What Caused the Student Loan Crisis?
If you ask Google, you’ll think rising tuition rates are to blame, but my own experience points to a different culprit
Given the tell-all culture of public media platforms, I guess this is as good a place as any to confess a secret of my shameful past: I was an instructor for the University of Phoenix.
In my defense, I took the job in a moment of idealistic naivete. I believed in the value of lowering the entrance bar to higher education. I thought college degrees should be accessible to all, even to people who couldn’t write a convincing application letter, who hadn’t made good grades in high school, who were older than traditional college age or couldn’t quit their jobs to attend classes in person.
In its early days, UoP seemed to represent the democratization of higher ed. With the advent of online platforms and relaxed admission policies, students who had been held back by the bonds of their misspent youth or by societal forces beyond their control could achieve in tandem with their more fortunate peers.
That’s what I thought, at least, until I facilitated my first class. Then I learned that around 75% of my students were functionally illiterate.
Many of them couldn’t put a sentence together. They didn’t know how to research and frequently plagiarized papers wholesale from the internet. They dropped out and flunked out at alarming rates.
Most of the students I “taught” during my time at UoP didn’t belong in an institution for higher education. They belonged in an institution for remedial education.
Many of them hadn’t graduated from high school. They’d been drop-outs who’d used “life credit” (?) or a GED to meet admission requirements.
They’d been recruited by tear-jerking, chest-swelling ads about being a phoenix who could rise above whatever ashes they’d been born into or created for themselves. High-pressure admissions “counselors” took it from there, manipulating prospective students into signing up for classes, lying to overcome their objections, and even enrolling them without their knowledge.
The lion’s share of the loan funds borrowed in their names would end up in the pockets of the school’s founders and upper management. A much smaller portion would go toward the salaries for adjuncts like me and other employees.
The students would get some, too. They could use the money for anything they wished and they’d never have to pay it back, according to their academic advisors. Balances would be covered later by federal grants. The students would be off the hook.
Believing in the lies they were told (or failing to understand them), hundreds of thousands of unqualified people became students. Most of them lacked the skills that would have helped them earn a degree. Eighty-five percent of them would eventually leave school without a diploma.
So much for my bleeding-heart, liberal-ass, snowflake sensibilities.
But before you get too worked up over the robber barons who profit so handsomely from private schools, consider the “loan crisis” from another angle.
A client helped me do this; she told me she couldn’t afford her rent so she was going back to school. She had no interest in being a chef or a baker but she’d enrolled in Career Education Corporation’s Le Cordon Bleau. Once her student loan funds were disbursed, she could pay her tuition and her rent. Her financial problems would be solved.
This seemed like a disastrous financial plan to me. I “knew” the same things you probably know about student debt. It never goes away. Your tax refund can be withheld and applied to your balance. Your wages can be garnished.
But that’s only if you can afford to make your payments and don’t. Graduates of my client’s program weren’t likely to find work that paid them a liveable wage.
Even if she graduated from culinary school and found a job, she’d struggle to live on her earnings and also repay her mushrooming debt. When I questioned her about this, she switched to the second-person perspective to distance herself from her answer.
“Well, you know, you want to pay them back,” she said. “You just know you can’t. When they call, you can give them, like, $100 and they’ll put your loan on hold. You won’t have to pay for a few months and they’ll quit calling.”
She knew what she was talking about. She’d been to school before.
Students can put off making payments forever by securing endless deferrals and forbearances. Their balances keep growing. They keep adding to their debt with continued borrowing while they’re in school and with added interest in forbearance.
But it didn’t matter to my client how large her balances got. She was never going to pay them back. She was never going to be able to. And she was never going to have to.
Like so many of my UoP students, she wasn’t worried about making good grades. She wasn’t worried about graduating. She wasn’t worried about her employment prospects if she did. She wasn’t worried about her future much at all.
She was worried about today. She was worried about her rent. She was worried about how to keep the lights on and buy groceries at the same time.
And she wasn’t alone. Read through consumer complaints about private schools like UoP and you can find plenty of stories like hers. The one below was found on ComplaintsBoard.com but you can find them anywhere.
I…was originally told that I would have my excess funds disbursed to me by the 2nd week of classes. I am now 6 weeks in and no money. I called and spoke to my financial advisor …(who) couldn’t tell me why my money had sat there for 9 days without being applied. When I spoke with him last week I told him…I had an electric bill that was past due (I have a 5 year old and a 4 year old, and no income) and was going to call my electric company and have it put off so that I could make sure I had the money. Yesterday, when I called him I told him that my cutoff was the next day, and he assured me that I would get the excess funds as soon as the loans were applied to my account. Now, i’m facing a cutoff today and still no money…
You can see that there are problems on both sides of the desk. The rich are cheating the poor; the poor are cheating the system, and the economy is swirling down the drain. Could government regulation be the answer?
Or is it really the problem?
