Are Student Loans Immoral?

NYU sociologist Andrew Ross

Andrew Rossby Andrew Ross, The Daily Beast (09.27.12).

Millions of grads are saddled with unpayable student loans, yet colleges still say they’re a sound investment. NYU professor Andrew Ross asks if it’s time to stop repaying the loans.

Andrew Ross is an NYU sociologist who argues that the state of student loans – which students pay back at a rate higher than what the government itself borrows for – is unethical. Unwieldy loans have become “normalized,” their significance hardly noticed – until we step back from anecdotes to take in the data:

41 percent of the class of 2005 is either delinquent or in default.
Continues Ross:
I can no longer fulfill my classroom duties without wondering if the ultimate price, for many of my students, is a form of indenture.
He’s candid about the racial break-down:
Twenty-seven percent of black graduates in 2007–08 borrowed more than $30,000 to pay for college, compared with 16 percent of whites…
And he makes an provocative values-based comparison to the amount that simply slips unaccountably through the cracks in the military budget:
It would only take $70 billion of the federal budget to cover the tuition costs at every two- and four-year public college. This happens to be the sum the Pentagon wastes annually in “unaccountable spending.”
Is his call to protest through non-payment justified? Or is it a defense of responsibility dodgers?

Straight talk about the crushing burden of student debt is everywhere—except the one place it should be: on college campuses themselves. Students, professors, and college administrators seem to be in denial. For students who have never managed their own finances before—certainly the vast majority of undergraduates—the silence isn’t so surprising. After all, they’re not required to pay a penny on their loans until they graduate, so they coast along, often blind to the consequences of their ballooning debts. And our college presidents and senior administrators have good reason to duck any responsibility for the gathering crisis: all the evidence shows that they’ve gotten steadily richer from the proceeds of the higher-education bubble.

As for professors, I have known for several years that my paycheck depends on my students going deeply into debt, often for decades to come. But like my colleagues, I chose not to dwell on it, a decision that seemed justifiable given that faculty salaries have been stagnant as a whole for some time now. We are hardly to blame for skyrocketing college costs.

At NYU, where I teach, students graduate with 40 percent more debt than the national average. One alumnus told me that he and his peers had formed a “hundred club” for those in the six-figure debt bracket. So it felt long overdue when I finally began to wrestle with the problem personally. Knowing that they were trading a large chunk of their future wages for the right to walk into my classroom, did I have additional moral duties toward my students? Did I share any of the responsibility, or blame, for their decision to pile on loan after loan? Was I obliged to speak out against the profiteers who were plying them with high-interest credit?

When I raised the matter in class, no one wanted to talk. When I quizzed them privately, two students explained that the volume of their loans was a source of profound shame. At a pricey college, they were surrounded by peers from well-heeled families, and they feared the stigma if they spoke about their own straitened circumstances. One of them apologized for falling asleep in class: he had taken on a second job—not uncommon these days—to avoid the burden of even more loans. The other confessed that she did not want to feed any inner doubts about whether her dream education would be a career stepping stone or a financial millstone; as long as she was still studying, she wanted to stave off such thoughts.

If enrolled students had reasons to hold back, their older brethren were shattering the silence. Some of the loudest voices at Occupy locations around the country were underemployed graduates with crushing debt, finding solace in pungent slogans like “Banks got bailed out, we got sold out!” It dawned on me that all of their testifying about the personal agony of debt in public squares was a kind of “coming out” moment for a new political movement.

Despite my own ambivalence, I felt compelled to respond. Last November I helped to launch the Occupy Student Debt Campaign, which invited debtors to pledge to refuse payments after 1 million others had signed up. Since millions are already defaulting in private, our pledge simply offered a more self-empowering way of taking action and focusing public attention on the issue.

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Attracting pledgers was not easy—the morality of paying back debts still runs very deep in our society—but I learned a lot about the psychology of debtors in the course of our campaign. Students I met did not think of their loans as debt at all or had no understanding of what it would feel like to make monthly payments. One described his loans as a “hedge” (using the language of finance) or bet against his future. Another called it “funny money.” Nor do most recent graduates perceive themselves as being “in debt” until they start to fall behind in their payments. (That moment of recognition comes soon enough. A shocking 41 percent of the class of 2005 is either delinquent or in default.)

Taking out hefty student loans has become a normalized feature of college life. No doubt, this smooth routinization helps to ease the guilt of the admissions officers who are paid to reassure recruits that high-interest loans are still a solid investment in their futures. Those with less conscience have been caught colluding directly with lenders. Parents, for the most part, don’t ask too many questions. They are cowed by the prestige of colleges or are anxious not to puncture their children’s aspirations. As for the borrowers themselves, most are not old enough to drink when they are approached, like subprime-mortgage dupes, with offers they cannot refuse.

