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American college students now owe more than $1 trillion on their student loans, more than total borrowing on credit cards or auto loans. Given how much people in our society like to drive cars and put their shopping bills on plastic, this is an astonishing sum. Borrowing for higher education used to be rare. Now students routinely leave college with tens of thousands of dollars in debt and, in the current job market, shaky prospects for paying it back.
The average amount of student debt carried in the United States by graduating seniors? $25,000. But many owe more than twice that, and forget about it if you plan to get a professional degree.
This represents an inter-generational betrayal with far-reaching consequences for the shape of civic life. Basically, our parents have sold us out.
When students first began enrolling in college in large numbers in the 1950s and 1960s, the social bargain was well-understood. States subsidized public two- and four-year institutions, keeping prices low enough that parents could afford to pay out of pocket or students could work their way through school. This arrangement held for several decades.
When I attended the State University of New York at Binghamton in the late 1980s, my parents paid $1,500 a year in tuition and fees. It’s $7,200 today, nearly triple the price even after adjusting for inflation.
In states like California and Arizona, tuition has grown even faster. I graduated with no debt, which allowed me to work and save for a year without worrying about crushing monthly loan payments, and to borrow money for graduate school without adding to an existing loan. As late as the early 1990s, most undergraduates did not borrow.
But two long-term trends were already underway by then which would, in combination, lead to the student debt crisis we face today. First, colleges and universities began ramping up spending and tuition at alarming rates. They built elaborate facilities and subsidized money-losing sports teams to compete for students and prestige. (My alma mater jumped up to Division I basketball a few years ago, which quickly led to a disgraceful — and utterly predictable — scandal.) Even as the percentage of classes taught by tenured professors declined, new spending on administrators more than filled the gap.
According to the non-profit College Board, average tuition and fees at public universities increased by 80% from 2001 to 2012, after inflation. During the same time period, income for households at the 60th percentile of earnings shrank.
While other parts of the economy realized huge increases in productivity through information technology, traditional colleges and universities largely stuck with an older, labor-intensive and increasingly pricey organizational model.
Meanwhile, America’s political landscape was fundamentally altered by the anti-tax movement. Starting in California and spreading across the land, state legislators increasingly refused to consider new taxes of any kind. At the same time, an aging population and an out-of-control medical system drove public spending on health care to new heights.
Higher education got squeezed from both directions, particularly during recessions. There was a resurgence of funding during the boom years of the late 1990s, but by the 2000s, public support for higher education was in serious decline. Unwilling to cut costs and unable to secure new state revenues, colleges stuck students and parents with ever-larger bills.
The timing was terrible. Even as costs were rising and revenues falling, median family income in America entered a period of stagnation and decline. At the same time, the economy was reorganizing itself in a way that increasingly divided the haves and have-nots by possession of a college degree. If you wanted a good job, you had to go to college. And if you couldn’t afford to pay for college, you had to borrow. The farther family income and college prices moved apart, the greater the borrowing had to be.
For years, public leaders and university officials excused this state of affairs by noting that, in the long term, college graduates still earned more money than the debt they were required to pay.
This was easy for them to say: They had already gotten their affordable college education on the public dime, and were happily reaping the economic benefits of higher learning at lower tax rates than would have been necessary to give the same to their children.
It’s true that college is still a good economic deal, on average, in the long term. The problem is that a) many people are, by definition, below average, and b) student loans are due in the short term.
As soon as you stop going to school, the bills come rolling in, regardless of the unemployment rate. And if you can’t pay them back, your college doesn’t care, because they got their money up front.
Now college students are starting to push back. The Occupy Wall Street movement may have provided the most visible evidence last fall, but this is a bipartisan problem.
Democrat or Republican, liberal or conservative, if you want a quality college education, there’s a good chance you’re going to spend most of your 20’s in a state of indentured servitude to a lender or an employer you hate but can’t quit, because the loan bills — undischargeable in bankruptcy, thanks to industry lobbying — will follow you to the end of time. Literally: The Washington Post has reported that $36 billion in loan debt is held by people over 60 years old.
To get out of this mess, we should start by adopting the loan repayment system that New Zealand and the United Kingdom have used with great success. In those countries, borrowers pay a fixed percentage of their income, deducted from their paycheck just like income and Social Security taxes.
If their income falls below a certain level, they pay nothing, and after a certain amount of time — say 10 or 20 years — remaining debt is forgiven. Congress should also make private student loans dischargeable in bankruptcy, just like credit cards, mortgages and auto loans. Garnishing Social Security checks decades after people have left college is insane.
Colleges and universities, meanwhile, can do much more to rein in spending, de-escalate status competition and use technology to improve student learning while simultaneously lowering prices.
For decades, colleges have collectively taken advantage of their status as the sole provider of increasingly valuable credentials, jacking up prices and avoiding the difficult work of reform because they had students over a barrel: If you want a good job, we’re the only game in town. And while state budget cuts are definitely a huge problem, private colleges have gotten much more expensive, too.
The college price spiral can’t go upward forever. If colleges don’t start reforming quickly, many won’t survive the day of reckoning that will eventually come.
More broadly, we need to rebuild the idea of higher education as a public good. Society as a whole benefits tremendously from higher learning.
Universities produce research that drives economic development and college graduates create ideas and wealth that benefit us all. The original bargain of public higher education was the right one.
The last generation may have sold the American dream on the cheap for a few decades of low taxes. We can do better for the next.
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