When the housing bubble burst, the resulting foreclosure crisis was a disaster for black and Latino families, who lost 53 percent and 66 percent of their median household wealth, respectively, between 2005 and 2009. As a result, the racial wealth gap is widening, with white households enjoying 18 times as much wealth as their Latino counterparts, and 20 times more than African-American households.
There is every indication that the bursting of the student debt bubble, like the housing bubble before it, is imminent. And when it happens, it will send shockwaves throughout the financial markets. People of color will be especially vulnerable.
Although education is widely viewed as a way up and a way out for poor, working-and middle-class students, the prohibitive cost of college tuition has created a virtual debtors' prison for many. Loan defaults and delinquencies are on the rise in America, and are only expected to worsen.
A recent report from Moody's Analytics says that tuition has doubled since 2000 -- that's a 10 percent increase every year -- causing student debt to accelerate during the recession. In contrast, other types of consumer debt such as mortgages, credit cards and auto loans have decreased sharply. Outstanding student loans have increased 25 percent since 2008. Student debt now exceeds total credit card debt, and is likely to reach $1 trillion this year, with the average debt for a bachelor's degree at $24,000.
To add to the problem, unemployment is high and there are no jobs for recent graduates. And in the lucrative for-profit college industry where students of color predominate at 54 percent, graduation rates are lower than traditional institutions of higher learning. So, students leave without the benefit of a degree, but with the debt burden just the same.
For blacks and Latinos -- who suffer from lower pay and double the unemployment, and must assume larger debt loads to pay for school -- the deck is stacked against them. According to a Georgetown University study, blacks and Latinos earn less than whites, even with advanced degrees. Moreover, members of these groups who have earned a master's degree earn less than whites with a bachelor's. It is no wonder that their default rates are higher. In a 2007 survey, black students had a default rate five times higher than whites and nine times higher than Asians, with the Latino rate double that of whites and quadruple that of Asians.
This talk of student default goes far beyond dollars and statistics. These are human beings who are thrown into hopeless life situations because the tuition is too damn high. Recently I had the pleasure of reviewing the new film Default: The Student Loan Documentary. I appreciate the film's clarity in spelling out the nature of this American crisis and its impact on ordinary people. Borrowers break down and cry in front of the camera as they reveal the amount of money they owe in student loans. Some were brought to financial ruin as the result of prohibitively high monthly loan payments, compounded by illness or some other setback. Others are unable to get married and start a family because their loan payments prohibit it. One has to take a step back and ask if this is really what America has become.
"The private loan industry, they don't care about people," said Carmen Berkley, who appeared in the film. Carmen, who is African-American, has $80,000 in student loan debt, in addition to $5,000 in credit card debt and thousands in medical debt due to an illness. "I told them, 'Look I don't make that much money. I make $34,000 a year. There's no way I can spend 600 or 900 dollars a month just for loans.' And they said, 'Well there's nothing we can do about it.'"
Default touches on far more than the inability of college graduates to afford to repay their loans, and the financial ruin they face as they must choose between paying their rent, eating or paying off their mortgage-sized school debt. Although that heart-wrenching part of the story by itself is enough to warrant a documentary, the problem is even deeper, as the movie points out.
Ultimately, the student debt crisis is a product of the union of greed and corruption -- the banking industry and the politicians they have purchased for the purpose of carrying their water. Colleges and universities do their part by hiking up tuition far in excess of inflation. Meanwhile, private lenders exploit financial realities where students can no longer work to pay their way through college, and federal loans no longer pay for most or all of a college education. Moreover, these lenders benefit from loan defaults, as the fees and penalties that rack up can double or triple the amount of the original loan.
Much of this new financial crisis really speaks to the power of the lenders, who receive their money's worth from their investment in Congress. There is a reason why student loans are the only type of debt that cannot be discharged in a bankruptcy. The banks paid for the laws that exempt such loans from fundamental consumer protections. Even gambling debts can be discharged in a bankruptcy, as is mentioned in Default.
And in the irony of all ironies, the banking institutions that were "too big to fail" enjoy their federal bailout funds. This, as they continue to extract additional profit from human suffering, whether by exploiting homeowners with predatory mortgages, or bilking students with predatory school loans. These bailout recipients are making everyday people suffer, yet where is the bailout for the students?
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NYC had really strong vocational programs in their high schools wherein kids who weren't cut out for college could get training in school and go from there to an apprenticeship program that would guarantee them a job if they wanted it. That kind of training is less available, forcing kids to either go academic or flip burgers.
Half the vocational programs out there style themselves as "colleges" and are run for profit (DeVry, ASA, etc.) and it is these institutions that can and will screw students coming to them in good faith. Throw in union-busting and exportation of jobs and the straight 9-5 manual job that gave those "unfit for college" an opportunity for success if they worked hard enough is almost as hard to find as a good white-collar position.
Students today should be very honest with themselves, about their strengths and weaknesses, before jumping into college, just because.
Good luck to you.
Dear Moderator, please inform me as to why you will not post this message, if that is what you choose to do, yet again.
Best
Jan
you cannot get out of Student Debt thru Bankruptcy !
College earnings are flat, Higher Ed is nervous and finally it is wrong to keep pretending that all this
works somehow !
Being a Smart Slave to your Student Debt is not a good thing ! Time to say "No" to more Student
Debt !
And yes, ultimately it very well is the lendees reponsibility to determine how much of a loan that they can afford to take out....and if they bite off more than they can chew the responsibility falls on them to make sure they pay that loan back.
Those that are pointing their fingers at "those greedy bankers" and chastizing them for the folks who are failing (or CHOOSING) not to pay back thier loans are in the wrong.
My comment was simply in response to the folks who are blaming the banks for folks not paying back their loans. They refuse to acknoledge that the CRA and Dodd and Frank were legislating (Forcing) those banks to lend to unqualified buyers.
Schools turn the government guaranteed loans into a racket. This is a bubble that would have been better to burst years ago before the damage was done. Similar to the housing disaster, this is another case of the government warping the market to help the lower classes, and instead harming everyone.
You say, "Schools turn the government guaranteed loans into a racket" in one sentence and then blame the government in the last one. If the government sets up a good faith system to help people pay for investing in an education and the businesses that deliver the education use it to trap kids and families in massive debt, then who is the evil party?
Granted, there should be more done. For starters, any institution getting a penny of federal money owes the government a full accounting of every operating expense. Tuition should be regulated like any other essential industry where abuses run rampant - such as electric generation and insurance. Every tax credit for tuition expenses paid is just going to be funneled to a college the following year, regardless of the actual operating costs of the colleges. A utility commission monitoring tuitions could help prevent some of this abuse.
If you want to accuse government of being complacent or even complicit with the college mafia, then I can agree. But if you're saying this problem was created by government, then I won't. And whether you like it or not, government bodies will have to solve the problem because the schools have no incentive to stop crushing students. Even if the guaranteed loans disappeared, they'll just close a few campus buildings, lay off professors, and go after the haves - cutting access to education. I'm not sure that's a great approach, either.
I have no problem with schools charging what they need to charge to be competitive. The IRS monitors the school use of funds to ensure they maintain their tax exempt status. If a school misuses funds, they should be appropriately penalized.
The government should review what it is getting for the investment they are making in college education. The regulations and egalitarian policies have made college seem more accessible, but have significantly eroded the value of the system. We are not training the future thought leaders with this system. We are churning out mediocre graduates and indebted drop-outs.