Student Loans Are Forever

student loans

Recently a mind boggling General Account Office (GAO) study revealed that 105,000 Americans had their Social Security benefits garnisheed due to unpaid student loan debt. The New York Federal Reserve reveals that two million US Americans over sixty are still paying off $36.5 billion in student loan debt. Over eleven percent of this debt is in default.

According to banking reform advocate Ellen Brown, some seniors incurred this debt by co-signing student loans for children or grandchildren. However a lot was incurred by middle-aged workers going back to school in the hope of finding employment in a bad job market. What they have wound up with is something much worse: no job, an exponentially mounting debt that cannot be discharged in bankruptcy, and the prospect of old age without a social security check adequate to survive on.

John F Kennedy’s Vision

It took me twenty years to repay the student loans that enabled me to attend medical school (1969-73). This was before the financialization of the American economy, when student loans became a profit center for Wall Street banks. President John F Kennedy, who started the Health Professions Loan scheme, believed that bright students who worked had as much right to attend medical school as the sons (only seven in my class were women) of wealthy families. He also wisely envisioned that patients would benefit from a more diverse medical profession.

Although student loans are issued by banks, they are guaranteed by the federal government. Theoretically this means the taxpayer is on the hook if the student can’t pay the loan. In practice, this rarely happens. Student loans can’t be wiped clean by bankruptcy, except in rare cases of permanent and total disability. Or even by death. Last week Senator Chuck Schumer (D-NY) introduced “Andrew’s Law,” new legislation requiring private student loan companies to forgive outstanding debt if a borrower dies. The bill has little hope of success in a Republican congress.

At a time when mortgage interest rates were over 8.5%, I only paid 3% interest on my student loan. In addition my medical school was scrupulous about limiting my outstanding debt to $26,000 – finding me work study jobs and private grants to reduce the amount I had to borrow.

With the advent of neoliberalism, education is no longer regarded as a basic right, but as an enormously lucrative commodity. Banks borrow money from the Federal Reserve for close to 0% interest. They charge homeowners 3-6% interest on mortgages, while students, who are more desperate, are forced to pay 4-10% interst. Moreover, unlike mortgage loans, student loan interest rates are fixed and can’t be renegotiated when interest rates drop.

The Student Loan Bubble

The New York Federal Reserve recently called a daylong conference to address the student debt crisis. In his opening address , New York Fed president William Dudley indicated that student loan exceeds $1 trillion dollars and has the highest rate of delinquency of any form of consumer debt. In the 2009 cohort of college graduates, only 17% of the original debt has been paid down. In fact, more than 20 percent of high balance student borrowers owe more than when they graduated.

In mid-March, Obama signed an executive order instituting a Student Aid Bill of Rights that will

1. provide a new website where all federal loans will be visible by July 2016.
2. require loan servicers to notify debtors when their loans or transferred or payments are late.
3. instruct loan services to apply prepayments to loans with the highest interest rate
4. offer a “state-of-the art” complaint system.

Beats me how any of this helps struggling seniors whose Social Security checks are being docked.

People can learn more about the student loan crisis at Student Debt Crisis, a non-profit organization dedicated to fundamentally reforming the student loan program. The weekly radio program Counterspin recently interviewed their executive director Natalie Abrams. Listen here (starts at 18:45).

photo credit: IMG_2589 via photopin (license)