by: Jason
O’Neal, activist FFWP
For
those who may have missed it, a major economic indicator emerged regarding student
loan debt last week. Excessive debt,
like student loans, has become one of the biggest barriers to current economic
growth in the United States. On
Thursday, March 1, 2018, the Chairman of the Federal Reserve, Jerome Powell,
appeared before U.S. Congressional representatives. During this “meeting” between politicians and
their private banking overlords there was discussion of the possibility of
reversing federal legislation to allow student loan debt to be discharged
through bankruptcy. A move initially questioned
by some lawmakers, as they set interest rates for those loans which allow
schools to be federally subsidized, this topic is sure to spark further discussion in the weeks to
come.
A
report issued by CNBC https://www.cnbc.com/2018/03/01/student-loan-problems-could-hold-back-economic-growth-fed-chief-says.html
stated the following:
“Education debt swelled to nearly
$1.38 trillion at the end of 2017, with 11 percent of borrowers 90 days or more
delinquent, according to the New York Fed. Policymakers have sought ways to
keep the student loan problem from swelling out of control but have struggled to
come up with solutions.”
It appears the latest
investment vehicle for private banking profits is running out of gas. This is not a surprise for those of us who
have been following the developments with student loan debt over the past few
years. Personally, I happen to be one of
the more than 40 million Americans who are now in debt to a private capital
lender for partially financing the last two years of my college degree. Ironically, I went to a “public” university
in California which was once a state that offered free education from
kindergarten to college.
As a first-generation
college student, and military veteran, my personal story is not unique. However, there are millions of Americans who
received federal financial aid to attend a for-profit university with many
“students” never setting foot in a classroom.
How that is even possible is baffling to me and calls into question the
integrity for financing the nation’s higher education system.
Some points I would like
considered in relation to the latest developments concerning student debt should
be:
a) how
are higher education loans in the U.S. marketed and disbursed?
b) Who
holds the paper on these debts? What are
their interests?
c) Exactly
who is ultimately financially responsible for repaying them?
d) And,
why is this particular form of debt exempt from “charge off” as bad debt for
those who can no longer afford to pay, especially when one considers the number
of bankruptcies declared by the current occupant of the Oval Office?
Before we explore each of
these questions, we must keep in mind how this pending crisis will affect the
lives of working families and the poor and we must continue to ask ourselves—Are
federal legislators our elected officials or are they just puppets for loan
sharks?
Perhaps, you have been
one of millions of Americans who have watched a television commercial with an
advertisement about finishing your education or getting a college degree. And, just maybe, you’ve called the toll-free
number listed at the bottom of one because it sounded like a good idea. If you are like me, you responded to an
internet ad which asked for your email address and telephone number. For those readers interested, I have included
my own personal story at the end of this article, but for now I will continue
to explain the student loan bubble from my own observations and experiences
over the last decade.
Everyday, millions of
people are on the receiving end of a booster campaign to get them to enroll in
college. Some ads are directly from one
of the thousands of brick and mortar universities with an actual faculty. Unfortunately, most of the professors in these
public education institutions are part-time (at least in California) with no
benefits. Another story all together when
one considers the amount of federal money being poured into the higher
education system of the United States. But,
we must return this conversation to student loans and commercial
advertising.
What many Americans are
unaware of is that for-profit schools are also getting checks from the
government. I am not referring to
exclusive private or Ivy League schools like Harvard, Yale, or even Stanford. I
am specifically identifying schools like University of Phoenix and Kaplan
College, or any other “college,” which sets up shop in an office park building
and sells degrees. To make matters even
more incomprehensible is that many of these schools also have online study
programs which are usually just internet “classes” with fast-paced lesson plans
completed in 30 days.
These schools are in fact
loan brokers masquerading as education systems and have become so widespread and
corrupt that even small corporations are advertising college degrees and professional
credentials through specific trade schools.
They also attract international students and receive federal education grant
money for “scholarships.” Over the past
few years they have increasingly targeted low-income households in the poorest
areas of the country to market their services and receive money earmarked for
financial aid.
