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Un-stately: The trillion-dollar student crisis in America

Reading time: 6 minutes

The American game show Paid Off, which premiered on the truTV channel in 2018, has a premise as absurd as the situation it profits from. Built like any average quiz show, its contestants answer questions through rounds, and compete for a final cash prize – only the money won’t go towards a tropical vacation, or a new car. All of the twenty-something players on Paid Off are there for a single reason: to pay off their student loans.

Student loan debt in the United States has reached all-time highs. According to the US Chamber of Commerce, there are more than 1.5 trillion dollars in federal student loans owed in the United States spread across 44.5 million borrowers. To put that total in perspective, if American student loan debt represented a country’s GDP it would rank tenth globally (just above Canada).

The problem of student loans did not sprout in isolation but has its roots in the management and structure of American colleges and universities themselves. As with the provision of most other public goods, the “federal” quality of the United States government – that is, that states retain independence in internal affairs – sets the U.S. apart from a large part of the developed world in its handling of higher education.

Unlike in most other countries, the central U.S. government allocates no subsidies to university institutions. Instead, it is the responsibility of individual states to decide the amount of funding its public university system receives, and thus both quality of education and cost of attendance varies widely across the nation.

In times of financial strain, local governments turn on educational institutions to cut costs, forcing universities to compensate by raising tuition or other fees (such as housing or meal plans). As of 2017, overall funding for public universities was down nine billion dollars from pre-recession levels, according to the Center on Budget and Policy Priorities. Tighter budgets have forced public universities to be more business-minded and less focused on the service they are providing to students.

Because they do not have state funds to rely on (however inconsistent they may be), private institutions finance operations mainly through tuition fees and endowments. Although the “sticker price” may be higher at private universities and colleges, their endowments – a mixture of savings, donations, and investment returns – can reach the tens of billions, and often may mean the schools have more money to offer for scholarships or grants. For certain high-achieving students who qualify for scholarships, private education at an elite college may end up costing less than their local public university. Despite this, need-based aid such as scholarships often do not go to the individuals who need it the most. For a college or university, it is more efficient to distribute scarce aid money over four middle-income students, who are able to cover a portion of the tuition cost, than to use the same money to finance the entire education of one low-income student. Even federally funded Pell grants, aimed specifically at very low-income students, only cover about twenty-nine percent of tuition costs and other university fees, reports the Center on Budget and Policy Priorities. Forty years ago, it was seventy-nine percent.

Unpredictability of funding for public universities and the need to finance through student tuition payments is not the only factor driving US college prices up, however. Spending on non-educator faculty such as researchers or administrative staff has increased considerably in recent years and has in fact surpassed the amount spent on actual teaching professors. Although expenses on research can be justified as adding value to a university, many of the administrative positions at colleges and universities do not directly benefit student learning or quality of education. A staggering amount of university presidents or provosts of both public and private institutions earn seven figure salaries.

According to the Chronicle of Higher Education, the university president with the highest compensation is Kenneth Starr (of Clinton-era fame), head of Baylor University. As of 2016, Starr was paid nearly five million dollars in a single academic year.

While the heavily governmentally-subsidized university systems in other countries, especially in Europe, allows students to attend at a low or no cost, the U.S. federal government does not even cap the tuition of its public universities. Instead of providing funds directly to the institution themselves, the U.S. government offers a number of federal grants and low- or no-interest loans to individual students*. The application for federal assistance is handled through the Free Application for Federal Student Aid (FAFSA), and though this service promises an easy and reliable process for students, it has received harsh criticism for its barriers to access, particularly for poorer or first-generation college students who could benefit the most. Some families may find it harder to gather all of the financial information necessary to apply for the loans and the task is a time-intensive process that working households may just not have the time for. Furthermore, incorrectly filled-out forms or incomplete are automatically invalidated and significantly slow down the loan-allocation process or altogether eliminate applicants from the distribution pool.

Once FAFSA is completed and a student’s financial need is evaluated, they are informed of the type (subsidized, unsubsidized etc.) and quantity of federal aid they are eligible for. However, this variability on the category of loans that a student can receive can make it harder for a family to gauge financial risk.

In the event of federal loan default, the U.S. government “covers” the outstanding balance and interest, but the failure to pay can have ruinous consequences for borrowers. Besides damaging a borrower’s credit rating, defaulting on federal student loans gives the U.S. treasury the right to withhold income tax refunds, diminish Social Security disability and retirement payments, and seize up to fifteen percent of the borrower’s disposable pay (what is left of a worker’s compensation after all taxes have been applied).

In the late 1970s the U.S. government expanded the federal loan program to all students, regardless of financial need, but many individuals are still unable to cover the cost of university solely with federal aid, and often supplement with private loans. While private loans make up a much smaller portion of student debt, many offer much less flexibility for borrowers and may have higher interest rates and harsher penalties.

Even with a steady paycheck and good intentions, graduates with loans can still face uncertainty in repayment. The major loan-servicing company Navient, whose role is to advise borrowers on the best repayment plan and handle transactions, is currently facing six lawsuits from the federal government (five from state attorneys general and one from the U.S. Consumer Financial Protection Bureau) for exploiting and misinforming its customers.

Student loans in and of themselves are not the problem. In fact, when student loans were first introduced in the 1950s, they allowed middle and low income students access to a level of education previously reserved for the elite upper class. Student loans are also not inherently the most difficult debt to pay off. Loan payments are usually fixed and predictable, and they are not as nearly convoluted and penalizing as credit card debt. The scale of the problem, as well as the magnitude of the loans themselves is what makes this a crisis. The high cost of tuition that forces students to take out loans may lead them to make decisions about their future that limit their own potential or are otherwise not in their best interests. Graduates in debt may be more inclined to accept a higher-paying but less-rewarding job in order to feel more financially secure. Aside from influencing career decisions, the burden of debt is pushing graduates to put off major life milestones such as owning a home or getting married.

To avoid accumulating massive loans upon graduation, Caterina Ieronimo, a second year undergrad student in the U.S., opted to attend a large state university over an elite liberal-arts college she had also been accepted to.

“Student loans heavily influenced my undergrad school and major choice,” she says.

“I felt pressured to attend a less expensive school and channel my interests into a course of study that would allow me to get employed right after college.”

With plans to attend law school in the future, Caterina also has to take high cost of graduate education into account.

“Even while I’m at [a state school], I’m extremely conscious of having to make my degree practically ‘worth it’ even before I’m out of school, since I know I will have to work a lot to pay off my [law school] debts,” she says. “I’m interested in a less “lucrative” career path, but I know I will likely have to pursue internships or careers I don’t particularly care about in order to pay off my loans.”

When it first aired, Paid Off was criticized for its monetization of a serious public crisis and accused of capitalizing on the misfortune of others. However, the show’s creator and host, Micheal Torpey has stated that the revulsion people have towards such a gaudy and capitalistic treatment of the student debt crisis is exactly the point he is trying to make. Interviewed by The Atlantic, Torpey called Paid Off, “a show that shouldn’t exist.”

“When people see this as the best avenue for paying off their debt,” he says, “it’s crazy.”

When I asked her for her thoughts on the show, Caterina replied, “Where do I apply?”

*There are some exceptions! The U.S. government fully funds four universities, where the cost of tuition as well as room and board are completely free. They are: the United States Air Force Academy, the United States Coast Guard Academy, the United States Military Academy, and the United States Naval Academy. If you want affordable education, join the army!

by Cecilia Gadina

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