The Student Debt Bubble
So, I know a lot of people paid attention to the events surrounding the housing bubble of 2008. The student debt bubble has inflated six times further from the price index than the housing crisis had been meaning student debt could result in a bubble that eclipses the fallout from the housing crisis.
http://www.huffingtonpost.com/2012/0...n_1266209.html
So I work for the Oregon Student Association which means I lobby our state legislators pretty heavily on this issue and it interests me to see something that is so universal an issue not be made a bigger priority.Originally Posted by Article
For example, the average student when I was in kindergarten graduated with $9,250 in debt completing college in 1993. In 2013 that number has more than trippled to between $29,000-$35,000.
You can bet your sweet ass the average american is not making three times the money. So if school costs three times as much and we're making a few percent more than we were on average what is happening?
Well starting in the 1970's colleges and universities became under attack by the federal government as centers of liberal thinking. Go figure education inspires more liberal ideas. This began with Nixon and the Vietnam protests. The Vietnam protests were largely held by colleges and universities across the country. These protests severely depleted the popularity of the administration and the war resulting in a cold war of sorts between the government and those it governed.
However Nixon wasn't really liked and his issues failed. These issues became a party platform for the republican party and still are. Fast forward to Ronald Reagan and we reach the real culprit of the situation we find ourselves in. See Ronald Reagan was in many ways a face man for the political mechanations of the republican party. He took his orders from his advisors infamously so we can't blame him much on a personal level. He was a charismatic face glued on the republican platform.
One of the first thing Reagan's Administration attacked was the funding pool for schools. The first act he proposed as the Economic Recovery Tax Act. This act reduced the marginal tax rate for the top by an incredible 23%. In addition estate taxes, corporate taxes were massively slashed. The result of this was the loss of state funding in 'discretionary' areas. At the time this meant colleges and universities which were't considered as important as other areas. Of course I should point out that todays findings prove the exact opposite, investing in education is more economically efficient at managing most issues in society than their alternative, i.e. it takes $7 dollars into justice and corrections to statistically achieve the same outcome as $1 invested into education.
This worked well because the republican platform was that higher education represented a luxury, an elite education (that was only suited for the rich and the already powerful) that only a select few should participate in. The movement by previous presidents to increase the accessibility of education through grants and scholarships was reversed pretty much overnight.
Next Reagan tried to deal with the economic concerns of employment. His administration's solution was the JTPA or the Job Training and Partnership Act. Unfortunately not only did this bill accomplish nothing to help the situation it actually made it worse. The previous system heavily relied upon the tax surplus to pay for our school system at the time. Despite the inefficiencies shear volume of money made our schools the best in the world. Unfortunately when the Republican party changed the tax system they did not see that schools were provided for in another way. While this could certainly have been an oversight, the effect of creating schools less accessible for differing demographics and races, which favored upperclass white males is what followed. JTPA attempted to address this by offering GED's and a variety of other training programs updating some programs from FDR's alphabet soup and adding other benefits.
However this was underpinned by a focus on performance, exactly the same stupidity of no child left behind, meaning at the outset funding was directed to those who were already the most successful. This meant privilaged white males. In fact a study in 1991 showed that men who participated in the JTPA's 'benefits' made on average 10 percent less than men who did not, this includes things like job corps. Other studies have showed that the JTPA has minor benefits for women on welfare but was ineffective at affecting their poverty or class. Multiple studies recommended that the same money invested into higher education and existing systems would be more effective. No matter, the issue was quickly obfuscated and distracted from. This is where the rhetoric of you're a communist because you want to invest in the government really began, and this became the response to most hard questions surrounding the damage these laws were doing.
This was made worse by the 1986 tax reform. This reduced the top marginal income tax from 50% to 28% while increasing the bottom tax rate from 11% to 15%. This is the first act in history of the US to simultaneously lower tax rates on the rich while increasing them on the poor. Furthermore the fifteen distinct brackets were consolidated into 4 brackets eliminating a huge amount of taxable income from the rich. Indeed by the end of Reagan's Presidency the top 1% recieved almost 15% of the national income compared to 8% pre-reagan. We all know today that for the top 1%, this has increased to a high of 25% during the bush era. Income inequality for those who don't know is universally recognized as one of the indicators of a stagnating or improperly functioning economy. laissez faire economics require movement of money in order to function (which the republican platform relies upon publicaly) although it seems strange that the acts supported were acts which decreased this.
