Monday, December 14, 2015

A long march toward freedom from education debt

My friend Denise Libien has put a stake through the demon of her student debt. Here's that story and what she has come to understand about the crisis of "debtfarism."

December 9, 2015 is a date I will remember for perhaps the rest of my life.  It is the day I paid off the rest of my student loan.  Student loans have plagued my life for about 20 years now and they are finally paid off, in full, and I am done. ...

I came to Australia for a full time job in late 2012 with the intention and hope of paying off a student loan I had back in the states.  I had to borrow a pretty exorbitant amount of money to go to nursing school and I managed to pay off about half of it, a private student loan, when I was living in San Francisco working in an outpatient oncology clinic.  ... When I was out of school I decided to tackle the private student loan first, as the interest rate could change, which it certainly did.  In addition to paying the most I could on the private loan I continued to pay the minimum due on the federal part of the student loan.  ...

In 2011 my partner Josh and I moved to New York to be closer to his son.  My student loan problems were complicated by the fact that I couldn’t find full time work as a nurse in New York.  We were living about an hour and a half north of New York City in the Hudson Valley.  While it is a beautiful area, it was very difficult to secure full time, benefitted work, even as a nurse.  ...  I was getting nervous because all the while I still owed $54,000 in student loans.  I was also becoming increasingly more frustrated that I couldn’t find a full time job with benefits, despite my education and qualifications.  I had spent all that money just to be working two part time jobs with no health insurance, no sick time, no vacation time and no retirement.  I was getting cranky. 

I had always wanted to travel with my nursing and decided it was a good time to leave the states as I was underemployed.  I chose Australia because I have a relative here, it’s an English speaking country with a universal health care system and the economy was booming at that time.  I was able to find a full time job within 2 months.

When we first arrived in Australia the exchange rate was almost on par with the U.S.  At the time one U.S. dollar (USD) equaled 0.98 Australian dollars (AUD).  I even heard that the AUD had surpassed the USD for a while before we had arrived.  Things were looking up and I was formulating my plan for paying the money I owed back.  I was able to save quite a bit, but unfortunately, by the time I was ready to send over my first chunk of money in 2014, the AUD had taken a digger due to the mining industry tanking.  ...

By the time I sent over my first $30,000, the AUD had gone down to 0.85.  I got myself to the bank, all excited about handing over my hard earned money and got quite a shock when I spoke to the teller.  In addition to the exchange rate decline, the big banks also give you a lesser rate because they’ve got to make their money on your transfer.  As I scoured the numbers I heard, “This is not a game you’re meant to win.”  The teller’s words exactly. ...This is ridiculous, I kept thinking, but if I didn’t pay it, interest was accumulating on the loan back home.  I was stuck between a rock and a hard place amidst global economic turmoil and seesawing financial markets which I had absolutely no control over.

... I did a bit of research and decided to transfer my money with a company online that didn’t charge fees and gave a better exchange rate than the banks.  They, of course, make their money by giving you a lesser exchange rate as well, but at least it’s somewhat better than the banks.  But wait, there’s more… 

Meanwhile, loan payments were being withdrawn automatically from my U.S. account every month and my balance was beginning to look sad.  In October 2014 the federal government decided to up the monthly payment to $344.00 from $315.00.  A unilateral decision that I was not consulted about.  Apparently, the $315 per month was not enough to pay off the balance by 2025.  Ok, more money….  I was starting to really lose it (no pun intended). ...

... With much agonizing debate I decided to bite the bullet and devised a plan to pay if off in 2 years by the time I turned 50.  I also asked my family for some funds to offset the money I’d already lost in the exchange rate.  Thanks to a bit of help from my mother, I was able to pay off the loan a year ahead of schedule. 

Another driving force for my paying off the loan early was the fear of the Fed raising interest rates in the U.S. in December of this year.  I kept hearing from the rep at the Australian transfer company that if the Fed raised rates it would lower the AUD even more.  Any way I cut the cake, I just could not win.  That was crystal clear. ...

I am not writing this email to elicit sympathy or pity.  I borrowed the money, no one held a gun to my head.  I borrowed the money to get an education, a job that pays decently and be part of a profession that helps people.  I am writing this because I want people to know the reality about student loans in the United States.  Student loans have become quite a profitable business and educational debt currently amounts to over $1 trillion in outstanding loan balances.

Debt protest at Wells Fargo Bank in San Francisco, spring 2012
About 40 million Americans have an average debt exceeding $27,000, writes Congresswoman Carolyn Maloney.  According to Susanne Soederberg in her May/June 2015 online article ‘The Student Loan Crisis and the Debtfare State’, the industry has grown steadily over the last few decades along with rapidly rising tuition and fees in addition to the  government’s prioritization of loan-based funding over grants.  In her article she discusses how the student loan industry has a lot in common with the sub-prime mortgage industry which went into major crisis in 2007-8.  Both rely on what’s called “asset-backed securitization” to raise capital and hedge risk for investors.  Student loans asset-backed securitization, or SLABS, are the main channel through which the lending industry moves funds from investors to students.  Like the sub-prime mortgage industry, SLABS depend on the ability of borrowers to pay back their debt. 

Since as far back as the recession of 2001 most student debtors have the same problem I encountered when I moved to upstate NY: they have not been able to get decent paying jobs upon leaving college.  Per Soederberg, default rates on student loans have been climbing since 2003.  Contributing factors include poor job prospects and mounting health care and housing costs.  By 2012, student loans registered the worst delinquency rates in consumer credit surpassing even mortgage and credit card debt.  Educational loans are the only form of consumer debt to increase markedly since 2008.

