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As billions are poured out of the Treasury Department, the Federal Reserve, the FDIC and elsewhere to bail out Wall Street, students are wondering why they have been left to the mercy of banks that are profiting big-time by busting the dreams of young college students and graduates.
Increasingly they are starting to understand what is happening – and starting to get angry.
The story begins with what we might call the rolling privatization of college education. States have been slowly cutting their portion of the costs for public colleges and universities. That forces the schools to raise tuitions and fee, putting more and more of the costs on students and their families. But grant aid – whether need-based or merit-based – hasn’t kept up with the soaring costs. Pell Grants, the government program that covers students from lower income families, used to cover up to about 77% of tuition, fees and on-campus room and board, thirty years ago. Now it covers about 33%.
As a result more and more students are forced to borrow to pay for their education. Now close to 70 % of students borrow for their education. The average amount now is over $20,000 for graduates of a four year school. In a new report, the Institute for America’s Future details the reality that more and more students are dropping out or foregoing school simply to avoid going so deep into debt.
And the students who do take on the debt enter into a special kind of peril. The student loan companies have managed to use their clout with the Congress to strip away every form of consumer protection for student borrowers. They can collect even after a person goes bankrupt. Wages and Social Security payments can be garnished without a court order. Massive fees and penalties are added on to any student that defaults. And the estimated proportion of freshmen and sophomores at four year colleges who will default on federal loans over their lifetime is estimated at one in five, or more, according to the Office of Inspector General of the Department of Education.
Alan Michael Collinge, who formed Student Loan Justice, details in The Student Loan Scam exactly how the banks, universities and even the Department of Education have profited at the expense of students. And he depicts the heart rending stories of students who borrow to gain an education, hit hard times, default on their loans, and then find themselves pursued for penalties and fees far more than the original loans.
In his first weeks in office, President Obama has moved to reduce the power of the private banks. He would turn the student lending program over to direct lending, eliminating the role of private banks in the federal subsidized loan program. That would save about $4 billion a year in subsidies to the private banks that he would plow back into supporting Pell grants at a higher level.
But the Obama plan is only a first step. It does nothing to rebuild consumer protections for students, to eliminate the piratical collection processes. In fact, it is the same banks and collection agencies that would contract with the government to manage the direct lending plan. Under Obama’s plan, Pell grants will go up – but no where near where they once were as a percentage of costs. And nothing is done to reverse the slow and incremental privatization of public colleges, which is pricing college out of the reach of more and more students.
As we reconstruct this economy from the ashes of the old, we have to make basic judgments about what kind of society we envision. Will we go back to Gilded Age inequality, where Wall Street buccaneers have multi-million dollar incentives to make reckless and very big bets with other people’s money? Will we go back to putting students in debt at the start of their careers? Or will we return to the sense we had at the end of World War II, with the GI Bill, that college should be affordable for all who earn it. This society has a very big stake in how we answer those questions. We’ve come a long way but we have a long way to go.