interviews
Who Profits from Your Student Loans?
by Cody Hounanian
September 27, 2020
This interview with Cody Hounanian, the Program Director of Student Debt Crisis, was conducted and condensed by franknews.
frank | What does the student debt crisis look like today?
Cody | I think statistics can tell part of the story. For example, in the seventies, you could use a Pell Grant to cover most of your college expenses, now you can’t. Anecdotes tell another part of the story. In the past, a part-time job over summer could be used to cover the cost of college. That is not enough anymore. We hear from borrowers every day who work many, many hours while going to school, and that still doesn't cover even a fraction of what higher education costs today.
As a society, we used to be much more willing to invest in covering the cost of education. Over the years, and particularly since the Great Recession, investment at the state, local and federal levels has decreased. As a society, we pulled back from investing in students and left families and individuals to pick up that burden. It's an investment issue. It's also a cost issue.
Can you speak more to the cost issue — why is college so expensive?
There are expenses to operate a major modern higher education institution — especially at the level that we have in the United States. But our political leaders have decided to not invest money into our higher education system, and, as a result, families and students have to pick up the slack and borrow to pay for college.
It is a vicious cycle — the more that colleges increase the cost of college, the more student loans will be taken out to fund those educations. The more that we open up the opportunity for borrowers to finance their education, the more room there is for institutions to increase their costs.
That is why at Student Debt Crisis we support a two-pronged solution. One, we need to cancel a broad amount of the student debt that exists. Two, we need to make many colleges, certainly public institutions, free for students. That is critical to creating a future where the student debt crisis that we see today can’t be recreated.
Do you think that canceling student debt is politically and fiscally possible?
If you accept the premise that our higher education and student loan system are broken, then you have to accept the fact that much of the $1.7 trillion in student loan debt is unethical, immoral, and, frankly, shouldn't exist.
Since the COVID crisis, canceling student debt has gone from a rallying cry of borrowers and advocates to something that is growing in its legitimacy. It has the support of many people in Congress, including Senator Elizabeth Warren, and even presidential candidate, Joe Biden.
But there are other common-sense solutions we should look to, as well. For example, there needs to be a federal refinancing option.
Because of predatory interest rates, many people have loans where they have paid back more than they originally borrowed.
Refinancing is not a new idea — people can refinance their mortgage or auto loans.
Let’s back up — what does refinancing look like for student loans?
Anyone that takes out a traditional lending product for their home or their car, can take advantage of a lower interest rate in the future. That helps them to lower their monthly payments and the total amount of debt that they have to pay back during the lifetime of the loan.
People who have federal student loans are not given that option. Importantly, federal student loan interest rates have fluctuated wildly over the years. There are millions of people that have very high interest rates, very high monthly payments, and no option to lower their interest rates.
With the support of folks like Senator Elizabeth Warren, there have been several attempts to pass common-sense refinancing. It came within two votes of passing in Congress several years ago but did not pass.
How many people are defaulting on their student loans?
A million people each year that default on their student loans. And that does not include a large portion of borrowers who are seriously delinquent on their student loans — these are borrowers who are between 90 and 270 days past due on their payments.
Unfortunately, we see that student loan defaults follow the inequity lines that we see in our society. Black student loan borrowers default at a much higher rate than their white peers.
We also know those who attend predatory for-profit colleges, often single parents, disabled veterans, and other vulnerable communities default at a much higher rate as well.
What happens when you default on your loans?
The consequences of default can be really catastrophic. It can mean huge fees. In many states, you can have your driver's license or your professional license revoked. It can mean that you can't complete your program or access financial aid. It can even mean you can't serve in the military, law enforcement positions, or other jobs that require credit checks. It can disrupt people's lives significantly.
As with other forms of debt, defaulting on your student loans also means that you're likely going to face relentless harassment from debt collectors. These are people that call at all hours of the day, they contact your friends and family, and sometimes they reach out to you on social media accounts. Defaulting can lead to a serious encroachment of your privacy.
Right. And there are repayment options to pay off student loans in an effective way — but no one seems to know?
Nobody with a federal student loan should default. There are affordable repayment options that are available to student loan borrowers through the federal government. The problem is, no one knows that these programs exist.
For example, if you are a low-income borrower or if you are unemployed, you can qualify for a monthly payment that's as low as $0 per month, and still be considered current on your loans. But your loan servicer has to tell you about that option and they have to help you enroll properly. For years, they have failed to do that. There's been a myriad of lawsuits against these companies, but that doesn't fix the problem.
