Wednesday, August 27, 2014

Go To College! It'll Be Great!

When I was a young man, and the earth itself has matured considerably since then, college was thought to be the best way to get ahead in the world.  Back then there actually was a middle-class, and a college degree was seen as the key to achieving middle-class status.  Even then college was being oversold. 

In those halcyon days, the middle-class was so vast that it was easy to get in.  Anyone who landed a good union job was in like Flynn.  Any guy, it was mostly guys, who had a job that came with membership in the Teamsters, the United Auto Workers, a job as a big city policeman or fireman, a plumbers union, any construction union, hell, even the National Maritime Union.  You were in:  Welcome to the Middle-Class. 

It’s a lot harder now that the middle-class has been “reduced to the size where it could be drowned in a bathtub,” to paraphrase.  Harder to get in, that is.  The unions are gone, and college, however effective it might have been in the past, no longer does much for your chances. 

This has not prevented a lot of young people from trying.  Not thrilled with pulling coffees down at the Starbucks, or flipping burgers, they are willing to take big-time chances in the (vain) hope of crashing into the middle-class.  Vain hopes like getting a college degree, or, to be on the safe side, multiple college degrees.  It is increasingly obvious that these plans are misguided.  What they are finding out to their chagrin is that all of that college has actually destroyed their chances for happiness, rather than enhancing them.

This happens, of course, through the mechanism of student loan debt. 

Before 1976, tuitions were very reasonable.  Student loans were available, and they were reasonable too.  If you got jammed up somehow, the loans were dischargeable in bankruptcy.  Student loans are, after all, unsecured.  Those were the good old days.  It was easy enough to get a good education without borrowing money at all.  My own university, Queens College of the City University of New York, cost a big twenty-five dollars per semester at that time.  You read that right.  Beyond that you had only to buy the books.  Now that’s reasonable.  It was, like all state and municipal institutions of the time, a way for working class kids to get an education.  Not as a gift, mind you, but because: 1) their parents were building society and not getting rich doing it; and 2) with an education they could make a good living, continue the work of building society, and pay taxes.  No one cares about those things anymore, and tuitions have become astronomical.

It’s an aspect of the modern frisson between Liberty and Equality.  The equality value of free education has been shit-canned in favor of the liberty value of unlimited exploitation of people as a mere economic recourse.  But that’s another story.

By now, a university education is fabulously expensive and of dubious value as a tool for advancement.  How did this all happen?

The Dischargeability of Student Loans in Bankruptcy

 Before 1976:  Student loans are dischargeable in bankruptcy, just like any other unsecured loan.

1976:  Student loans funded by the government or by a non-profit organization (like a university) are dischargeable in bankruptcy after a waiting period of five years.

1990:  The waiting period is extended to seven years, but student loans are still dischargeable.

1998:  The seven year waiting period is eliminated, and student loans from the government or from non-profit organizations are now non-dischargeable for all time. *

2005:  ALL private student loans, from whatever source, are now non-dischargeable. 

*. . . unless for undue hardship.  11 USC 523 (a)(8).  As a practical matter, the undue hardship is almost never, ever granted.  I mean, you’d have to have gone to school to become a deep sea diver and after graduation to have been rendered paraplegic in a traffic accident.  Even then you might not get it, because, after all, you could do consulting or something. 

This section taken from

This is a Problem for All of Us

Americans today are afraid that they are being squeezed out of the middle-class.  That’s if they had already made it to the comfortable lifestyle that defines it.  Younger people are afraid that they’ll never be able to duplicate the standard of living that they had living with their parents as children, or, let’s say, as dependents, because by now many of them can’t afford to move out in the first place. 

Young people today are desperate to go to college in the hopes that they can someday have that comfortable lifestyle.   And they are willing to borrow money to do so, without really working the numbers to see if it’s worth it.  The resulting problem will affect us all.

Student debt is now over one trillion dollars, and is on schedule to more than double over the next ten years.  What are these kids thinking?  Many students are borrowing amounts that will be impossible to ever pay back.  Their lives have effectively been ruined by student debt.  (More on this later.)

As I mentioned, tuition in general was very reasonable up to about 1976.  But what has happened since then?  Tuitions have spiraled out of control, that’s what’s happened.  University tuition has doubled since 2004, and it has been going up dramatically since the ‘70’s.  Going up far out of line with inflation in general.  And it’s no coincidence. 

Every time student loans have become less dischargeable in bankruptcy, tuitions have gone up.  Doubled since 2004, you say?  Consider that in 2006 congress, in its infinite wisdom, passed the Federal Direct PLUS loan program, which allowed any graduate student in an accredited program of professional education to borrow 100% of the tuition, plus living expenses, for the duration of the program.   How amazing is that?  Students now routinely run up student loan debt levels of one hundred thousand, or up to two hundred thousand dollars.  All of this carries interest charges that are not gentle, rendering the outstanding balance very difficult to bring down with anything short of heroic monthly payments.

All of this is terrible for the student borrower; it is terrible for parents who find their children drawn into this trap; and it is terrible for society in general.  It is only a wonderful thing for the vested interests that make billions of dollars from the business of it. 

The Greatest Deal in History

The current situation in the student debt business is the greatest business advantage in history.  Institutions of higher learning can charge whatever tuition they want to, and pay themselves as much as they want to, and the Federal government will then loan their students 100% of their tuition for the duration of the program.  The institution gets the cash on the barrelhead, and the Fed’s (read: taxpayers) assume all of the risks for ultimate collection. 