When I was in graduate school, one of my peers told me he’d bought a new car with what was left of his student loan money after paying tuition. “Why not?” he said. “The interest rate is lower than it is for a car loan, and I’ll have more time to pay it off.”
It’s possible that he didn’t qualify for a car loan in any case. That was before there was a “Buy here; Pay here” predatory lender on every street corner. People who wanted a car had to have a decent credit score in order to finance one or they needed a sizeable chunk of savings.
Or they needed to go back to school.
Then, as now, prospective purchasers scoured the ads or visited dealerships. They figured out what they wanted and they figured out what they could afford. And for those who point toward escalating tuition as the cause of the student loan crisis, let’s stick, for a moment, with the comparison between funding a car and funding college enrollment.
Since the Millenials were born (1981 to 1996) tuition has skyrocketed, going from $3190 per year to $9970. In roughly the same time period, the average price of a new car has gone from $12,000 to $35,000. That’s a big jump, too, but we don’t call it a crisis.
We don’t call it a crisis because we don’t have to buy the most expensive car on the lot. We don’t even have to buy an averaged-priced one. We buy the one that we can afford. Or we buy the one someone will loan us money for. We shop around until we find it.
We could shop around for affordable degrees, too. As I’ve mentioned elsewhere, 24 states have at least some form of financial subsidy for higher education already in place but students have to be accepted into a school in order to benefit.
They have to demonstrate their ability to study, to learn, and to earn grades that are high enough to graduate. That’s no different than the way you have to prove your ability to pay before you buy a car.
That’s not the case for many private schools. If your check clears, you’re in. And your check is going to clear because the federal government is going to cosign for you, no matter how much you borrow, no matter what you use the money for.
For-profit schools make pocketing the money very easy for you because that makes it easy for them to pocket some, too. Here’s an example of a come-on from Altierus, a career college offering training in a number of areas, including dental assisting, medical billing, and security services.
The 2019 undergraduate tuition & fees of Altierus Career College-Norcross are $11,670 for their students.232 students (83.15% of the enrolled undergraduate students) have received grant or scholarships aid and the average amount is $5,851. After receiving the financial aid, the net price for Altierus Career College-Norcross is $20,990 including tuition, fees, books & supplies costs, and living costs. ~ CollegeTuitionCompare.com
Yep, living costs. Now you can pay that overdue electric bill.
“As part of your tuition, you’ll receive an iPad or laptop,” which is yours to keep, whether you’re in the 68% of students who graduate or not, whether you find a job or not.
If you’re lucky enough to get a job when you graduate, you’ll “earn a starting salary of $17,400.” Six years in, you can expect to be making $24,200 a year, at least that’s the median for grads after 6 years in the field.
That’s about what my client could have expected to make if she’d graduated from Le Cordon Bleau. Former students were already suing the school claiming they’d been ripped off. The only jobs they’d been able to secure after graduation paid minimum wage and they could have gotten those jobs without ever going to school.
They were the working poor. Obviously, they’re going to need to seek student loan forbearance in order to pay their electric bills.
Or they’re going to have to go back to school.
Politicians are saying that increases in tuition have caused a student loan crisis. Maybe they got that from Google. Many are starting to talk about free college as a solution.
But if free college takes the place of the shit-show we’ve got now, students such as the client I was telling you about won’t attend. She wanted to supplement her income, not to become a baker, so her incentive for attending school will disappear.
Her problem isn’t the high price of college. It’s the high price of life. What are we going to do about that?
And what are we going to do about the for-profit schools that are getting rich off taxpayer dollars and giving so little in return?
Who is the culprit in the student loan crisis? Is it poverty? Is it greed? Is it incompetence?
Is it the government? Is it the banks that are making the loans and passing them on to collection agencies, just as they used to write mortgage loans and bundle them into “securities”?
Congress is debating today on the College Affordability Act. I haven’t read the whole bill, just the highlights, but it looks as if the scam of high-priced, low-value private “colleges” will be addressed.
We’ll see how well that sticks when the bill moves into the senate. What we probably won’t see is the influence that secretary of education, Betsy DeVos, exerts on her cronies to protect that industry when it’s so intertwined with her own financial interests. Those talks will take place in private.
Eventually, Le Cordon Bleau was shown to be unable to meet gainful employment rules and it lost the ability to collect federal loan funds. Once the valve for that flood of money was turned off, the schools closed. Loans for its students were discharged.
The school and my client had already pocketed the money but no one had to pay it back. They got to bake their cake and eat it, too. But at least, predators such as Le Cordon Bleau are being put out of business, right?
Actually, no. This summer, DeVos repealed gainful employment regulations, an action that will cost taxpayers another “…$6.2 billion over 10 years…” if the recension is finalized next year.
Maybe it won’t matter, anyway. This administration is doing little to enforce the gainful employment rules, in any case. Ripping people off is just part of doing business. And a profitable business it is.
How can we turn this crisis around? What decisions do you want your senators and congresspeople to make?
I hope you’ll call them and let them know what you think.