When you deserve congratulations and look out on a bright future, and also you are about to crushed by debt
This week, the Trump Administration turned its attention to America’s student loans, taking a slow-developing disaster and setting it decisively on the road to becoming an outright catastrophe. Education Secretary Betsy Devos on Tuesday rolled back Obama Administration reforms to the way the Federal Student Aid Office structures, collects, and shares information about student debt, undoing the (marginal) progress that has been made on this issue in recent years and hastening the time at which America’s student loan problem will plunge into crisis.
The structural weaknesses in the system by which Americans take out and pay back student loans long predate the advent of this Administration and the previous. Indeed, they are rooted in the fundamental postwar understanding of how to succeed in America, a compact that Bill Clinton described in broad terms as the belief that “if you work hard and play by the rules, you’ll be rewarded with a good life for yourself and a better chance for your children.”
Part of that compact is the idea that there were two items so important to Americans that the federal government would help you buy them - a house, and an education. The former was a way of accruing (and later conveying) wealth that didn’t involve labor; it made millions of Americans owners of financial vehicles (which they also lived in). The latter was, and is, a gateway to permanently higher wages and otherwise more desirable jobs.
The government’s steadfast support for homeownership contributed, through a series of consequences both intended and unintended (in the way that, say, a shark attack is an “unintended consequence" of surfing), to the housing bubble, in which all sorts of people were sold mortgages they couldn’t pay off. The bedrock assumption of the whole faulty system was that since the average value of an American home did not suffer a year-on-year decline since the 1950s, someone was going to come out ahead on those mortgages (even if it wasn’t necessarily the average mortgage holder). That was true - until it very much wasn’t.
The same thing is about to happen to student loans. An education is, obviously, not a hard commodity; its value is difficult to assess. Of course, when evaluated in the context of job prospects and compensation in comparison to not getting a higher education, college pretty well sells itself. And many types of higher education are meant to have a value that is greater than future earnings - the opportunity for intellectual and emotional expansion during the education and afterward.
There are, however, a couple of ways to assess whether the system by which student loans are conferred and repaid offers good value for a higher education versus the debt required to get one. The simple binary comparison of lifetime earnings for people with and without higher education of some kind is inadequate to this purpose; it is absolutely dispositive about the necessity of higher ed for greater income, but does not consider that, in a healthy system, the income-to-debt ratio that graduates incur would leave them able to fulfill other financial obligations - saving for retirement, weathering financial shocks, buying their own homes, and so forth. You can study these effects individually - and they make for dire reading, in some cases - or look at a couple of general measures that serve as shortcuts.
The first is to measure the ratio of student debt to the initial wages of a graduate. Shahien Nasiripour and Nicky Forster, writing in The Huffington Post last year, offer a grim assessment indeed, pointing out, among other things, that slow wage growth has combined with the exploding cost of higher education to create a trend wherein average college graduates with a debt-financed bachelor’s degree could owe 100% of their starting annual salary (or more) by 2023 (as compared to 26% of it in 1990).
This phenomenon is no doubt painfully familiar to graduates who have taken out what can only be described as predatory student loans - that is, loans that the lenders fully anticipated could not be paid back, and issued for secondary purposes. Those graduates are underwater on their educations, effectively owing more than the education is worth. As wages stagnate and costs increase, that will be the case for an increasing number of students.
The second way to measure the health of the system is simple: are debts being paid back in a timely fashion? While the Obama Administration has come in for some (perhaps deserved) criticism of its handling (or failure to handle) the issue of student debt, this is one area where credit is due; Obama’s Department of Education took a number of measures aimed at making it easier for borrowers to refinance their debt or otherwise make it easier to make payments. The measures, and their results, were far from perfect, but they brought down the rates of delinquency and default after years of a steady increase that seemed as inexorable as it was ghastly. It was a small plug in a badly leaking ship, but at least it was something.
Perhaps unsurprisingly, Devos has seized this small plug and pulled it out with both hands; making student loan payments will go back to being as hard it was before the reforms, and one would expect a commensurate increase in delinquency and default as the result.
Dealing with the cost of education for future students and the massive, unsustainable and unsupportable level of student debt in this country is a task both gargantuan and essential, one that can only end in taxpayers writing a check of some size sooner or later. Like the housing bubble, this is not just a financial threat, but a threat to our very conception of how to succeed in this country. In the right hands, Obama’s reforms could have bought some time to right the ship; with Devos on board and Trump at the helm, instead it’s sinking faster.