For those of you curious as to why income inequality is bad: http://www.imf.org/external/pubs/ft/...11/09/Berg.htm
However income inequality affects again, the under-represented students first. So while the poorest sectors are finding it increasingly harder to go to school due to loss of funding and increases in costs. The richest were further encouraged to go to school by providing tax benefits to property owners. Because the poor rarely own property this effectively worsened the problem.
Simultaneously to this issue schools were also feeling a problem. At the beginning of 1980 universities recieved more than 50% of their funding from the state. By the end of the Reagan years this had fallen to 24%. This was largely because the guarenteed funding that schools recieved with poorer students was no longer present. In fact, at this point loans only covered between 15-20% of the cost of schooling for the average student. This dynamic has reversed almost entirely with 15-25% of the cost of school covered by grants/scholarships/state aid and 55% covered by student loans.
Reagan's administration went further to privatize the student loan process charging banks with awarding students effectively closing the door on need based aid.
As the demographics in colleges changed colleges had to change. To cope with less aid money for their students and a richer overall student population schools increased tuition and they increased tuition very very very fast. Of those of you who remember being alive durring Reagan's administration I'm sure you can recall the increases. For example Texas State, the university my father was attended tripped it's tuition in 1986 in response to the legislation which priced my father out of education resulting in him joining the navy. He had less than a year to complete his nuclear engineering degree. With such a degree his estimated earning potential was more than four times that in the Navy. It took my father, the valedictorian of his highschool, a 4.0 student and a national champion fencer out of school.
It took my dad until he reached the age of 40 to achieve parity with experience what he would have recieved had he been able to complete college. Don't get me wrong, my dad could have taken a student loan, he might've qualified for several scholarships. However the need for these at this point in time was totally different from today. The generation that was in college in the 80's was typically able to pay for their entire years living expenses and tuition with one summer part-time job, one didn't consider loans because one didn't need to. For someone who came from poverty this was not even an idea on the horizon. Being rich has the added advantage of simply making you more familiar with how money works and how to use it. By the 1990's the typical student was working a year round part-time job and taking out as much as $10,000 in loans and other debts. This was a reversal from ten years previous where tuition and cost of living could be paid for in one three month part time position.
Now today, twenty years later we find that that number has again tripled. The average student has a debt of $29,000 but we should point out that this includes those students who have every dollar paid for by their parents, or a large portion of it which is about 50% of the students currently present in school. For those of us who don't have the option of paying for our school with our parent's credit card or otherwise, the only plausible way to get into higher education is to be willing to take between $50,000 and $100,000 in loan debt once every thing is said and done. The exceptions to this are few and far between to offset this issue meaning we would need to spend twice as much overall on higher education funding in the form of scholarships/grants to restore the status quo to pre-Reagan. Furthermore even at this point college would still be primarily accessible to the upper middle class and rich sectors of our society. To bring about parity between demographics (with the current system) it is estimated we'd need to spend triple what we currently do on grants and scholarships.
So what's the issue then? Yeah school costs a lot but why isn't this being fixed?
Unfortunately the answer to this appears to be simple human perception. We as humans form our worldviews to be relatively long lasting. So our perceptions which are imbedded in these worldviews are also part of that. When I'm speaking to someone who is 60 years old about student debt they cannot comprehend the type of debt I'm speaking of. They still feel that proportionally we're in a similar boat. This means that the issue is not recognized largely by policy makers but mostly recognized by the youngest generation. This generation is least likely to make political impact which means we should just now start to see individuals from the 1980's entering office who can attest that this issue even exists in the first place.
This is complicated by the general public's opinion as well as voter apathy. For example, in oregon the voter demographics are such that because a huge proportion of the elderly vote, they actually form a larger voting demographics than 'students' do. While students are more numerous by about double their voting power is severely limited.
Part of this was also Reagan's administration's doing with voting changes they implemented. By making forwarding a ballot illegal and changing many residency (as in you must register to vote in your official county of residence or etc) definitions he effectively prevented typical college students from voting. Because they lived with their parents technically, this is where they were registered to vote in the same way most of us are. However because the voting period was during the school year students had one of two options, travel to voting booth in the appropriate area if possible, or re-register to vote in their university. Students suddenly became a lot quieter in the political process.
So what can you do?
Spread the word about the problem. Make sure that the issue of student debt is on everyone's mind. Furthermore make sure that we emphasize the fast growing nature of this problem because once their four years is over people effectively forget about the issues in college. People don't realize that the issue hasn't gotten even the slightest bit better on people. At best it's been getting worse slower.
Discussion? What do you guys think? Is this the next debt bubble?
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