Beacon Broadside

Alan Michael Collinge is the author of The Student Loan Scam: The Most Oppressive Debt in U.S. History—and How We Can Fight Back. He is the founder of StudentLoanJustice.Org.

As I was finishing the manuscript for my
book, The Student Loan Scam, in early 2008, Americans
collectively owed roughly $650 billion in student loan debt—an incredibly large
number at the time. Today, however, that amount has grown to surpass $1
trillion and continues to increase at a rate faster than historical debt growth
prior to the financial crisis. Defaults, too, have skyrocketed, and nearly all
of the failures in the lending system I call attention to in the book have
continued unabated. This issue has grown, I would say, from a significant
problem to a major crisis. This has greatly strengthened the book’s core
argument: the need for a return of standard consumer protections (like
bankruptcy) to all student loans. 

Since the book’s publication, student loan
debt surpassed credit card debt as the largest category of consumer debt (excluding real
estate). While the banking crisis compelled banks to tighten lending and
reduced borrowing across all other lending categories, student loan borrowing
actually accelerated significantly. Colleges and universities, to their discredit, have not exactly
adjusted their prices in deference to the hard economic times, but have instead
increased tuitions and fees at an even faster rate.

Defaults, unsurprisingly, have surged. The
cohort default rate (the percentage of loans defaulting within the first two
fiscal years of repayment) has grown from less than 5% to over 9%. In 2010,
however, this metric was found to be vastly lower than the actual, lifetime default rate (supporting a
controversial claim I made in the book). Specifically, government data showed
that for 1995 graduates the default rate was about 20%. So while it is impossible to say what the true default rate is
currently, we can say confidently that for years it was comparable to the
subprime home mortgage default rate of 25%.

Another controversial claim made in the book was
that the government may actually be making, not losing money on defaults. Initially, the Department of
Education and Beltway analysts disputed this claim vigorously. Since then,
however, a leading financial aid expert has publicly confirmed the claim.

Importantly, the public is speaking out about
this problem, most notably through the Occupy movement that started last year.
Student demonstrations, too, are occurring with some frequency in the U.S.
These citizen actions have, however, been largely ineffective for various
reasons. The Occupy protests, of course, were shut down rather abruptly and
haven’t yet re-emerged. The student demonstrations have usually consisted of
simple, reactionary protests against tuition hikes. Such strategies have been
stymied or co-opted by the universities, who have become quite good at shifting
the blame to state or federal cuts. This has left most student groups
conflicted in purpose or changing their protests to calls for more funding.
Going forward, it is key that the students become more knowledgeable on the
issue so that they can pursue more informed and effective courses of action.

It is also important to note that real,
investigative journalism on this issue evaporated in the wake of the financial
crisis. From roughly 2009-2011 media coverage of student loans focused almost
exclusively on for-profit colleges and the private student loan industry, and
ignored other issues, such as those mentioned above, the cost of college, and
the lack of disclosure to students and their families about the absence of
consumer protections. That has begun to change somewhat as the shear magnitude
of outstanding student loan debt and related public protest have become
impossible to ignore, but to this day it remains extremely difficult to convince reporters, producers, and others to ask the tough
questions outside of this non-starting, “non-profit vs. for-profit” narrative.

Much has happened over the past three years that
cannot be conveyed in this piece. For example, I’ve left out much about our
experiences in Washington, D.C., the interesting middle-ground that this issue sits on (drawing from both liberal and
conservative principles), and the resulting mixed bag of support and attention
we have received. The impact of President Obama’s overhaul of the lending
system and the post-crisis response of the student lending industry, colleges,
advocates, and other key players are also important but not covered here.
Finally, the increasing harm that is being done to real people as a result of
living under the weight of this debt is critically important, but goes
unaddressed here.

I believe that, with increased pressure from
those affected by the high costs of college (this includes both borrowers and
those who pay out-of-pocket), Congress can move forward on this issue, and StudentLoanJustice.Org is devoting its grassroots efforts towards that end. The most
important element in this fight is the level of action by citizens. Students,
who will likely prove to be the most important group in this fight, need to see
why returning consumer protections to student loans is key to getting prices
and default rates down, making student loan debt manageable, and fixing a
plethora of systemic problems that have arisen in their absence. Their actions
today will not only affect their future financial well-being—but also the
economic health of the entire country.