Because many of them
aren’t credentialed, or accredited by the Department of Education, most coursework
from these schools is not transferrable to another college. Sadly, many graduates from these types of universities
receive no benefit from their “piece of paper” that says they now have a
degree. New graduates are finding it
difficult to pay back their student loans with limited opportunities for
employment and a significant number of them saddled with debt to private
lenders.
This has become a major problem
because over the course of the past two decades enrollment in these for-profit
universities has increased by more than 225 percent. This was according to a 2013 report published
by the National Conference of State Legislatures. States began taking a harder look at these
“diploma mills” after a two-year investigation was concluded by a United States
Senate Committee. The resulting “Harkin
Report” condemned for-profit colleges over costs and practices according to a
New York Times article from 2012:
“Students at for-profit
colleges make up 13 percent of the nation’s college enrollment, but account for
about 47 percent of the defaults on loans. About 96 percent of students at
for-profit schools take out loans, compared with about 13 percent at community
colleges and 48 percent at four-year public universities.”
And…
“Enrolling students, and
getting their federal financial aid, is the heart of the business, and in 2010,
the report found, the colleges studied had a total of 32,496 recruiters,
compared with 3,512 career-services staff members.
Among the 30 companies,
an average of 22.4 percent of revenue went to marketing and recruiting, 19.4
percent to profits and 17.7 percent to instruction.
Their chief executive
officers were paid an average of $7.3 million, although Robert S. Silberman,
the chief executive of Strayer Education, made $41 million in 2009, including
stock options”.
Public outcry was almost nonexistent in the major news media, but demands were made of
these schools which have remained exempt from regulation and a series of
standards were recommended by the government.
If they wanted to continue to receive federal funds by enrolling
students, the for-profit colleges had to provide statistics on registrations
and student performance. Companies,
many of them publicly traded on Wall Street, which owned underperforming
schools closed them down and funneled resources to prop-up their best schools
to keep the billions rolling in from the government coffers. According to a National Public Radio
announcement in 2011, many of the companies controlling the finances of these
colleges had already ramped up recruiting efforts which targeted those who
could not afford it. The first wave of
customers were military veterans, but know these schools are going after
communities of low-income families and students of color.
“Many of these students
drop out before graduating or can't find the types of jobs that will allow them
to repay their loans, leaving them with staggering debt.”
In 2014, U.S. News and
World Report printed an article which revealed enrollment costs at for-profit
universities averaged more than fifteen thousand dollars a year. A significant markup in price from the national
average for community colleges ($3,264) and four-year universities
($8,893). And, a crippling cost for
students, many who are military veterans using their G.I. Bill
benefits. The same article stated the
following:
“Nearly
90 percent of 2012 for-profit graduates had student loans, with the average
debt among for-profit college graduates who borrowed reaching nearly $40,000.”
Graduates
typically are 20 percent less likely to be hired with their degree, and three
times as likely to default on their loan, when compared to nonprofit colleges. Yet, why has nothing been done to address
this issue years later? Courts all over
the United States are handing down decisions in favor of the for-profit schools
who don’t want to be held accountable to oversight on budgets, loans issued,
graduation rates, or employment statistics for graduates. State legislatures are scrambling with the
threat of regulation over these companies, however, many friendly votes have
already been secured through campaign contributions to keep the standards from
changing. This is not a new battle, but
it is one that has been fought for the past fifty years as the two cartels of
political power and money in the U.S. have always sided with the bankers. First, the cut funding for schools. Then, student "consumers" are forced into a loan market. Finally, this allows private capital to issue loans and
collect interest on the debt.
Back in 2012, Time
magazine wrote an in-depth piece on regulation of the student loan industry in
the United States. They wrote, “before
1976, all education loans were dischargeable in bankruptcy. That year, the
bankruptcy code was altered so loans made by the government or a non-profit
college or university could not be discharged during the first five years of
repayment”. That stayed in place until
1984 when private student loans were excepted from bankruptcy protections. The scales tipped in favor of the banks again
in 2005, when Congress passed a law titled the Bankruptcy Abuse Prevention and
Consumer Protection Act. The law made it
so that NO STUDENT LOAN could be charged off through bankruptcy as bad debt,
whether it was federal or private.
