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December 2, 2011

No, They Can't Renege on Student Debt

student-loan-debt-occupy-wa.jpg                   By Charlotte Allen

Sometimes the left is onto something. Take, for example, the latest twist in the "Occupy" movement: Occupy Student Debt. The new activism front, which began in with a Nov. 21 rally at Occupy Ground Zero, New York's Zuccotti Park, is trying to collect a million online signatures from debtors pledging to refuse to repay their student loans. That's supposed to be only the beginning. Down the road, according to the campaign's organizers (members of the student debt subcommittee of Occupy Wall Street's Empowerment and Education working group) are proposals to pressure Congress into writing off all existing student loans and making future student loans interest-free--or better yet, having the federal government subsidize tuition completely at all public colleges and universities.

Good luck, you might say. Still, the Occupy Student Debt people have focused public attention on the alarming growth of the federal student loan program over the past few years. As USA Today recently reported, the amount of student loans taken out in 2010 alone exceeded $100 million. Before the end of 2011, the total amount of outstanding student debt is expected to exceed $1 trillion for the first time in history. Furthermore, USA Today reported, students are borrowing twice what they borrowed only a decade ago, even adjusting for inflation....

...That $1 trillion in outstanding debt is double what it was five years ago--"a sharp contrast to consumers reducing what's owed on home loans and credit cards" during the current economic downturn, reporter Dennis Cauchon wrote. According to data from the U.S. Education Department, the overall default rate on student loans was close to 9 percent in 2010, up from 7 percent in 2009. That's highly troubling. But it would be nice if the Occupy people would focus more closely on the factors that undoubtedly led to the student-debt explosion--such as rampant tuition inflation and a lack of borrowing responsibility on the part of students themselves--rather than taking potshots at Wall Street fat cats and other members of the Occupy rogues' gallery.

That seems unlikely, though, given the predictable ideological proclivities of the Occupy crowd. The highest-profile leader of the debt strike is Andrew Ross, a professor at New York University. On Oct. 16 Ross led a teach-in titled "Is Student Debt a Form of Indenture?" in the atrium of a Wall Street office building near Zuccotti Park. Ross painted a lurid picture of a predatory banking industry growing rich on federally subsidized interest payments, fat loan-collection fees and default penalties, and a 2005 overhaul of federal bankruptcy laws that made it nearly impossible to get rid of student debt in bankruptcy court. Ross gave his blessing to Occupy Student Debt and its defiant slogan: "Can't Pay! Won't Pay! Join Us! Don't Pay!"

Ross's information was slightly out of date. In early 2010 Congress forced commercial banks out of the student-lending business, and the sole fat-cat lender in the student-loan market is now the federal government itself (although the banks still collect and service loans made before the overhaul). And even before the government takeover, student loans were typically purchased by Sallie Mae, a federally backed entity. That sort of financial ignorance figures for Ross, who is not an economics or political science professor as one might think, but an English professor who leads NYU's American-studies program. Ross's academic specialty is supposedly modern poetry, but like many an English professor over the past two decades, he apparently got bored with literature and turned to the trendier field of "cultural studies," where he rose to academic stardom writing about such topics as pornography, the Weather Channel, the plight of globalized workers, and Celebration, the Disney planned community in Florida. Ross was one of the editors of "Social Text," the cultural-studies journal that, under his editorship, ran the famous 1996 article on "postmodern physics" that turned out to be a hoax perpetrated by one of Ross's own colleagues, Alan Sokal, a physics professor at NYU.

Because the proposed debt strike, if effective, would leave taxpayers--that is, you, me, and our offspring--on the hook for yet another trillion dollars' worth of federal debt--Ross has outraged his critics. Diane Auer Jones, a former Education Department official (under President George W. Bush) and a current vice president of the Career Education Corp. blasted Ross's encouragement of students to default on their loans as "an act of educational malpractice" in a Dec. 1 blog entry for the Chronicle of Higher Education. "Dr. Ross doesn't seem to understand that defaulting on a student loan does not eliminate the obligation to pay, but instead increases the amount an individual will owe," Jones wrote. She called on NYU to "take action to silence" Ross: "Does he also suggest that [students] steal and evade taxes as well?"

Jones may not need to fret. As of this writing, more than two weeks after Ross issued his call to action, only 2,144 people had signed the "Debtors' Pledge" on the Occupy Student Debt website. For many students and recent college graduates, any possible satisfaction gained from sticking it to the Man is likely outweighed by fear of wage garnishments, government confiscation of tax refunds, ruined credit ratings, and a dearth of sympathy from working people who managed to pay their own debts. Furthermore, as Judith Scott-Clayton, an assistant professor at Columbia University's Teachers College, noted in a Dec. 2 online post for the New York Times, 90 percent of recipients of bachelor's degrees graduate with less than $40,000 worth of debt. That's not a good figure, but it's generally manageable, what with the fairly generous loan repayment plans that the federal government currently offers. Of the remaining 10 percent, many are either from not-so-wealthy families who chose to attend pricey private colleges, or attend for-profit colleges notorious for their high student-debt loads. "If you have more than $75,000 in undergraduate debt, you are the 1 percent--just not the 1 percent you might have been hoping for," Scott-Clayton wrote.

That suggests that the real problem with escalating student debt might be unwise choices made by youthful borrowers who would be better off attending a cheaper public college and working part-time and summers rather than heedlessly piling up loans. The other problem is ever-escalating tuition and fees. This year alone tuition and at U.S. public universities rose by 8.3 percent, twice the rate of inflation, to an average $8,244, while tuition and fees at nonprofit private colleges rose 4.5 percent to $28,500, according to Bloomberg News, which used figures obtained from the College Board. The reasons for the tuition hikes are many: strapped state budgets, bloated university administrations, fancy campus facilities, too much subsidization of faculty research instead of teaching. Those University of California-Davis students who got pepper-sprayed were protesting tuition increases that could total 81 percent over the next few years. Encouraging students to make smarter loan decisions and university administrators to trim their costs ought to be the focus of any move to reduce student debt. But those ideas obviously aren't sexy or Marxist enough for the class-warfare-obsessed Occupy movement.



Comments (4)

bob sykes:

Qui bono?

Student debt directly benefits college faculty and administrators in that it goes into their pockets as salary, benefits and perks.

The students may or may not benefit depending on their major. Engineering is always a good investment; the humanities are an indulgence and a fraud.

The banks are left holding paper that may or may not be repaid. They are the victims in this circus.

JD:

In a time when banks which made irresponsible and sometimes criminal loans are bailed out to the tune of trillions of dollars, it is hard to hold the students up to a stricter standard.

Jerry Heyman:

JD - is it irresponsible to loan money to someone who is getting an ethic studies degree? Should banks have looked at future earnings based on degree pursuit to determine if the student was a good risk? Choices made by the students contributed to their ability to pay.

It took me 10yrs, but I paid off my loans. I didn't get things I wanted immediately - because I knew that the loan had to be paid off.

Jeff Campbell:

I applaud you Jerry. I'm a collector for Sallie Mae. I have seen numerous loans of over 100k for culinary degrees and online universities. The earning potentials need to be looked at.

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