Soederberg associates the growth of the student loan business with a basic alliance between government and finance.  Both private lenders and the federal government securitize their loans by selling debt bundles to an outside investor like a pension or hedge fund.  The Department of Education generated $101.8 billion in revenue from student loans from 2008-2013 by exploiting the difference between the low 2.5% interest rates it pays to borrow money and the 6.8% it charges students for loans.

The basic premise driving SLABS, according to Soederberg is the “commodification of debt” or the ability of financial institutions, through legal sanctioning, to transform a debt obligation into a financial asset that can be traded on the markets.  All financial complexities aside, we’re still left with the basic problem:  the success of the investment still relies on the ability of the debtor to make enough money to pay back the loan, plus interest and any fees.  For the student loan industry to continue to be profitable in the face of increasing rates of default, laws have been enacted to discipline debtors.  Soederberg refers to this new feature of ‘neoliberal governance’ as “debtfarism”.  She defines this as “a set of institutional and ideological practices aimed at regulating and normalizing the growing dependence on expensive consumer credit to meet basic needs, such as education”. 

To ensure debt obligations, regardless of the borrower’s ability to repay, personal bankruptcy law was altered in 2005 with the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA).  BAPCPA made debt relief under Chapter 7 (where most debts are cancelled) nearly impossible for both private and federal student loans.  BAPCPA also made filing for Chapter 13 (an adjustment of debts) much more difficult.  Students have to prove ‘undue hardship’ which Congress has refused to provide a clear and transparent definition for.  So essentially, someone like Donald Trump could declare bankruptcy more easily than someone mired in student debt.

What is important to remember is having to borrow so much money for education is something our parents never had to worry about.  States have slashed their support for higher education.  With states investing almost one-fourth less in public universities from 2003 to 2012, universities have had to charge more and students have to borrow more (Maloney, 2015).  From 2001 to 2011, state and local financing per student declined by 24 percent nationally. Over the same period, tuition and fees at state schools increased 72 percent, compared with 29 percent for nonprofit private institutions (Lehren & Martin, 2012). 

Lehren & Martin also report the sharp drop in spending is a direct result of the decision by an increasing number of lawmakers to transfer more of the financial burden of college from taxpayers to students and their families.  This “normalization of students’ increased reliance on loans” to fund higher education has been constructed by the ‘Debtfare State’ Soederberg reminds us.  “The increasing reliance on expensive personal loans to obtain an education is not a natural phenomenon”, she argues and I quite agree with her.  “It is a social construction that needs to be revealed, attacked and uprooted” which is why I’ve chosen to write this.

There was a time in my life where I could not see beyond my student loan debt.  I’ve gone through so many feelings of despair, anger, frustration, uncertainty and sorrow because of my debt.  And I know I am not alone in this.  But you feel so alone when you’ve got so much of a burden to carry.  My loans dictated where I lived, what I did, how much money I could make, the setting I worked in…  I couldn’t make below a certain amount, or it would have taken me forever to pay the loans off.  It was a constant concern and factor in my life- it dictated everything. 

I firmly believe anyone who has the initiative should have the opportunity to go to school without being burdened with a lifetime of debt.  Particularly those who go into helping professions.  Former U.S. Labor Secretary Robert Reich, long time Berkeley economics professor, asserts that ultimately the U.S. has to move to a system of free higher education as it was prior to the 1980’s.  “When I first came to the University of California, Berkeley in the late 1960s as a research assistant, tuition and fees at Berkeley were almost zero. We’ve been there. We’ve done it and succeeded with free higher education and we need to return to an idea that worked”.

I am overjoyed/thrilled/ecstatic that I was finally able to pay off my loans and it is such a wonderful feeling of relief to be free of this oppressive financial burden.  I suppose this experience has really opened my eyes to the many inter-related social inequalities that exist in the United States which seem to be intensifying.  I have also come to realize that one of the main reasons I left the U.S. was because I essentially felt betrayed by a system I invested everything in that did not reciprocate.  While I am now free to move on and focus on other things, I will never forget this long, harrowing, seemingly insurmountable affair.  It has only made me more concerned and compassionate towards those who continue to struggle with their own debt.  

1 comment:

Rain Trueax said...

I am in favor of Bernie's plan-- free tuition for all students with good enough grades. That still leaves about half the cost of college for the student to earn or need to borrow. It's not a free lunch as free tuition would be dependent on 'good enough' grades. That still leaves a lot of people with the problem this lady discussed. We helped our kids and paid their tuition but they still had some debt and worked part time. Paying our grandkids' tuition has been the goal for my books. Any money they make goes into a grandkid fund. My state, Oregon, gives you some tax writeoffs for doing that. Federal government zero. Not only does the federal government not help by paying some of it; they don't help the family who would. So we put money into the account every year and because we are over 71, it's no longer a tax break (until it is removed). It's ironic that the state near me, led by Republicans, that made an effort to lower college tuition at state universities (by 20%), had to fight Democrats who didn't want to do it. Why would Democrats stand against lowering college costs? The rates have skyrocketed and some of that is due to top heavy administration costs where they get the money the profs do not. My husband has worked with our closest Oregon University on joint grants with business. He said the aides and all are amazing for what they get and how many there are. If we are to keep costs down, the government will have to look into such things and there are those who don't want the government doing that. But the skyrocketing inflation in college costs should be pause for concern to anyone who would like to see an educated populace. Who do you suppose does not want that? And they aren't all in one party...