Consumer Reports Student Debt - LIVES ON HOLD - “I feel I kind of ruined my life by going to college,”
Student Debt
LIVES
ON HOLD
PHOTO ILLUSTRATION: C.J. BURTON
June,
28 2016
Millions of Americans who
went to college seeking a better future now face crushing debt from student
loans—while the industry makes a handsome profit. How a broken system landed so
many in this mess.
This
is a condensed version of a story by Reveal from The Center for Investigative
Reporting.
To read the full investigation from James B. Steele and Lance Williams, visit www.revealnews.org/studentdebt.
To read the full investigation from James B. Steele and Lance Williams, visit www.revealnews.org/studentdebt.
Almost every American knows an adult burdened by a student loan.
Fewer know that growing alongside 42 million indebted students is a formidable
private industry that has been enriched by those very loans.
A generation ago, the
federal government opened its student loan bank to profit-making corporations.
Private-equity companies and Wall Street banks seized on the flow of federal
loan dollars, peddling loans students sometimes could not afford and then
collecting fees from the government to hound students when they defaulted.
Step by step, one law
after another has been enacted by Congress to make student debt the worst kind
of debt for Americans—and the best kind for banks and debt collectors.
Today, just about
everyone involved in the student loan industry makes money off of the
students—the banks, private investors, even the federal government.
42 million
Americans
bear $1.3 trillion in student debt that’s altering lives, relationships and
even retirement.
Once in place, the
privatized student loan industry has largely succeeded in preserving its status
in Washington. And in one of the industry’s greatest lobbying triumphs, student
loans can no longer be discharged in bankruptcy, except in rare cases.
At the same time,
societal changes conspired to drive up the basic need for these loans:
Middle-class incomes stagnated, college costs soared, and states retreated from
their historical investment in public universities.
If states had continued
to support public higher education at the rate they had in 1980, they would
have invested at least an additional $500 billion in their university systems,
according to an analysis by Reveal from The Center for Investigative Reporting.
The calculus for students
and their families had changed drastically, with little notice. Today, there is
a student debt class like no other: about 42 million Americans bearing $1.3
trillion in student debt that’s altering lives, relationships, and even
retirement.
“I feel I kind of ruined
my life by going to college,” says Jackie Krowen, 32, of Portland, Oregon, a
nurse with a student loan balance of $152,000. “I can’t plan for an actual
future.”
One of the beneficiaries
in the profit spree behind this debt is the federal government. By the
Department of Education’s own calculations, the government expects to earn an
astonishing 20 percent for the loans it made in 2013.
Today student debt is a
$140 billion-a-year industry, and unlike many of its student customers, the
industry’s future looks bright.
You
shouldn't have to go to war
to
get a college education.
SAUL NEWTON, 28
IN DEBT: $23,000
Retreat of the States
In the summer of 2010, Saul Newton was a 20-year-old rifleman
stationed at a small U.S. Army outpost in the remote, dangerous Arghandab River
Valley of Afghanistan.
It was a radical change
for a kid from suburban Milwaukee who only months before had been a student at
the University of Wisconsin-Stevens Point.
But after two years of
tuition hikes, Newton found himself with about $10,000 in student loans and the
prospect of still more borrowing if he stayed in school. “I couldn’t afford it anymore,”
he says. He dropped out and enlisted, hoping one day to go back to school under
the GI bill.
He wound up fighting the
Taliban. His unit’s worst day was when the battalion chaplain and four other
soldiers were killed by a roadside bomb in August 2010.
“We ought to invest in the
future, not take from the future,” says Thomas G. Mortenson, a senior scholar
at the Pell Institute for the Study of Opportunity in Higher Education. “Where
I used to live we called that eating our seed corn.”
"My focus was on doing my job and staying alive," Newton
says. But no matter what else was going on at the outpost, once a month he says
he went to the wooden shack where the unit kept a laptop computer and made his
online student loan payment of $100.
He worried that if he
didn't pay his loans, his credit would be shot. (Newton says he wasn't aware
that the government offers student loan deferments to active soldiers in
wartime.)
Today, back home in
Wisconsin as director of the Wisconsin Veterans Chamber of Commerce, Newton
says his state's cuts to higher education will force more young people to face
the same choices he did.
"You shouldn't have
to go to war to get a college education," he says.
In the last decade,
Wisconsin has cut back sharply on funding its state university system.
In 2003, students paid
about 30 percent of the University of Wisconsin system’s total educational
cost, according to data compiled by the State Higher Education Executive
Officers Association. By 2013, after several rounds of state budget cuts,
students were responsible for about 47 percent, and more state cuts to higher
education are expected.
By 2014, 70 percent of
Wisconsin students graduated with debt—the third-highest percentage in the
nation for students at public and nonprofit colleges, according to the
nonprofit Institute for College Access & Success, or TICAS.
Wisconsin’s trajectory
follows a national trend. After World War II, the states appropriated more and
more funds for public higher education, and by 1975, they were contributing 58
percent of the total cost. But since then they have steadily reduced their
share, pressured by, among other things, the rising costs of Medicaid and
prisons. Today, state support is at 37 percent nationally, according to data
from the U.S. Bureau of Economic Analysis.
“We ought to invest in
the future, not take from the future,” says Thomas G. Mortenson, a senior
scholar at the Pell Institute for the Study of Opportunity in Higher Education.
“Where I used to live we called that eating our seed corn.”