Equally problematic are the terms of the loans themselves. Unlike almost every other kind of debt, student loans are nondischargeable through bankruptcy, and collection agencies are granted extraordinary powers to extract payments, including the right to garnish wages, tax returns, and Social Security. The market in securitized loans known as SLABS (Student Loans Asset-Backed Securities) accounts for more than a quarter of the aggregate $1 trillion student debt. As with the subprime racket, SLABS are often bundled with other kinds of loans and traded on secondary markets. With all the power on the side of creditors and investors, it is no surprise that student lending is among the most lucrative sectors of the financial industry. As for federal loans, they are offered at unjustifiably high interest rates—far above those at which the government borrows money.

Private-college graduates from middle-income families are the poster children for student debt. But the biggest impact, and the worst excesses of the lending racket, can be found at the low-income end of the higher-education landscape. While I was visiting a community college in the Southwest, a son of immigrants told me he had taken out a series of loans, on the advice of “admissions counselors,” to enroll at a for-profit college, only to discover, on graduation, that the institution was not properly accredited. Unable to transfer credit, he was starting afresh at a new institution, with a new round of loans. For first-generation families like his, access to information is scarce. Priced out of increasingly costly public colleges, he and his peers are falling into the for-profit system, where they are easy prey for shady officials with ties to venal lenders who target high-risk borrowers. As a result, a familiar racial profile emerges: African-Americans are the most indebted of all population groups. Twenty-seven percent of black graduates in 2007–08 borrowed more than $30,000 to pay for college, compared with 16 percent of whites, 14 percent of Hispanics, and 9 percent of Asians.

In the years since the financial crash, the debts of banks are still being written off while the little people are expected to pay back theirs. In the absence of debt relief, which Congress does not want to contemplate, the aggrieved are beginning to talk about the double standard, and about debt refusal and debt strikes. Under the circumstances, civil disobedience like this may be the only truly democratic option.

This summer, Occupy Wall Street formed a new Strike Debt initiative, aimed at promoting this option. We held a series of “debtors’ assemblies” every Sunday in New York City parks. Largely unstructured, these were open invitations to speak out. The crowds were small enough for public intimacy, and the atmosphere, while informal, was electrifying. It was heart-rending to hear speakers bear witness about how debt had blocked their aspirations and forced them into decisions they regretted. Many spoke of depression, some of divorce, while others described the kind of future—owning a home, having children—they believed was now hopelessly unattainable. Parents stood up to agonize about their responsibility, as cosigners, for the loans of their now unemployed offspring. A fellow activist reminded us of an even more harrowing predicament: she had contracted a life-threatening ailment, and the bitter prospect of dying young was sharpened by the knowledge that her low-income parents would inherit her debts.

The burden of debt has become the lens through which I see my workplace, and it is rapidly altering my view of my profession. I can no longer fulfill my classroom duties without wondering if the ultimate price, for many of my students, is a form of indenture. This is not an extreme way of putting it. After all, the indentured have to go into debt in order to find work, and their wages are then used to pay off the debts. I have concluded that it is immoral to expect young people to privately debt-finance a basic social good like education, especially if we are telling them that a college degree is their passport to a livelihood that is increasingly thin on the ground.

I was educated in the Scottish university system in the 1970s. It was free then, and it still is, as is the case in many countries less affluent than the U.S. If the U.S. is going to have any kind of stable middle class in the 21st century, it may have to join that list of countries. On a rough estimate, it would only take $70 billion of the federal budget to cover the tuition costs at every two- and four-year public college. This happens to be the sum the Pentagon wastes annually in “unaccountable spending,” according to a recent audit, a testimony to how skewed our national priorities have become.

On one of my campus visits, a student told me that her father had been laid off, and the family had fallen behind in its mortgage payments. A cosigner of her loans, her father had also been using home equity loans to pay some of her college bills. That source of credit was now closed off, and the family’s balance sheets were deep in negative territory. At the same time, her parents were landed with some of her grandmother’s hospital bills. The student had considered dropping out. Instead, she had turned to her two credit cards to fund her degree, opening up yet another door for creditors to come knocking. Fading fast were the college dreams of her younger sister, a recent high-school graduate who was about to join her mother on payroll at their local Walmart Supercenter to help tide over the family.

Foreclosing the future of young people is a callous act, and a self-destructive path for any society. But allowing Wall Street financiers to feed off their predicament is beyond any moral compass, especially—and here I speak as an educator—when the revenue is being extracted from an activity as honest as the pursuit of learning.