is not what the free market system is all about. And because you still have failed to make any comment with regard to the crux of my reply to you, the lack of very basic capitalistic mechanisms of consumer protection for student loans, I can reasonably assume that you are definitely not a capitalist despite whatever you may think you are. Your beliefs and attitudes just do not align with some of the basic tenets of capitalism. Thats all there is too it.

          • Jon Soto

            I know that in the free market economy when some person or entity invests in your education via loans or grants those investors want to see a return on their investment. Student loans are mechanism from which the government and private loaning entities invest in you. Consumer protection laws are regulations those entities must adhere by in order to not be sued or prevent these entities from loaning money in a preditory and prevents usury. Loan houses as well as banks are regulated by the federal reserve and the government as corporate lending entities. In the capitalist system, those who invested in your education want a return on their money i.e. the loan. Interest rates are regulated by the federal reserve and only those rates apply to your loan. They get the capital + the interest to make money so that they could loan more money. Money lending is a for profit business like any other. You are the product the loan companies are investing in via the money they lend you. They expect a return i.e. your loan payments for a profit that is through interest rates regulated by the federal reserve. You then have to make money to pay back the loan via a job or business. In cases of preditory lending, the FR and the government investigate the claim and either void the loan or refund the payments assuming that the claim is valid. Actually the basic tenants of capitalism are personal success through monitary assets, acquiring capital either through employment or entrepenuership (starting your own business), mantaining personal capital assets, and investing in products, ideas, etc. in order to acquire more capital assets. That’s why it’s called Capitalism, because it is about acquiring capital and through the acquisition of personal capital, economic liberty. In a capitalist system, people invest in an idea, company, etc. in order to gain a profit. In the American Capitalist System, anyone with at least an idea and can convince others to invest in that idea can enjoy upward mobility. I’ve given you examples of people who have done as much. I never said I was an Economics Expert or implied that I knew everything about capitalism. I just said give it a chance and people might get freedom from their debt. One can never know until he/she at least tries.

          • http://www.facebook.com/people/David-Griffin/1598275297 David Griffin

            What the heck did you just say. I’m drowning in a sea of words. There is no need to try and win a a fanciful argument here. We just want the basic consumer protections returned to student loans. You still serve up no practical solution to resolve the crisis we are discussing. Everybody is supposed to start a business and get rich, please LOL X100. Here is a quick lesson about our monetary system. The money necessary to repay interest owed DOESN’T even exist in the money supply, hence the reason we have bankruptcy in the monetary system. IT DOES NOT EXIST. If all of the money currently in circulation were gathered together it would be exactly enough to meet all principal repayment obligations but the money to finance interest literally does not exist. Also, you have once again failed to address my quintessential comment regarding the return of the basic free market, capitalistic mechanisms of consumer protection to rectify this mess once and for all.

          • Jon Soto

            Let me try again: Under capitalism, regulatory entities determine the rights of both the the consumer (you) and the business (the loan agency). In this case that would be the Federal Reserve, the FDIC, and the Department of the Treasury. Consumer protections include laws against usury (charging excessive interst), fraud (false claims, etc.), the right dissolve an agreement for breach of contract, and the right to exit the loan if the loan was indeed preditory (loans which no one could possibly pay back because of excessive hardship). The regulations set by the government under the consumer protection act and other laws are a check against wild lending and preditory loans. Once a claim has been filed on your behalf with the proper regulatory agency it is up to you and the loan agency to resolve the matter either in court or a settlement that is either in your favor or in the agency’s favor. You and the agency can determine a reasonable rate at which you could pay back the loan that benefits you and the agency. A loan default would be a short term solution with dire consequences for your credit. Often debt consolidation (putting all your debt into one affordable payment) is preferable. You and your creditors must be the ones who ultimately resolve the matter in a capitalist society. The government only makes the laws under which you do so. If you feel that the loan agency did a questionable or illegal act on your loan you have to report it to the proper regulatory agency. If you feel the payments are too high, you and the agency could resolve to lower them. If you feel you must get out of paying the loan all together, you must notify the proper agencies that: a. you are under financial duress and hardship, b. the loan was preditory or excessive, and/or c. you or a party on your behalf must notify the agencies that you are dead or permanently disabled. Then the Loan can be voided (a consumer protection law).

          • http://www.facebook.com/people/David-Griffin/1598275297 David Griffin

            Thanks for the synopsis of how we got into this mess. Unfortunately, you failed to recognize or acknowledge one key element. Those laws which you mentioned are “made by the government,” really are not. Instead, the banks and their lobbyists have hijacked our government and literally bought these changes which now classify student loans with criminal fines, creating situations like the current crisis of student debt. Lastly, it is still unclear, are you in favor of the return of the minimum consumer protections for student loans? PLEASE ANSWER! You seem to be avoiding a response to this very important piece of my argument.

          • Jon Soto

            I just don’t know if I’m qualified to answer your post exactly. My original post was how to get out of debt. I don’t pretend to have the answer you want. For that, you need a lawyer and an economist and I’m neither.