As the states cut back
funding, universities raised tuition. To cover the increase, more students
borrowed, which brought in even more money for the thriving industry. The next
step: collecting all the debt.ca's Student Debt Crisis: Jessie's Story
Calls, at All Hours
The work was automated
and fast-paced: Calls were robo-dialed, and the delinquent borrower’s account
history flashed on the computer screen in Jessie Suren’s cubicle. Her job,
which paid about $12 an hour, was to engage with the borrower, stick to the
script—and try to get some money out of people who were delinquent on student
loans.
At the massive call
center in Harrisburg, Pa., Suren felt like she was working for the enemy. The
28-year-old owes about $90,000 in student loans.
Some calls were scary, Suren
says; angry borrowers would curse and threaten, declaring they were jobless and
broke. Other calls were heartbreaking; borrowers would say they or their
children were terminally ill.
Whatever their story, Suren
says she’d have to tell borrowers what would happen if they didn’t pay:
American Education Services, a loan servicing company, could take their tax
refund and garnish their wages.
After hanging up, Suren would
sometimes reflect on her own student loans. “This is going to be me in a couple
of years,” she would think. Eventually, she quit.
The federal government
holds about 93 percent of the $1.3 trillion in outstanding student loans. That
makes the Department of Education, effectively, one of the world’s largest
banks, but one that rarely deals directly with its customers.
In the 1980s, the
department began contracting with private companies to take over some debt
collection. Then after privatization, a surge of investors poured into this
field. Established debt-collection firms were bought up by privately held
investor funds controlled by the likes of JPMorgan Chase and Citigroup.
Today, one in four
borrowers are behind in their payments, according to the Consumer Financial
Protection Bureau, with an estimated 7.6 million in default. As borrowers
struggle to make payments, debt-collection profits rise.HOT
Contractors are expected
to make more than $2 billion in commissions from the government this year,
according to the National Consumer Law Center.
With the stakes so high,
complaints about overzealous debt collectors have soared. Federal and state
agencies have fined contractors millions for misconduct in harassing student
debtors. Some have lost their contracts entirely.
San Francisco graphic
designer Brandon Hill says debt collectors from Sallie Mae began calling him “yelling
and screaming” about his past-due payments as early as 5 a.m. After he
complained to state regulators in 2013, Sallie Mae and Navient Credit Finance
turned around and sued him for immediate repayment of a combined $73,000 in
student loans, records show. “I was sued for complaining,” he says. His lawyer
is negotiating a settlement.
In a letter to the
California attorney general’s office, Sallie Mae wrote that the company had “acted
appropriately” in contacting Hill. The flurry of 5 a.m. calls occurred because
Hill’s cell phone has a Virginia area code, so the collectors assumed he was on
the East Coast, a Sallie Mae official wrote.
Retired University of
Cincinnati professor Mary Franklin says student debt collectors told her they
would garnish her disability insurance benefits because she had fallen behind
on a student loan dating back decades.
“I tried to explain to
them that I was ill,” she says. “They said the federal government [doesn’t]
care.” Eventually, she says, she managed to resume payments.
Congress revised the
program again and in 2010 took back control of issuing federal student loans;
the government now loans directly to students. However, it left intact the
industry that had grown up to service and collect the loans.
Other progress has been
made. New regulations introduced after 2013 now limit a student debtor’s
federal loan payments to as low as 10 percent of discretionary income. And in
2015, the Obama administration launched a pilot program to test whether federal
employees could effectively take over the job of collecting unpaid student
loans, while at the same time being more helpful and less aggressive than
private collectors.
To Deanne Loonin, a
lawyer who monitored student debt for years for the National Consumer Law
Center, the Treasury experiment is focusing on one of the biggest problems
confronting borrowers.
“We need to eliminate the
private collection agencies from this process,” she says. “They are
incentivized just to collect money, not to work out ways that might be better
for the borrowers. We need to see what else might work.”
This story was produced
by Reveal from The Center for Investigative Reporting, a nonprofit news
organization based in the San Francisco Bay Area. Learn more at revealnews.org
and subscribe to the Reveal podcast, produced with PRX, at
revealnews.org/podcast. Lance Williams can be reached atlwilliams@cironline.org.
The Partnership Behind This Package of Stories
As
Consumer Reports celebrates its 80th birthday, the organization will be
engaging with you in new ways to help build a fairer, safer, healthier
marketplace. As part of that effort, CR is partnering with Reveal from The
Center for Investigative Reporting to produce this special report on our
nation’s growing student debt crisis. Each nonprofit has contributed unique
pieces of content to this project—including articles reported and written by
each organization, videos, infographics, survey findings, and student profiles.
Our respective institutions operate independently. Any policy positions that
Consumer Reports may take in the marketplace do not reflect the views of
Reveal, which does not take advocacy positions. Likewise, articles attributed
to each organization are a result of its own work.
We
hope the content found here and in the August issue of Consumer Reports
magazine, as well as at revealnews.org/studentdebt, will illuminate
the forces that led to 42 million Americans owing $1.3 trillion in debt,
illustrate the profound and lasting impact this debt can have, and offer
practical advice for those looking to avoid the trap.
GWENDOLYN BOUNDS Executive Director, Content @ Consumer Reports; on Twitter @gwendolynbounds
AMY PYLE Editor in Chief @ Reveal from The Center for Investigative Reporting; on Twitter @amy_pyle
GWENDOLYN BOUNDS Executive Director, Content @ Consumer Reports; on Twitter @gwendolynbounds
AMY PYLE Editor in Chief @ Reveal from The Center for Investigative Reporting; on Twitter @amy_pyle
Note: Joaquin
Alvarado, CEO of The Center for Investigative Reporting, is on Consumer
Reports’ board of directors.
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