The US is Using Its Youth as a Credit Card (VICE News: April 16, 2014)
On Monday, the US Congressional Budget Office, in releasing its ten-year projections for the Department of Education, revealed that the government is projected to profit from student loan debts over the next ten years — to the tune of $127 billion.
According to experts, that student-debt-financed revenue stream is unlikely to be spent on the struggling higher education system — where tuitions are skyrocketing and graduates are increasingly defaulting on their loans.
Instead, all that profit from student loans is expected to be allocated for general government spending, so that Uncle Sam could use interest payments collected from students to pay off the government’s debts.
That’s right: the government is using America’s youth as a credit card.
Massachusetts Senator Elizabeth Warren, speaking this past Saturday at Suffolk University Law School’s research symposium on student loans, demanded that the government eliminate profit from the federal student loan program.
“The idea that we would ever allow our student loan program to generate extra cash for the government is obscene,” Warren told the crowd, “We should be investing in students, not turning them into a profit center to pay for subsidies to big agribusiness or to meet the payments on defense contracts.”
The numbers involved are staggering: 38 million borrowers currently owe $1.1 trillion in student loan debt, according to American Student Assistance, a nonprofit organization promoting financial competencies in college students and alumni. Its 2013 report, “Life Delayed: The Impact of Student Debt on the Daily Lives of Young Americans,” estimated that the US government was set to pull in a profit of $34 billion in 2014 alone.
Paul Combe, the president of American Student Assistance, likened the growing burden of student loan debt to secondhand smoke: like cigarettes, loan debt used to be seen as a matter of individual risk — until it became clear that everyone’s economic health is affected by everyone else’s.
“It’s a problem for us all,” Combe told VICE News. “The question is, what is the impact on our economy when a third of the credit of all these students who graduate and are normally the consumers — who would otherwise buy homes and buy cars — is already eaten up by student loans?”
Combe was careful to point out that the congressional budget projection is a generous estimate, not a hard number: “I’m not saying there isn’t profit here, but [the projection assumes] that everyone’s going to pay back loans in ten years. It doesn’t factor in the cost to the government of holding those loans over years, and it doesn’t factor in the cost of collections.”
Regardless of the precise numbers, it’s pretty clear that the government is profiting off student loans — and that graduates are having a hard time paying them back.
A 2011 Institute for Higher Education Policy study on student loan delinquency showed that 41 percent of student borrowers who began repaying loan in 2005 couldn’t make loan payments at all — and wound up either becoming delinquent on their loans or defaulting entirely.
Granted, those student loan borrowers entered repayment when unemployment was peaking l — but almost half of them found it impossible to make any payments at all during their first few years out of school.
The situation was pithily summed up by Nobel prize winner Joseph Stiglitz, one of the nation’s most famous living economists, in the title of a 2013 New York Times opinion piece: “Student Debt and the Crushing of the American Dream.”
Jen Mishory, executive director of the national youth policy organization Young Invincibles, elaborated on this state of affairs in a statement, reacting to the budget report, emailed to VICE News.
“The government is profiting off students at a time when tuition and debt levels are skyrocketing,” wrote Mishory, “Borrowers are being forced to choose between paying student loans and making major life purchases like buying a car or a home. Enough is enough. Young people want to contribute to the economy, but policies like this one make it more difficult to afford college and earn a decent living.”
The American Student Assistance report revealed in survey results the stunning effects of student loan debt on graduates: 75 percent of those polled said student loan debt affected their ability to buy a home, 29 percent said it caused them to delay getting married, and 27 percent said it was difficult for them to buy daily necessities because of their student loans.
“The federal government should be working to protect borrowers, but instead it is making things worse for these borrowers by embedding huge profits in its student loan interest rates. A January GAO report estimates that the federal government will bring in $66 billion in profit on just one slice of the federal loans — those made between 2007 and 2012,” Warren said at the symposium.
The Senator called on the government to reinstate bankruptcy protections on student loans and allow loans to be refinanced — as is common practice with home mortgages — when interest rates drop so that borrowing students would not be locked into a needlessly high fixed interest rate for life — and wind up paying thousands of dollars in extraneous costs.
Combe told VICE News that Paul Ryan’s recently passed House budget for 2015 changed the way free college grants are funded: “The Pell Grants have been moved into a discretionary area, meaning their funding will be up in the air every year.”
“Right now, 65 percent of all student funding is in the form of loans,” said Combes. Now that the House has voted to freeze grants for the next ten years and leave their funding up for grabs, it would appear the government is forcing college students to borrow — which, in turn, increases the government’s take.
So does that mean the government is moving toward a higher education system funded entirely by loans — and loan debt that pays other government bills?
Combes said that could be the case: “Because of budgets and this sense of government funding of social programs being perceived as a negative, we’ve been slowly moving into that direction without looking at the consequences of it.”
Follow Mary Emily O’Hara on Twitter: @maryemilyohara
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