The statistics about the student loan crisis are appalling enough, as many excellent articles attest.
A few samples: Student Loans Are Becoming a Drag on the US Economy ; Student Loan Defaults Surge To Highest Level In Nearly 2 Decades ; The Student Loan Debt Crisis in 9 Charts ; and more.
But even more appalling than the statistics are the stories. Ask around among your friends and acquaintances and you’ll soon discover a whole lot of young people who are saddled with debts that they didn’t expect or understand and which they can’t get out from under.
The Consumer Finance Protection Bureau (Senator Elizabeth Warren’s excellent invention) has just released a report on dilemmas student borrowers are experiencing, saying that “private student loan borrowers face payment processing pitfalls that can lead to increased costs, prolonged repayments, and harm to their credit profiles.”
“With limited options to refinance, many borrowers want to pay off loans where they are stuck in high rates,” says CFPB Student Loan Ombudsman Rohit Chopra. “But too many borrowers have to run through an obstacle course to get their payments processed properly.”
It’s a lot like what happened in the subprime mortgage crisis, but student borrowers are even less sophisticated than the buyers who were sold loans they couldn’t afford. Often they don’t realize what’s happening until it’s too late to change their minds. Student loan debt is now about $1 trillion, more than credit card debt, twice what it was in 2007.
I recently got a window into a host of particularly pernicious practices when a musician friend asked me if I could advise his son, also an excellent musician, a graduate of the Oakland School of the Arts and UC Berkeley’s late lamented Young Musicians’ Program who’s won many awards, about how he could change to a less expensive school. The father hoped that since I have a legal background I could help them through the thicket of rules that the young man had gotten entangled in.
The son told me he’d been given a full tuition scholarship for his first year by a college in New York City which recruited him for its well-advertised and perhaps prestigious jazz program. When the first semester of his second year started, the school offered to pay part of the cost, but told him he’d have to come up with the balance. He enrolled for the first semester hoping he could find employment, but the recession made that impossible. He ended the semester $8,600 in arrears, an impossible amount for his family’s resources to cover, since his mother had been laid off from her job in the downturn. He wasn’t able to enroll for the second semester.
And here’s the big problem: He can’t go on there. He can’t transfer to a less costly California school, even one which offers him a full scholarship, without providing his transcript, the official record of his grades from the expensive New York City private institution. But the school has put a “hold” on sending out his transcript until (or unless) he can find the money to pay off his bill.
His father talks about taking out a loan to pay his son’s back bill in New York—the college is eager to facilitate this. But that would lead to long-term indebtedness at ruinous interest rates (see the articles linked above) and there’s another child to educate in the family, not to mention the usual: rent, transport, food on the table. So the young man’s education is stalled.
Naïve old-school liberal that I am, I was sure that the college couldn’t get away with withholding his grades until he could pay up. But a cursory investigation showed that this is standard procedure at most schools.
Promising young people with little experience in the world are routinely recruited by colleges and allowed or even encouraged to incur bills that they can’t pay—then they’re stuck with holds on their grades so they can’t transfer out. Asking around, I discovered another young man, a star high school football player, who was recruited by a junior college with a partial scholarship, but injuries took him off the team. Now he’s left with a back tuition bill he can’t cover. If he can’t find the money to pay his balance, his education is at an end. A couple of other kids I talked to had similar stories.
I talked on background to a couple of financial aid officers, who took it for granted that scholarship students would be able to make substantial contributions to their expenses. One, at a University of California campus, said that students at her school are expected to come up with $8,600 a year out of their own pocket in addition to whatever financial aid they get. That must be some kind of magic threshold, since it’s exactly what the young musician owes his New York private school. But for many families in today’s weak economy, it’s just too much.
Education is routinely touted as the solution to surviving the problems of this poor economy, but an education which burdens graduates, and especially those who can’t even afford to make it to graduation, with lifetime debt is a poor investment.
So I haven’t yet been able to do much to help my young friend. All I’ve learned in my brief informal research into this topic is how much I don’t know about it. Senator Warren, among others, is working on the problem, but for today’s young people of student age like him, a long-term solution might come too late.
Something needs to be done soon. Any ideas would be welcome.