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
Being Not-Rich with Lauren Schandevel
by Lauren Schandevel
December 23, 2019
This interview with Lauren Schandevel, creator of Being Not-Rich at UM, was conducted and condensed by frank news. We originally published this in our May issue on The Cost of College.
Tatti: Tell me a little bit about yourself.
Lauren: I am a 4th year public policy student at the University of Michigan. Most of my work has centered around college affordability in particular. About a year ago, I crowdsourced the Being Not-Rich at UM document, which was a great resource for low income students. It was also a place to come together and realize other people were experiencing the same things, and help each other out. That's the thing that launched my career doing housing and food insecurity work on campus. I've met a lot of students on other campuses that are doing similar work. It's been really exciting.
Why did you start the doc?
The document itself is just a Google document with the sharing settings tweaked so that anyone can make suggestions or leave comments. It was crowd sourced in response to an affordability guide that our Central Student Government put out about a year ago that has some pretty tone deaf advice about budgeting – low income students were put off or offended by it. This was a response to that with substantial advice that low income students could use without the stigma or added judgment of having that advice come from an institutional figure.
Initially it was just an outline. I put the introduction in first, setting the tone for what the document would be. And then I had headings – housing, employment, on campus resources, food – people just filled in the information as they came in. Now it's grown to about a hundred pages. Before it was just a couple pages, like a skeleton outline.
What was so tone deaf on an institutional level that prompted you to start this yourself?
I think it's important to start by talking about how students perceive Central Student Government at the University of Michigan. They release reports on their demographic information each year and they're usually wealthier and less racially diverse than the rest of the student body. People already have that perception of them. When they put out the guide, the first 10 pages or so were devoted to budgeting, a lot of the advice was like, “fire your maid”, or, "stop laundry service".
That was the main issue we took with it. It wasn't like we were spending our money frivolously and that's why we were struggling. It's that we don't have a lot of money to begin with, and it's hard to live on the University of Michigan's campus.
Did you send the doc to student government or to anybody on an institutional level?
The university administration knows that it exists and certain departments like the Office of New Student Programs have collaborated with me to turn it into a more institutional thing. I chaired the Central Student Government affordability task force this year and they're going to have an affordability commission permanently from now on. So that's great.
One thing I've noticed is a lot of the time it's students taking the initiative, particularly on our campus. Students are doing most of the housing and food security work. That should not be the case. The university should take responsibility, especially in the instance of housing. They're admitting more students than they have housing for, and it's on them to build housing and make sure students have a place to live when they get to campus.
Food insecurity is the same. We just got a permanent food pantry. But a lot of that was because of student activism over the years. We shouldn't be the ones pushing the university on basic needs, particularly because low income students have a million other things to worry about.
Do you think the work is moving towards that goal?
I think it's moving in that direction, not just here but nationally. The Hope Center in Philadelphia has been at the forefront of these discussions about housing and food insecurity on college campuses. They've published a lot of reports, they hold an annual conference. People are becoming more attuned to these issues and the fact that they exist on college campuses.
How does the wealth gap you're recognizing affect students socially?
I feel like that is part of the conversation that's often ignored. Obviously there are financial barriers to being a low-income student on a college campus. But there's also, like you said, a social aspect. Students arrive on campus and feel alienated from their peers, and don't understand why. A lot of it is because of that socioeconomic disparity – but they don't realize it.
It happens frequently and it's a huge reason why those students end up dropping out – because of a lack of the sense of belonging. I myself have felt that way, and I know a lot of my peers have too. The important thing is letting those students know that it's completely out of their control. It's a structural problem, and any sort of alienation they feel from their peers as a result of those socioeconomic barriers are not because they're not good enough for a university.
How can you can mitigate the social part of the problem?
I think low income and first generation college students need more community building spaces. I know first-gen activism has taken off over the last 10 years. You have offices for first-gen programming and first-gen learning communities, which is really great. The same thing should be done for low-income students on college campus’ so they can talk to each other and share experiences and realize that they're not alone in this college experience. University administrations need to recognize they have low-income students on their campus because it's a very touchy subject for them right now.
Acknowledging that it is a socioeconomic thing is probably the first step. Particularly in America, we don't talk about class. And so when we gravitate towards certain people, we don't know that it's because they share our socioeconomic background. They don't know that diversity also includes socioeconomic diversity. I feel like naming that issue and making it clear that a lot of the decisions we make are the results of our socio economic backgrounds will make it easier for people to see the class disparities in higher education, and it will hopefully empower low income students to advocate for themselves and to feel confident enough to participate in the college experience so that they're meeting different people, people who might be wealthier than themselves.
Do you feel like this perpetuates itself into the post-collegiate professional world?
Yes. It's a combination of financial and cultural factors. Wealthy students coming in have parents who have probably gone to college, that have careers where they can get the students internships or fellowships, and pay for them to do unpaid internships. There's that aspect of it. But then there's also that cultural capital. Those students know what clubs to join, they know where to apply, and they have connections somewhere. That trajectory is already set for them. Whereas low-income students can't afford to do unpaid internships, don't know anyone in the industry, don't know how to navigate the process of applying to those internships, or even that they have to do internships in college.
When do we need to start preparing students for these realities of college campuses?
This is one of the issues I have with college affordability activism – it starts way before students enter college. The K-12 education system is so vastly unequal, that needs to be addressed in addition to how we're setting up low-income students to succeed in college. There's so many low-income students we're not capturing because our education system is so unequal. It's a rare phenomenon to even get low-income students in the door at these elite institutions.
That needs to be addressed. But that’s a combination of segregation and the way public schools are funded. There are a number of legal ways in which rich parents give their kids a leg up in the admissions process.
Does your academic focus cover these issues?
Yes, I try to make that really clear. I am also responsible for creating a minor and social class in equality studies at the university. It basically teaches about how social class influences outcomes and access to opportunity.
That's something I tried to bring into my activism around affordability because affordability is inherently political, and to talk about it you also have to talk about class and race and all that stuff.
Class is a very un-American conversation.
Exactly. People are starting to have that conversation.
Do you find it easy to explain?
Oh, it's so hard. Particularly if you're communicating it to wealthy people, which a lot of the times I'm doing because of the campus. But telling people that their success is the result of the combination of hard work and privilege is really hard, and people get defensive. You have to coddle them a little and say, "You worked really hard in high school, but have you considered that these factors may have helped you get to a place like the University of Michigan?" And then they get it, but sometimes they're still mad because the American dream tells us that if you work hard you can succeed – and it doesn't say anything about class privilege.
What do you think happens to the value of college when the reality of attendance is so tied to privilege? As an employer, what does it really mean to hire someone from Yale, if I have no context for how they got there?
People are still under the impression that if you went to one of these very elite schools, you must be very smart and that's how we maintain the system. But if people start to think that, hey, maybe this is the result of socioeconomic privilege and not necessarily merit, then the only solution to keeping people from losing faith in the education system is to admit students in a truly meritocratic way, which means admitting very smart, high performing low-income students. Hopefully the problem solves itself that way. But if not, then we're going to have this distrust of higher education.