No one should be surprised at the proliferation of for-profit universities, especially professional degree universities.  This is a capitalist’s dream of avarice.  No authority seems to be willing to discourage these universities from enticing students with lies about their future earnings potential either.  Nor are they discouraged from raising tuition to science fiction levels or paying themselves astronomical salaries.

The answer to the question,  “What Was Congress Thinking?” when they rendered student loans non-dischargeable or when they passed the Direct PLUS loan program shouldn’t be too hard to figure out.  Just follow the money.  Who benefits?  The lenders and the universities.  Who suffers?  The borrowing students and the taxpayers. 

Some Background

It is instructive to consider why we had such debtor-friendly bankruptcy laws in the first place.

America now is a big, strong, rich country, and it is all of those things in spades.  Recall, though, that in the beginning the United States was none of those things.  Only the distance and the ocean allowed us to preserve our independence until we were strong enough to do so without them.  The recent experience of colonization made the Americans feel like have-nots in a world of haves.  This feeling was reflected in the laws of the new country.

Many English laws were kept on the books, but many that were thought to be unfair, or to favor moneyed interests, were modified.  One such was the English bankruptcy laws.  There were still debtors’ prisons in England.  The U.S. did not want to go with that practice. 

Over the years our bankruptcy laws became more and more debtor friendly, culminating in the laws that were in effect up to 1976.  In a simple Chapter 7 bankruptcy, the debtor was allowed to keep certain property and all non-secured debt was discharged, i.e., washed away completely, never to return. 

This was not done in a spirit of altruism; there were hard-nosed economic reasons for it.  It allowed people to move on, to start new things, new businesses, to buy homes and cars, to keep the economy moving forward.  Keeping people saddled with old, unpayable debt was a drag on the economy.  This was a public policy decision.  (Google: Walt Disney, bankruptcy.)

In 1976 all of this began to change.  Public policy itself changed.  Congress, our esteemed leaders, began to listen to the bitter complaining of the banks and to make the discharging of unsecured debts harder and harder.  By now we have a growing class of debt slaves, people who are married to high levels of debt with little or no hope of ever rising above the tide. 

The Law School Example

(Disclaimer:  I am a lawyer.  I graduated from law school in 1991, at the age of forty-three.  My own experience was not typical, and did not reflect the situation described hereinafter.) 

I read a good article last week called “The Law School Scam,” by Paul Campos, in the Atlantic Magazine.  Very good article, Google will still pull it up.  I have cut most of this post from whole cloth, but I did lift a couple of stats from Mr. Campos.

The modern law school experience is the perfect storm of this student debt crisis, and it is a crisis.  Law school is the perfect intersection of inflated tuitions, easy loans, for-profit institutions or non-profits that act like for-profits, and exorbitant promises of future riches made to prospective students. 

It is now becoming common knowledge that being a lawyer is not as great as it is cracked up to be.  I will spare you a reading of the facts of employment as a lawyer, sufficient to say that it is not fun.  In the movies, and on TV, we are treated mostly to lawyers in big firm situations and lawyers in very successful private practices.  Both are relatively rare in the big picture of the legal world. 

Applications are down, so getting into a law school in the first place is now easier than ever.

Admissions standards are at an all-time low, and the information in the article was a shock to me.  It’s a massive bait-and-switch operation.  Students are being admitted who will have little chance of passing a bar exam, in the event that they finish law school at all.  The risk of these students never even entering the law profession is born entirely by the students and by the taxpayers who are the guarantors of the loans. 

My tuition at a rather good law school from ’88 to ’91 was in the neighborhood of fifteen thousand dollars per year.   I was also lucky enough to get a 25% break on the tuition.  I got a very good legal education, my graduating class had a bar passage rate in the high eighties, and that’s mostly for the famously difficult California bar exam.  Tuition at my school is now three times as much money as it was only twenty-three years ago.   Law schools in America now cost between forty and fifty thousand dollars for one year.  With all of this money, 100% of it, plus living expenses, easily available in non-dischargeable student loans, many if not most students are graduating with $200,000 in debt that will become their first priority for years and decades.  Many will never be able to pay it off.

Those big firm lawyers, those few, those (way too) proud, they make some good money, they can handle it.  The “very successful” private practice lawyers can make more, lots more in some instances, but they are very few and far between.  Most new lawyers by far, the ones who work at all, go to work for small law firms for between $45,000 and $65,000 per year.  Even the upper end of that will net you a big less-than-four-thousand-per-month.  Try paying off $200,000 on that. 


The law school thing is just the extreme example.  The real scam is with student loans in general.  Students are enticed into going to school, essentially frightened into borrowing money in a desperate attempt to get a better place in the world.  Schools cynically admit them and charge them unconscionable tuition for the privilege.  Politicians pass legislation to help the lenders and those who run the institutions of “higher learning.”  (No adjective on politicians, because I could not think of anything mild and non-threatening.) 

Those politicians have already put taxpayers on the hook for a trillion dollars, with an additional trillion scheduled to come on line in the next ten years. 

The number of young people who are caught in trap is growing as we speak.  They will be prevented from participating fully in American life and the American economy, from buying houses and cars, from starting businesses. 

The inevitable end to all of this will not be pretty.  

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