You could call it a bubble, but it’s more like a ball and chain. Bubbles are, after all, light and airy.
The collective weight of American student debt is now over $1 trillion, and that weight is a drag not just on those paying the debt, but on our entire economy. It’s hard to calculate exactly, because the lenders are notoriously unwilling to hand over their data, and with students defaulting at ever-higher rates, interest rates and fees are always changing, adding constantly to the weight of the burden college graduates (and those who didn’t graduate but still have to pay off the loans they took out in more hopeful times) carry.
Around the country, activists are marking the date with actions; in New York, a rally and march will be the centerpiece of what the Occupy Student Debt Campaign has dubbed 1-T day; the day the amount of debt we’re carrying to pay for our education officially got too big to bear silently. The rallies aim to end the isolation that debtors often feel, to bring people together to understand that the problem they have is shared by millions of others—and that it calls for political solutions.
“I think that we in America have become so separated from one another, partially due to this debt,” Pam Brown, an organizer with the Occupy Student Debt Campaign, told AlterNet. “The debt makes us very individual; we can’t afford to help someone else, we can’t afford to spend our time in a way that’s not productive.”
How did we get here, with more student debt than credit card debt, with student loans rising twice as fast as mortgage debt at the height of the housing bubble? Recent graduates face terrifying unemployment numbers—ThinkProgress reported that over half of all college grads under the age of 25 are either jobless or underemployed and median wages for grads with bachelor’s degrees are down from 2000—and delinquencies on debt is steadily climbing.
Those are complicated issues, because student lending is a complicated industry, one that highlights the degree to which the government is entwined with Wall Street, and state and federal policy play off one another to push students to ever greater levels of borrowing. As students and debtors rally to shake the stigma off their debt burden and call attention to the involvement of big finance in their education, let’s take a look at the system that led us to a trillion dollars in debt.
The Politics of Debt
You know you have a problem when even Mr. 1 Percent himself, Mitt Romney, is declaring his support for a move to hold student loan interest rates low. “I support extending the temporary relief on interest rates for students as a result of — as a result of student loans, obviously — in part because of the extraordinarily poor conditions in the job market,” Romney said this week, probably in an attempt to blame President Obama for the lousy conditions young workers are facing. (Romney has also said he supports Paul Ryan’s budget, which allows student loan interest rates to go back up to 6.8 percent from the 3.4 percent current rate for new loans. Ryan’s budget also slashes Pell grants, the government’s method of giving rather than lending money to low-income students.)
On the campaign trail, Obama has pounded the issue by calling for Congress to temporarily extend the low interest rates. Members of Congress have introduced legislation to permanently keep the rate at which the government lends money at 3.4 percent. Roosevelt Institute fellow Mike Konzcal has noted that the government borrows at a far lower rate than that, which raises the question of why it is not investing more robustly in young people.
Konczal pointed out that the government makes a profit somewhere around 13 percent for each dollar of loans, and because the loans are not dischargeable in bankruptcy and Social Security payments can even be garnished to make them up, default may even be more profitable for lenders than borrowers making payments on time. There’s almost no risk of losses, which are the reason for high interest in the first place. Keeping interest rates low won’t cost the government money, it will simply cut into its profit margin a little bit. While the big banks that crashed the economy continue to enjoy ultra-low interest rates, there’s no reason to let the rates get any higher.
With Romney saying that temporarily extending the low interest rate is a good idea, it’s past time for Obama to start calling for permanent low rates. But too many of Obama’s solutions simply kick the can down the road. Income-based repayment might make it easier for students to meet their monthly bill, but as they pay smaller amounts each month, interest continues to accumulate and the overall bill gets higher. A one-year fix on interest rates isn’t enough, and even the permanent fix does nothing to shrink the size of the overall debt burden—it simply prevents it from getting even bigger.