Student loans are now in the same class of debt as child support and
criminal fines.
Taking into
consideration the political trend in controlling this speculation market which
exists within the student loan industry, it is not a distant leap to the
conclusion that the government will try to get the people to agree to another
round of taxpayer-funded bailouts for private bankers and their bad education
loans. We saw this in the 2008 home
mortgage crisis as Congress voted to give $12.9 trillion dollars in tax money
to private banks to cover their financial losses after the economic collapse of
the real estate bubble they helped create.
How much longer will the people of this country agree to go along with
these concessions to private capital before they say they’ve had enough?
Public
universities are not too far behind when it comes to providing funds for their
degree programs. Case in point, I had to
finance nearly twenty thousand dollars of my education to supplement my
Stafford and Pell Grants provided through the Free Application for Federal
Student Aid (FAFSA). Some of the loans
were federally subsidized at a lower interest rate, but the rest were locked in
at the going rate. I went to a
university in California where out of the 41,000 students in attendance nearly
40% are on financial aid.
The fact that
nearly 43 million Americans are burdened by some form of student loan debt must
be connected to the next pending market “correction.” It will be a financial crisis similar, if not
worse than, the one in 2008. The ripple
effects will spread throughout society. The history of student loan debt also has much to do with the current assaults on education in the
United States. We have covered the
recent West Virginia Teachers' Strike and have discussed how their struggle
is linked to the pillaging of state resources by big oil and coal companies who
control the courts, legislature, and political bodies in that state. It is a crisis created by capitalism. The teacher's fight is also linked to legislation that pushes for
charter schools to receive tax money while cuts are made to funding public education systems around the country. The battle shaping up is also a result of so many states passing
“right to work” laws which attack public sector unions. Rank and file union members are under the gun
and labor leadership is running out of options on how to keep them contained
and pacified.
What to do with student loan debt, however, is a simple
solution. Abolish all of it. One might
ask, “where will the money come from?”
But I ask readers to consider this: If the U.S. government can continue
to fund a fighter plane which Scientific American has labeled the “greatest
boondoggle in recent military purchasing history” at a price of $1.5 trillion,
then there is enough money to forgive student loan debt. And, if we push the conversation further, the
U.S. has spent more than three times that amount on the invasions of Iraq and
Afghanistan. Sadly, like what is
happening in West Virginia, the politicians from both parties refuse to upset
their campaign contributors and go after the industries that have taken the tax
money in the first place.
My own story…
I came across what is
called a “lead capture” advertisement with some catchy phrase like “interested
in getting a degree?”, or something like that, while I was surfing the web back
around 2004. It interested me at the
time, but I didn’t really know much about the way student aid worked.
I was a federal law
enforcement officer and getting kind of burnt out on my job. I processed pedestrian and vehicle traffic
through a Customs and Border Protection facility in San Diego, CA. It also happened to be the busiest
land-border crossing in the world and, although grossly compensated for my
work, I just didn’t want to do it anymore.
I didn’t have a college degree, so I toyed around with the idea of going
back to school. Throughout the next few
months, I endured the constant phone calls and junk email letters from those
for-profit university representatives.
They were given, and probably purchased, my information from that same
internet ad I responded to months before.
They promised easy classes and the convenience of online lecture
sessions. Some even claimed they could
get me college credit for skills I picked up while serving in the
military. The catch was they were very
expensive. I remember one guy actually
told me that at his school, a name I can’t even remember, a bachelor’s degree was
going to cost me about fifty thousand dollars.
But, I didn’t have to worry because I could get loans. I decided that for a price like that I should
try going the “traditional” route.
