This Is Not a Bill (Yet)

By John Marsh

The Student Loan Mess: How Good Intentions Created A Trillion Dollar Problem by Joel and Eric Best. Berkeley: University of California Press, 2014.

The Student Loan Mess
by Joel Best and Eric Best

By now you have probably seen the number. As nearly every media outlet old and new has reported, Americans have accrued $1 trillion in student-loan debt, an amount which, as is also frequently reported, now exceeds the $800 or $900 billion they owe in credit-card debt. (Actually, the $1 trillion figure is slightly out of date. According to the Chronicle of Higher Education, Americans passed that mark in 2011 and have taken out another $200 billion in loans since.) Still, while you may have seen this portentous number, you may not have known what to make of it. After all, when baseball players sign contracts for $240 million, when the bank bailout of 2008 totaled $700 billion, and when Americans, collectively, hold more than $8 trillion in mortgage debt, the numbers can start to lose their meaning. Is a trillion dollars a lot these days? Does the figure have any meaning for Americans, apart from its being a large round number that adds to anxiety about credit-card debt?

According to sociologist Joel Best and economist Eric Best, a father-and-son team, $1 trillion in student-loan debt should scare our mortarboards off, both because of what the number means and, even more, because of what it might mean in the near future.

How did we get to $1 trillion? The Student Loan Mess offers a compact, useful history. In 1958, fearful that the Soviets would make better use of their brainpower than we did of ours, the US Congress passed the National Defense Education Act. Under that act, the federal government gave money to institutions of higher education, which then lent directly to students who otherwise would not have been able to afford college. The National Defense Education Act was followed in 1965 by the much broader Higher Education Act, which is still in effect. The latter act was designed to provide assistance to students from low-income families through scholarships (now known as Pell Grants), work-study jobs, and student loans. In recent decades, though, students from middle-class families, forced by rising tuition to take out student loans to pay for college, have begun taking advantage of the Higher Education Act.

The Higher Education Act worked perfectly—too perfectly, even. As enrollment in higher education took off over the last fifty years, so too did student loans. But that was the point. If you could not pay for college, the federal government would stake you.

Joel and Eric Best portray student-loan policy in the United States as a series of messes. The National Defense Education Act and the Higher Education Act cleaned up one mess—wasted brainpower—but they left or created several more. For a while, some students were declaring bankruptcy and wiping out their loans, which eventually led to legislation, passed in 1998, that made it all but impossible to discharge student-loan debt. More recently, debates about student loans have shifted to a different concern: that when students graduate from college, they suffer under a crushing debt load, especially as the costs of college have risen and the labor market has languished. Also, some (I count myself among them) have grown outraged that for-profit colleges like the University of Phoenix and other, still less-reputable institutions have exploited people’s desire for higher education and grown fat off government student-loan dollars yet seem mostly indifferent about whether the students whose money they take learn anything or graduate.

Those are the existing messes, which are bad enough, but the Bests worry that worse problems are on the way. When it comes to the costs of college, student loans, they argue, have made young people and their parents less sensitive to price. If you have to go into debt to attend college, the thinking goes, how much debt you take on does not much matter. As a result, when it comes time to choose which college to attend, many students base their decision not on whether a college offers a good value but on whether it offers a good “experience.” This insensitivity to price accounts for the race to the top among colleges and universities. To attract discerning students, they need to offer the nicest dorms, the most elaborate exercise facilities, and the best football and basketball teams—amenities that, in part, explain why college has grown so costly lately. But only in part: colleges and universities have gone on an administrative hiring spree, which has also driven up tuition. (The same cannot be said for faculty hiring, unless you count the growth in poorly paid contingent faculty.) And the rest of the bill can be laid at the doors of state legislatures, which over the last few decades (and the last few years, in particular) have not increased their funding of public higher education or, more often, have reduced funding, even as enrollment has risen.

So who is left paying for this college experience? The short answer is students, who must borrow ever-greater amounts. The long answer is you, me, and the federal government, once some of those former students stop making their loan payments, as many of them inevitably do. According to Department of Education estimates, which the Bests think understate the problem, of those people who began to repay their loans in 2010, 15 percent defaulted within three years. Over the lifetime of the loans, the percentage entering default will be even greater. It turns out that a trillion dollars really is a lot of money, especially when a couple hundred billion dollars of it stands to disappear.

Here, then, is the situation, as the Bests describe it: More and more students enroll in college. As college costs increase, so too do student loans. And as the labor market continues to underperform—many college graduates hold jobs for which they did not need their degree, and which pay accordingly, to say nothing of those who accrue loans but do not graduate—more and more people default on their loans.

This arrangement, the Bests argue, cannot last. Sooner or later, someone will wise up. Perhaps it will be students, who will stop paying for the rising costs of the college experience, particularly in light of the declining returns of a college degree. Or perhaps students will keep paying for the college experience and keep defaulting on their debts at ever-higher rates. Then, perhaps, it will be taxpayers who wise up when they realize how much student loans really cost them. When either or both of those groups realize what is happening, the Bests argue, colleges and universities, which increasingly rely on tuition and thus student loans to pay the bills, will be in trouble. Without the free flow of student loans, they will not be able to put butts in the seats. Except for the most elite institutions—those least dependent on student loans—no college or university will escape the fallout. The federal government, forced to accept a loss on potentially hundreds of billions of dollars in student loans, will not fare much better.

The Bests outline a series of fifteen reforms to head off this crisis before it comes, each wise enough in its way. Among these, the most sensible are controlling college costs, providing more state support for public institutions, restricting support for badly performing colleges, improving grant support for the most vulnerable students, and making repayment terms more workable. I would add that we need to improve the working conditions of people without college degrees.

Today, workers have less bargaining power than ever. As a result, education offers just about the only path to a decent income in the United States. Unsurprisingly, many people who would never have gone to college (and who perhaps have no inclination to pursue higher education) now feel intense pressure to do so. This situation makes them vulnerable to the marketing of for-profit colleges, which promise a quick-fix education but are mostly expensive failure factories. It also increases the supply of those who believe they have no choice but to attend college, which means that colleges can raise tuition more or less as they please. The line of buyers is long. If other paths to the middle class were evident—say, union jobs—fewer people might go into debt to follow the one path that kind of, sort of, does.

But few of these reforms seem imminent. In all likelihood, it will take a full-blown crisis to clean up the student-loan mess. Perhaps that crisis will come before the student-loan debt clock rolls over the $2 trillion mark in seven or eight years, but then again, it might take longer. After all, the United States annually flushes hundreds of billions of dollars in defense spending down the toilet, and few seem to notice or care. Surely the country can afford to risk a couple of hundred billion dollars on higher education. In any case, if—when— the crisis comes, we cannot say we did not see it coming.

John Marsh is associate professor of English at Pennsylvania State University. His new book, In Walt We Trust: How a Queer Socialist Poet Can Save America from Itself, will appear early next year. His e-mail address is [email protected].