California just passed a student loan borrower “bill of rights” to create enforceable standards. These companies have to give you your options, and they have to educate you on the best options for your situation, not the options best for their bottom line.
The federal student loan system is so complex that it makes it hard for students to navigate — you essentially have to be an expert. What's really important to know is that student loan borrowers are constantly hounded by what we call debt relief companies. These are people that prey on your inability to find any information. Any company offering to enroll you in a federal program with a fee is unnecessary - you can enroll in any federal program at the Department of Education's website at no cost.
But it's not just the private companies or organizations making a profit, right? In 2013, the Department of Education made over $41.3 billion on student loans. How are they making that money?
Yeah, you're right. Hundreds of millions of dollars every year go to the Department of Education through our student loan system.
Most of that comes from the interest on student loans. I think it is important to circle back to the conversation around the lack of refinancing here — we know that the longer that student loan borrowers are stuck with high interest rates, the more the Department of Education reaps in return. That is a perverse incentive.
Those funds go towards funding other government programs. To that extent, I think this is a question about balancing our books as a country and reprioritizing what we want to spend our money on. We need to think about different means of funding that doesn't happen off of the backs of student loan borrowers.
There's literally money on the table to be used to reinvest in education that instead is just being given as a fund generator for the Department of Education.
Can you talk more about the spread between what banks are borrowing and what the interest rates are there and how that differs from private loans?
Yeah. When you think of what a bank can lend money for, you're talking about single digits a — 1% to 0.5% of an interest rate. When a student loan is written by the federal government, it can be anywhere from about 3.5%, today's rate, to 6.5%, which was the rate that it was for me when I attended college in 2013. In the private market, student loan interest rates can be in the double digits — they can be as high as 15% or more.
Federal student loan borrowers, and those with private student loans from banks, are paying much more to finance their own education than what institutions pay to buy financial products. There is a huge spread. Again, I think that is a societal ill.
What does our society prioritize? Is it more important to keep banks afloat or to help young people afford education and make the future better and more bright for our entire country?
Why is the federal system profiting off of this system and these high interest rates rather than acting as a protector against predatory private institutions?
That's a great question. About a decade ago, when a student loan borrower went to the Department of Education for a student loan, the Department of Education would help facilitate that process, but the funds came from a private bank.
During the Great Recession, the banks unloaded this portfolio, they no longer wanted these loans. A lot of the loans were sold back to the Department of Education. From then on, throughout and after the Obama administration, all new federal student loans were not only facilitated by the Department of Education, but the funds themselves came from the government through the Department of Education.
The Department of Education shifted from being a regulatory agency, to essentially acting as one of the largest banking operations within the government.
They have a portfolio of trillions of dollars in student loans. Instead of acting as an institution meant to look out for the interests of student loan borrowers, they are now incentivized to look out for their large portfolio of student loans.
Was the transition of the government towards acting as a bank a partisan led movement?
The Obama administration felt strongly that borrowers needed an easy way to finance their education, or we would have a future where the future economy was void of high skilled labor and job opportunities.
We were also coming out of the recession, and there were deficit issues. So another motivating factor was also the idea of funding — the Department of Education could process these loans and create a revenue stream that could fund other programming in the government.
Do you think the move was well-intentioned?
I would say up until recently, these programs were well-intentioned. I think there were obstacles in making substantive change. But, since Betsy DeVos has become the Secretary of Education, we've seen more of what looks like overt attempts to make sure the system is as broken as possible.
I'll give you an example, there is something called the Public Service Loan Forgiveness Program. It started under the Bush administration, and the goal of the program was to motivate college graduates to work in public service by forgiving their student loan debt after 10 years of service. The current administration has proactively created roadblocks that have denied 99% of applicants to the program. There has been much more of an explicit attempt to prevent borrowers from accessing relief from the federal government — the likes of which we have never seen before.
Does the failure of the Department of Education lend itself to the idea that the government can't be in charge of things?
To those that look at the broken student loan system and say that is a great example of government failure, I would say, look to the other side of the coin — the exploitative private student loan system.
The federal government and the federal student loan system is not perfect by any means. It has created a lot of problems for student loan borrowers. However, the private student loan system that has no consumer protections when it comes to affordable payment plans. They have higher interest rates, they engage in profiteering, and a whole host of other issues that you don't see at the governmental level.
We look at the student loan system within the federal government and think that this is a bloated, broken system that can be corrected. It should be limited in size — meaning we should lower the cost of college and cancel a ton of the student debt to make this program more manageable. But we don't want borrowers to go to the private student loan industry where they lack the affordable options and consumer protections that are afforded to federal student loan borrowers. So the grass ain't greener in the private industry for student loan borrowers by any means.