Ultimately in the fall of
2006, I enrolled at my local community college in San Diego. After taking the proper assessment tests to
begin classes, I successfully registered my corresponding veteran benefits,
given through the G.I. Bill. I was
getting paid about $700 a month to go to night school. This was on top of my federal salary, which
at the time I was averaging about sixty thousand dollars a year including
overtime, and I had benefits. All
initial out of pocket expenses I incurred through enrollment were also reimbursed. I completed a total of seventeen units over
the next three semesters before I had to stop classes. I was receiving a decent amount of money from
my veteran benefits because tuition, fees, and books only ran me about $500 a
semester. Each semester is about four
months long, so I made a few thousand dollars a semester. I had no financial difficulties, so to speak,
and I was even able to buy a house in September of 2007.
In all, I cruised on the
extra cash for a little more than a year before I had to resign my federal job
in January 2008. I had also decided to stop
taking classes until I was earning a more stable income. Another reason was because my G.I. Bill
benefits expired the semester before. The
particular federal program I was entitled to required veterans to enroll in
school within ten years of separating from the military. I had waited more than eight years to go back
to school and my time had run out.
With no job and no income,
I took work at the loading dock of the San Diego Convention Center. I was also receiving supplemental unemployment
when there were no trade shows or events in town.
Having trouble keeping up with my
house payments I needed a boost and I started working in the local real estate
market.
At the time, the
community where I lived, was the epicenter for the entire state of California when
it came to the number of homes which were in foreclosure or with delinquent
mortgages. Chula Vista is a town with a
population of about a quarter of a million people and, in the early summer of
2008, the old neighborhoods and new housing developments further east had more
than 50% of its homes worth less than the loans owed on them. The financial collapse fueled by speculation
in mortgage backed securities happened that September. It was nearly two months before the 2008
Presidential Election, which saw Democrats return to the White House by the way,
and I was only upset that I lost my commission checks. Memorable moments from those few days, when
capitalism wrecked the lives of millions while robbing the citizens of this
country out of billions of dollars, was the political theater. Both the sitting Republican administration’s Secretary
of Treasury, Hank Paulsen (a former CEO of Goldman Sachs), and his
“prospective” replacement should the other capitalist political party win, Tim
Geithner (President of the Federal Reserve Bank of New York), were involved in
negotiations between the United States government and private investment banks. The deal was negotiated by Ben Bernanke, who
was the Chairman of the Federal Reserve at that time. Private banks were to be given federal tax
money to make them solvent. This would
be like a gambler going bust and the casino giving them their money back. Only the money came from the pockets of the
housekeepers, cooks, and desk clerks.
My own class
consciousness had not been lifted during that part of my life. I was unable to see the destructive path cut
by capitalism and its need to create markets.
These opportunities are designed to attract investors so banks can
generate money by transferring property.
I was oblivious as to how money in an economy is created through loans
and promissory notes (debt). I had my
own problems to worry about.
I had bought a home the
year before and needed to make my own house payments. Because I was only receiving commission, I
had already started to rent out two rooms in my house to make just enough money
to even do that. I didn’t understand the
danger of negative amortization and interest only loans when the price of a
home drops in value. I had a fixed-rate
mortgage, but after I lost my job, I couldn’t make payments and my house lost
25% of its value over the next two years.
After the economic
collapse of 2008, and during the Great Recession which followed, I took up
bartending to make my way through the next few years. Eventually short-selling the house in 2010, I
returned to renting small apartments or rooms from friends. Although the house sold for nearly $150
thousand less than my loan, I didn’t have to pay taxes on the charged off
amount. Usually, a homeowner in my
situation would have to may income taxes on capital gains, but for a couple of
years millions of former homeowners were given a reprieve. Realizing that I had no real skill set, other
than enforcing the law, I decided to return to school to at least complete an
associate degree.
I have explained my
personal situation to give readers the opportunity to see what economic
conditions I was living under when I decided to return to college. The second time around, I qualified for
financial assistance because I made so little money on payroll that I was
considered low-income. I took it. I figured if I didn’t make some changes I was
going to have to accept that job as the pinnacle of my existence. An honorable trade in a country which
consumes so much alcohol, but not really a job cut-out for a long-term
career. The hospitality industry in food
and beverage has such a high turnover that workers have very little chance of
unionizing and end up competing with one another. The drive to provide the best service is
fueled by a desire to make more tips that the other guy. Never mind trying to fight for anything
higher than minimum wage. Also, benefits
and retirement are practically unheard of in this line of work, while age and
gender are factors which determine longevity and “appeal.” Bartending and serving alcohol is an industry
which is exceptionally brutal on its female employees who must endure all
varieties of sexual harassment. Not just
from intoxicated customers, but also from co-workers and management.
