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.
This interview with Naomi Zewde, an Assistant Professor in the Graduate School of Public Health & Health Policy at the City University of New York, and a research fellow at the Roosevelt Institute, was conducted and condensed by franknews.
Naomi | I focus on health insurance coverage and the economic and financial implications of insurance coverage design. I look at how these things affect household financial wellbeing.
franknews | We know that medical debt is rising. What is happening in the healthcare system that explains the increase?
The issue of consumer debt in general in America is almost like a slow fire.
If people don't have the resources to meet their basic needs healthcare, education, housing — these fundamental things end up being sources of debt.
In healthcare, people’s deductibles are growing at incredibly fast rates; deductibles are growing much faster than premiums, and certainly much faster than wages over the past decade. People are left exposed to a greater share of their medical expenses, and exposed to huge medical bills — typically more than what most people have in their savings. That creates a lot of stress and fear, and often the threat of that financial burden deters people from seeking care.
What drives the prices of care up?
We don’t know.
The United States spends more on healthcare, both in dollars and in percent of GDP, than any other OECD country, but it is not clear exactly what we are spending that on.
We have a lower life expectancy. We have fewer physician visits per capita. We have a higher rate of chronic conditions. Those who provide healthcare - physicians, nurses - are not necessarily reaping the benefits either. We know that the utilization rate of the healthcare system is not unique to the United States. So why are the prices so high? That is up for debate.
We do know a few things. One, we know that a lot of this money goes towards the vast administrative bureaucracy — something that is unique to the United States. We also know that the government in other countries set prices: they either operate as the sole purchaser and thus dictate prices or they dictate prices through legislation. In the United States, Medicaid has price controls, but private insurers can charge whatever they want. There is no real way for anyone to fight back. There's no designated person to say no, you're charging too much.
Based on your research, what effect does this have on households’ finances?
I have done work around housing evictions and medical debt. We found that Medicaid expansion reduces the rate of home eviction. Going into the research it was not necessarily clear what relationship the two would have, if any. It sounded plausible — people with chronic conditions, for example, end up having to choose between rent and care. But it is astounding to think about the fact that the design of our healthcare system can have these ramifications.
I also found, in a paper that came out last month, that for 25 percent of people who were uninsured before ACA, it's cheaper to file for bankruptcy than to reach a deductible of the subsidized ACA private insurance policy.
It’s surprising right! But it makes sense and might explain why there is such low participation in ACA private insurance policies. The congressional budget office projected that 10 million more people would enroll in these plans than actually did; only 8 million people got these. They were way off. The paper investigates why.
And what did you find?
I suspected from the beginning that it was because the deductibles are so high. The median deductible for the silver tier coverage is $4,000. There is a sweet spot in terms of the subsidies that substantially lower your deductible and premium. If you make between $12,000 and $18,000 a year, subsidies will bring down the deductible to around $200. But once you make $24,000 a year as a single adult, you're facing between a deductible between $3,000 and $4,000. So in designing the policy, it was kind of like, we will give extra subsidies to lower-income households, but not in a way that reflects what it is actually it's like to live with these medical bills. It feels divorced from reality.
Our findings don’t necessarily mean the people have to declare bankruptcy. Bankruptcy sucks and hospitals also know that when you file for bankruptcy, they typically do not get anything out of it. So, they look to work with you. Neil Mahoney has a paper, Bankruptcy as Implicit Insurance, that essentially shows that hospitals tend to settle with consumers at their cost of filing for bankruptcy. Hospitals essentially say, whatever you were going to lose if you were to file for bankruptcy, just give that money to us instead.
That reminds me of what Deborah Thorne said in our interview with her: "As Americans, we often rely on credit cards to be our social safety net. And when that falls apart, we are left with bankruptcy.” What is your understanding of how we got to this place?
It's tied up with a social-political larger trend. I have been watching this show called the Black Journal from 1968 to 1977 with a bunch of progressive Black scholars.
I watched one that was right after Nixon got elected, and everyone was saying, "America is taking a turn towards facism. All of American’s white guilt money is gone.” I think that really well foretold this mass acculturation that happened under Nixon.
The United States is not unique in this march away from social egalitarianism over the last half of the 20th century, but we are living through the consequences.
How do we return protections?
There is this famous paper - It’s the Prices, Stupid. I think there needs to be some kind of direct effect on price.
You mentioned the government can do so by either acting as the sole buyer of care or passing legislation. What do you think is the best way to achieve fair prices?
Right. One way of doing so is through a single-payer system. I am actually working on a study now that is going to be published to the Roosevelt Institute that compares single-payer with a public option.
There are two things to know about single-payer that are useful in this context.
One, it would get rid of most of the bureaucracy involved in negotiating prices — the different insurance companies, the different kinds of billing, and different plans. Right now, every doctor's office has multiple people whose full-time job is to understand how to interact with every single different plan of every different insurance company. There are many people employed on the side of the insurance company as well. Under a single-payer system, that would be gone. There wouldn't be multiple different rules to understand, and that reduces the aggregate resource use that is allocated towards healthcare.
Two, a single-payer system is tax-financed. That is important in terms of equity. You get to decide what percentage of household income should be allocated towards healthcare. Basically, the way our healthcare system is designed now means that the more money you make, the smaller percentage of it you have to put towards healthcare.
It is regressive, and no one has a choice but to participate in it.
If we structure it as a tax-financed healthcare system, the way we fund most of our infrastructure, you just get to decide what percentage of household income you are going to take from each household along the income distribution.