Why do you think there's so much political resistance to embrace education as a public good?
This is where things are more insidious and, frankly, shameful. It comes down to the fact that there are partisan politics at play. There are some on one side of the aisle that treat a college education as something that should be reserved for the elites rather than as a public good and something that really benefits our society. At the Student Debt Crisis, we believe that America needs highly educated and highly skilled citizens who can compete globally for modern jobs.
interviews
How Change Happens
by Duncan Green
September 25, 2018
Duncan Green is Senior Strategic Adviser at Oxfam GB and author of How Change Happens and From Poverty to Power: How Active Citizens and Effective States can Change the World. He also authors the From Poverty to Power blog.
frank: I want to talk to you about what you've written about a lot, which is how to be an effective activist.
Duncan: Malcolm Gladwell wrote some really interesting stuff off the back of the Arab Spring a few years ago. He was saying, look, the people who really bring about change have deep bonds of trust. They go into scary situations together and face them. Those bonds tend to be built face-to-face, having gone to school with people or having been in organizations with people. More than the quite thin bond you create on Instagram. One thing is that you need to build up that personal network of people you trust, and who you're willing to work with and occasionally take risks with. And that means getting out of the house.
frank: Once you establish that sort of personal connection, how do you scale from there?
Duncan: The book talks a lot about the idea of power. How do you understand power? I find it really helpful when I look at that sort of process that you just described to think, "well, there's a process of power within." People feeling effective, thinking that they have rights, a light bulb moment's come on in the heads of people who are often quite downtrodden, when they suddenly stand up and say,
Where they're going to scale is to unify, to find people who have similar views to yours, or are in similar situations to yours, and learn to work with them, which is not easy. But what you get by working together is irreplaceable.
frank: Do you think there's a way to cross over from NGO work to policy and government?
Duncan: A couple of points on that. The book argues that activism is not just about being a protestor on the streets. It includes that, but it's actually anybody who's trying to bring about change in their context, in the institution they work in, in the situation they find themselves in. That's because I started to find repeat patterns in terms of how people bring about change.
If you're trying to change the world through a private company, through an NGO, through a mass organization, you're actually looking at similar rhythms, similar tactics, you're asking yourself the same questions about, "Who are my allies? Who are my opponents? What tactics might help strengthen the allies, weaken the opponents?" It's the same.
frank: You mention activists need to become reflectivists. Can you explain that term?
Duncan: This is part autobiography [laughter]. I started off as an angry activist. Lots of things to be angry about. When I was starting, it was what was going on in Central America, it was the U.S. funding a really nasty war in Nicaragua. A lot of the activism was about protest! It was about saying, "this is wrong." And, in a way, that's cathartic, and it might make a difference, but I never really thought about how this protest was likely or unlikely to bring about any kind of change. It was much more of an expression of outrage. Over time, I got more impatient.
When you're trying to do more insider influencing, you tend to work in different ways. It's not all about numbers on the street. It's about contacts, and language, and ways of doing things. People try and change the system from the inside, and from the outside.
Outsiders will be numbers on the street. Protest movements in civil society is a big part of the work I've looked at. I've worked with a lot of those organizations, I've been in those organizations. Then there's an insider track of people who are trying to get meetings with ministers, or trying to get meetings with officials, trying to come up with the kind of evidence that might persuade them doing pieces of research. There's an uneasy relationship between the insiders and the outsiders. If you're an insider, if you're trying to get a company to worry more about the labor standards in its supply chain, in the factories that produce its goods, it's great to have protests. It's great to have outsiders putting pressure on the company, so the company talks to you.
My rule of thumb is that insiders, if they're sensible, love outsiders. Outsiders have a much more ambivalent attitude to insiders, because if you're an outsider, and you're doing a protest, and you want to keep things clear, you don't want to have all these people messing up, coming up with compromises, making things halfway okay. That really messes with your campaign. The outsiders are sometimes more hostile to insiders. Insiders are usually quite happy about the outsiders. It's kind of asymmetric.
frank: Do you think it's a mistake for outsiders to be hostile towards insiders?
Duncan: It depends what your purpose is. If your purpose is to bring about change, I would say yes it is a mistake, because that combination of insider and outsider is ultimately very effective. If your actual purpose is to mobilize as many people, and make them really angry and get them to join your party, or whatever it is you're trying to do, then it does mess things up. So it's a sign, really, of what's actually motivating people.