I had saved up enough tip
money to re-enroll at the same community college in the fall of 2012. I was eligible for the Board of Governor’s fee
waiver and Cal Grant, which was linked to the FAFSA. When my financial aid was processed and
disbursed, I ended up receiving a few thousand dollars extra every semester for
the next three years. I remember the
first time I opened the mailbox and it had check inside for more than two
thousand dollars. That was just a
partial payment and I’d get another $800 before the end of the semester.
It was during this time while
I was at community college that I began to learn and understand how the
political economy functions and works in the United States. It was also when I met some influential
friends and professors who have been actively engaged in discussing the role of
trade union leadership in a new American labor movement. Many encouraged me to continue my education
and to finish my bachelor’s degree. I
would need to complete my lower division courses before I could transfer. My school had only a 23% graduation rate,
with even fewer who successfully moved on to graduate from
a four-year school. I was determined to
be one of them.
During my second year in
community college, I began writing for the campus paper. I wrote opinion pieces and stories which
focused on financial aid, immigration, and the environment. I also became aware of some inefficiencies
and, at many times, the negligent nature of this system of higher
education.
Public colleges, with
limited funding from the state, were and are being overrun by capitalist
interests. To complete building
projects, not to mention recreational facilities, schools must rely on local
voters to approve the solicitation of capital bonds. Communities promise away future tax revenue
to cover payments and interest on private loans given today for temporary
improvement funds to public education systems.
Sometimes, as in the case of the Poway Unified School District in San
Diego, they will be forced to pay back almost ten times what was borrowed.
To make matters worse, it
was also during my second year that my community college began using the
“financial technology services” of Higher One, a holding company which
according to its own website promises to “streamline the processes of financial
aid disbursement.” Started by three Yale
students in 2000, Higher One has grown to dominate the college debit card
business. They have been subject to
numerous investigations and penalties for overcharging on students’
transactions and they disburse financial aid in increments holding on to
students’ money sometimes for months. I
remember that every student had to create a customer profile through the
school’s website to have Higher One send them their financial aid. They offered bank accounts and direct deposit
services, for a fee of course. And, at
the time I enrolled, Higher One was publicly traded on Wall Street with a
presence on hundreds of campuses across the country. They also had more than 2 million students
paying them an average of $49 a year to access financial aid money faster.
When I transferred to a
four-year university after my third year, I saw Higher One was used there,
too. My school I.D., used to access the
library and administrative services, was in fact a Higher One “debit card.”
I spent two years
completing a double major, before I graduated last spring and I now live in
Phoenix, AZ. Working for a little more
than minimum wage, I have made only one payment to my student aid loans. Ironically, one of the jobs I recently interviewed
for was an admissions counselor for American Intercontinental University and
their sister school, Colorado Technical University. They are an online outfit, with a few branch
“campuses” and are owned by Career Education Corporation. I was going to have to sell students on the
benefits of enrolling in this school, mainly the convenience of taking classes
from home. The average class enrollment
period is every five weeks and most of my days were to be spent making
telephone calls and sending out emails to prospective students. To fill the rosters every five weeks we would
have to collect and process hundreds of applications. According to Wikipedia, and something I confirmed
during my interview is, AIU receives more than 90% of its funding from the U.S.
government, $29 million from the G.I. Bill alone. I am happy they didn’t call me back for the
job, but I am ashamed to admit that I almost considered it. Where does desperation lead us sometimes?
I have recently been
hired by a political consulting group advocating for clean energy initiatives in
local government and the state legislature.
After a few paychecks clear, I might start paying for my student loans
soon.
To contact author email: jasononeal@hotmail.com
To contact author email: jasononeal@hotmail.com
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