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
Working at the Supranational Level
by Daniel Naujoks
July 31, 2019
This interview with Daniel Naujoks was conducted and condensed by frank news. It is part two of our conversation on The Mobility Mandala.
frank: Today, we often hear about a crisis of cooperation at the international level. It seems that many countries are reluctant to work together and many wonder about the place of the United Nations in today’s world. This is broad – but what influence does the UN have on nations today?
Daniel Naujoks: When we think about the influence of the UN it’s important to recognize that the UN isn't one entity. What we call “the UN” includes many different ways in which states interact with each other, often mitigated or moderated by certain entities of the UN. You have the General Assembly, which, for many people is the quintessential UN. And the Security Council – a highly political body and the only UN organ that has the power to take decisions infringing on states’ sovereignty. On the other hand, there is the UN of the many programs and agencies that have specific mandates and that work with governments and non-state actors to achieve something, like the UN Development Programme, the International Labour Organization, or the UN Environment Programme, to name a few.
When it comes to migration and displacement, we actually had several discussions on these topics at the General Assembly. In 2006, the UN organized the first high level dialogue on international migration and development, for which I was part of the organization team at the UN Population Division. In 2013, we had another high-level dialogue at the UN General Assembly. And after preparing and negotiating for two years, in December 2018, the global community adopted two new compacts. The UN adopted the UN Global Compact for Migration, for safe, orderly and regular migration, and the UN Global Compact on Refugees. These are non-binding agreements but the entire process of drafting these compacts was influential for spurring discussions among countries, between countries and civil society at the international level, and, even more importantly, at the national level.
Often we think of UN issues as matters at the supranational level, happening at the UN General Assembly hall here in New York or in Geneva. And that's true, that is an important venue. But, when we have a UN event or UN treaty, or in this case, a compact, there are also national stakeholders, human rights commissions, NGO networks, ministries at the national level, who have an interest in promoting certain issues. And they have consultations, the press picks up issues. Each country is a little different and it depends on the strength of certain stakeholders and their interests. For example, the U.S. government was largely absent from the process of the UN Global Compact for Migration.
The risk of somewhat being held accountable would actually be low. And remaining in the discussions would have given the US a way to influence the content. But I think it was more about sending a political message to certain local constituents than an actual policy move in the international sphere.
What is remarkable is that even though the national government withdrew from the process, many U.S. cities said, "Can we be part of that?" New York, Chicago,and other cities really stepped in. Thus, in the end, there was a lot of participation in the U.S., even though the national government declared they don't want to have anything to do with it. So, sometimes, how the UN works is a little more complex than just what the official state department position is on an issue. And there are many venues. There are bilateral consultations, there are regional consultations on human trafficking, on labor migration and so on. There is a Global Forum on Migration and Development, the GFMD, which, since 2007, takes place every year. Governments come, they exchange notes on good policies, and on what can be done, mostly at the working level. At the working level, government officials cooperate and learn from each other. Again, it's non-binding. And the UN provides inputs, they chair sessions, they write background papers, they present case studies.
This is to exemplify that there are systems where policy learning happens in a much more informal setting, than through rigid rules-setting and treaty-making. This is something students in the UN Studies specialization here at Columbia’s School of International and Public Affairs, that I direct, focus on when studying global governance. There are many different ways in which local and national governments, countries’ specific ministries, institutions, and agencies, international organizations, NGOs, and other groups negotiate and collaborate.
And then in the developing world, of course, the UN has a different role, because they are not just advising, they're working with local partners and in actual programs, like funding. And they're advising governments directly on how to do things.
So, when Kenya says that they want to close the refugee camps for Somalia refugees, UNHCR can plead, "Oh, please, refugees have rights and camps are bad." But, unless the Kenyan government gives UNHCR authority to work on certain programs, and provides UNDP consent to implement initiatives on livelihood strategies targeting refugees, these agencies can't do much. This being said, because of certain power asymmetries and donor interests, the so-called technical assistance from UN agencies in the Global South has the potential to influence policy decisions and exemplifies how the work of the UN can have an impact. But the political leverage of many agencies is not as large as is often seen. Which is why there's a lot of bargaining in the background. The things that you don't see that are not official.