There is also a political difference, sometimes, which is that the outsiders are kind of maximalists. They want really transformational, big change. They want to get rid of capitalism. If you've got an insider who is making capitalism a bit nicer, that actually makes it harder to get a big change. So, there are political reasons for the differences, as well as motivational ones.
frank: Are there any movements at the moment that you think are really successful, that are doing a good job at not only provoking more thought, but also enacting real change?
Duncan: There's loads. But, I'll talk about one which is really close to home, which is an organization in London, in the U.K. called Citizen's U.K. I love it because it's really different from Oxfam, and the kind of NGOs that were. It is a community-based organization based on the same principles that Obama applied when he was learning his trade in Chicago all those years ago. It's got the same kind of intellectual gurus. And, they work. They basically go around to poor communities working in particular with faith institutions (mosques, churches, synagogues), and with schools. And, they ask people what their problems are. You know, "What's pissing you off?"
But, the reason I know about this is partly because my son works for them, so...
frank: Amazing!
Duncan: Just full disclosure there. He's set up something in one part of London, and they were working with local groups to clean up parks, and to get changes in planning, and to get social housing, and all sorts of things. I love that approach because it's so different from online activism, and it respects the institutions that poor people trust, which is faith organizations and things that matter to them as families, like schools, and starts from there, and I think that's really interesting.
frank: Community based that goes macro from the micro, it seems.
Would you expand more on the kinds of power you define in your work?
Duncan: When people talk about power, they often mean the formal political power who is actually in the government, or who has got the guns and runs the army. That leads you to think that power is a bad thing. I think far too many people go with that line that power corrupts...Absolute power corrupts absolutely.
In order to actually change anything, you need power. That's why the book argues that we need to be a bit more nuanced and thoughtful about power. One way of thinking about it is there is formal power. The people who are sitting in the government making decisions. Then, there's hidden power, which is old boy networks, the backrooms, the lobbyists, the people you don't see who sort of seem to influence events. Then there's invisible power, which is actually the power in people's heads, it's close to that "power within" idea. Why do some people think that they're entitled to run the country, and, loads of us, think, "Oh, no, what do we know?" And that kind of thing.
You need to confront those less obvious forms of power if you're actually going to create change. There's lots of different ways of looking at power, but overall I've found, say to people, "Look, power is like this force field, which permeates society. And, most processes of change involve a change in that force field whereby some people get more power, some people get less." The nature of power shifts, so if you're going to become serious about change, you have to make power visible and then try and act upon it.
I think there's lots of different tools for making power visible, and that invisible-hidden-visible is one way.
frank: We're at a particular moment now where more and more people feel an urge towards activism. How do you push people who have no history of activism to participate beyond a march, beyond a like...?
Duncan: There's really interesting studies over centuries about social movements. How do these movements come? They suddenly spike, and then they disappear again. We've got one of those at the moment. We've got the #MeToo, Black Lives Matter. There's a lot of these big, upsurging movements. All of them, when you look at them, they're made up of little grains. They're not amorphous blobs, they've got structure.
Those grains are actually more long-lasting groups of people. It's faith groups, churches, mosques. It's trade unions, it's sports clubs, all sorts of things! Suddenly, they all come together and they make a big noise, and you think, "Oh where did that come from?" When it settles down again, they go back to their grains.
I think one answer to your question is...I am getting to an answer to your question...one answer to your question is, look at your own life and see where are you in a grain? Where are you in a sports club, or a cultural group? Where have you got social capital? Because that might be a place where you should become active.
If you're a parent to your kids at school, and if you're in a faith organization, if you're a believer in some religion, whatever it is, any of those could become big, whereby you're not alone. I'd say my advice would be think about doing that, not just doing the online petition.
frank: Is there anything at the moment you feel really urgent about? Anything you think people need to be taking into consideration but aren't?
Duncan: It comes back to that point you picked up earlier, we need to be activists and reflectivists. I think one of the aspects of reflection, which I think we need to get much better at, is spotting where things are working in our environment.
If you're concerned about the environment, getting better at seeing where people are doing the right thing for the environment, and then trying to ask, "Why?" There's a whole field of work called positive deviance, which looks at where things are unexpectedly good. I think especially now, we should be consciously looking for these positive outliers, these unexpectedly good results on any given issue, and seeing what we can learn from those.
The reason I like that is because it shows some respect for the people and systems who generate solutions. They're not always waiting for the great, white savior to come in and solve it. It might well be my next book, this positive deviance aspect, because I think it's got fantastic potential as a way of reading about change.