Another view: Student loan crisis is a real problem
It's all about statistics and how the data is read. A recent editorial in the Washington Post (which appeared in the Reformer on Aug. 2) claims that the student loan crisis is not nearly as bad as stated. That happens to be a matter of perception, which depends on how the data is interpreted and presented.
Let's start with the misrepresentations. The editorial says that only 56 percent of undergraduates have student loans, and of those, 59 percent have less than $20,000 in loans, with the 2015 average undergraduate loan balance being $17,900. Let's compare this with data from TICAS (The Institute for College Access and Success, ticas.org), which says that for those who graduated with an undergraduate degree in 2014, 70 percent had student loans with an average balance of $28,950. Anybody see the problem? TICAS' data is about freshly minted graduates, those who are about to enter the workforce or move on to pursue graduate studies. The editorial isn't as descriptive, which tells me they look at everyone in college, which skews the data in a terrible way. The editorial has an average debt load $11,000 less than TICAS. Why? Because most of the data in the editorial comes from students who can't have $28,950 in debt.
Most undergraduates receive Stafford loans. Those are limited by Congress. A freshman can only get $5,500. A Sophomore maxes out at $6,500. Junior and beyond is capped at $7,500 per year. If Stafford is all the student gets, of course the average is going to be under $20,000. What about Perkins loans? Only the neediest are supposed to receive this, which is not the average student. How about PLUS loans? For an undergraduate degree, only the student's parent can take this. Know what that means? The editorial's data is completely off. College debt is not confined to just the student. Parents are quite often sucked into the mess as well, and the editorial doesn't even touch on this.
How about we put a real face on this? I see the real faces every day. I'm a lawyer with a unique focus on student loan issues. How bad is the student loan "crisis" from my perspective? Very bad. Think about this – I have a law practice that does nothing but student loan issues. I ONLY help people with student loan issues. And my phone is ringing off the hook. I'm in my eighth year of business and there is no sign of this work slowing down. There is so much demand, I have to teach other attorneys how to incorporate student loan work into their practice.
Now, back to the editorial. "Only 2 percent of households in 2014 had student debt exceeding $50,000." Let's bring that to something we can understand. According to the latest Census information, there were 116,211,092 households in 2014. 2 percent of that is 2,324,222. If we say these folks exceed $50,000, that's a minimum balance of $116,211,092,000 – $116 billion dollars. Let that sink in. I guess the Washington Post thinks it's not a big deal that there's $116 billion tied up by only 2 percent of the population.
Continuing, the editorial says, "And three-quarters of those who incurred it are pursing law, medical and other advanced degrees that confer extra-high future earnings." That's hogwash. I think the only true part of that statement is that three-quarters were for advanced degrees, because it's hard to get a Masters or better without incurring $50,000 in debt. But "extra-high future earnings." What? Let's take doctors and lawyers out for a second. Do teachers with a Masters have an expectation of extra-high future earnings? How about social workers? How about PhDs? Oh please. Now, let's talk about doctors and lawyers. According to the Association of American Medical Colleges, staring salaries for doctors range from $150,000 to $350,000, while 45 percent have a loan balance exceeding $200,000. That's a big chunk of change. Two years ago, the average starting salary for a lawyer was $62,000, while their debt load was averaging $150,000. And while these professions may look profitable on paper, they aren't necessarily so in reality (just ask an older doctor what insurance premiums have done to his or her practice). No, it's not a crisis.
Let me tell you where the problem lies: Too much money for too little value. My fix is simple. Allow bankruptcy for private loans, even those funded by non-profit organizations (because, again, from my view, they aren't really helping society). At the same time, Congress should lower the limits of graduate loans. Bring graduate Stafford loans down from the current $20,500 per year and put caps on PLUS loans. This cuts off the current endless supply of money for colleges. The market will quickly dry up as the middle class is suddenly unable to afford the multitude of private schools, and a few public schools that have lost their state funding. Schools will have to start cutting their excessive spending on administrative garbage that caused the tuition hikes we've seen over the past few decades. Prices will be forced into market equilibrium and bidding wars over students with money will get worse. Oh, it will hurt for the schools that like their students to take out $100,000 in private loans, but too bad. They created this mess.
Now, back to the editorial. The Obama administration has done very little to help those most in need, contrary to what the editorial asserts. The best place to start would be to get rid of the draconian enforcement mechanisms and start adding accountability. Servicers screw up all the time, and debt collectors are even worse. How about adding positive reinforcement instead of negative pain? How about delaying wage garnishment and giving borrowers ALL of their options to get out of default and back into an affordable payment plan? Not ONCE during my past eight years has a debt collector mentioned consolidation as a way out of default. Why? Because they aren't obligated to. That's right, the collectors do the bare minimum to keep their federal contract – free money. That's OUR money, OUR tax dollars, being used for the laziest industry ever. How about creating bonuses for avoiding wage garnishment and getting folks out of default quickly? How about publishing the how-to's in plain English so people don't need to hire me? I can't tell you how many calls I've gotten from frustrated borrowers, who for years have been trying to get an explanation, that I can sort out in 15 minutes. Why is it so difficult for the industry to explain things to people? Why must they create such confusion? There are nine different payment plans. NINE! Why? How about we collapse all of the income plans into one and make it applicable to ALL federal loans, including Parent PLUS?
I'm not going to touch on the for-private debacle. It again boils down to accountability and the industry's lack thereof. But let me ask just one question of for-profit education: How can you fail a student when it means your bottom line suffers? Shouldn't some things not be for-profit, because business as usual is a letdown?
If the American people want this fixed, we must all understand the problem better, and the industry must be more transparent. To the Department of Education, if you're reading this, I'd like an un-redacted copy of the newest version of the PCA Manual (the manual given to collection agencies). You took it down from the Web in 2009 because we started using it against your collectors. We'd like to continue with that since you're not that good at policing your own contractors. You owe it to the American people, the taxpayers that fund you.
Joshua Cohen, The Student Loan Lawyer, is based in West Dover.
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