Can you give an example?
DN: An example for the fact that the UN has to always ask for permission to work on certain issues is the persistence of the use of refugee camps. For the last 15 to 20 years, we know that refugee camps are not good for refugees. In the very short term, in the immediate aftermath of an atrocity, of a civil war, of a calamity, in the case of a sudden influx, camps may make sense to provide shelter and food and medical services to a large number of people. But, even in the medium term, they're very bad for the human development outcomes of people.
Camps generally don't provide sufficient economic opportunities for people, et cetera. That's why for some time now, we know that limited humanitarian responses to large refugee and IDP movements are not good for development. Definitely not for those people who are displaced, but mostly equally for surrounding communities. I actually developed a role-play simulation on the reasons for and against refugee camps and participants understand quite clearly the mix of international development and human rights logic with local politics and interests.
Addressing the shortcomings of classic humanitarian approaches, different UN agencies have been very strong in advocating for a more development-based strategy. For example, in the Syrian context, there has been the 3RP, the regional refugee and resilience plan, which is headed by UNDP and UNHCR, with I think, about 270 partners. It’s implemented in Syria’s neighboring countries, Jordan, Turkey, Lebanon, Iraq, and Egypt. In addition to each country’s national plan there's a regional plan, which focuses not only on the humanitarian side but also development side. UNDP has been leading these efforts to provide livelihood support, skills, training, et cetera. But even there, we see that the implementation is hampered by a lot of challenges. Take Jordan. In the 2013 donor conference in London, Jordan pledged to give work permits to 200,000 Syrian refugees. They were very committed at the highest level of government.
But, a year later, there were almost no permits for refugees, and everyone asked why. We did a project with Better Work Jordan, which is a collaboration between the International Labour Organization and the World Bank. BetterWork Jordan published a report that my students drafted on why Syrian refugees did not get more official work permits. There are many reasons why employers couldn't employ refugees or couldn't expand their production. The refugees could only work in the export-oriented zones, mostly in the garment sector. They couldn't work in other areas. There was a distance they had to travel. Refugees often didn't want these jobs for a variety of reasons. There were many bottlenecks in the bureaucratic procedure to get work permits. In brief, there were many challenges at the supply side, the demand side, as well as on the bureaucratic transaction side.
These issues combined led to a situation in which this great policy that was mediated by the UN and other donors to actually empower refugees to be economic actors, didn't have the impact people had hoped for. While much of what the UN does can have important impacts, this shows that what can be done at the national level depends a lot on national priorities and politics. How politicians are afraid of negative impacts for the local voting populations. And then, of course, it has also to do with the commitment of the international donors to actually put in money to say, "Yes, we will not only give you minor funds to warehouse refugees but we will partner with you to empower them and your populations." Part of the agreement with Jordan that I mentioned was a pact with the EU. The EU said, "If refugees are employed you can export garments and other goods from export-oriented zones to us duty free." The idea was to use trade and the increase in production in the Jordanian garment sector as a way to increase employment opportunities for refugees. A great idea.
But, you probably need to do more to help Jordanian products to be competitive on the EU market. There's also a time lag. Even if you open up the market right away, these products may not satisfy the EU standards for garments. So, there are many things that the partners need to do to support these endeavors and to really make sure that local leaders are not afraid that if they open the labor market, if they open chances for local integration, that in two years, donors will pull out. And then, they will get stuck with the additional population without the support financial community. So, that's where the UN can help a lot. But, without real commitments from large donor countries or any countries to resettle and share the responsibility for refugees, there's only that much the UN can do.
Thank you so much for your time.