Student Debt: Pop Goes the Bubble?

The idea that our children can have a better life for themselves goes hand-in-hand with the values of hard work and improved education. And few states value education as highly as Rhode Island, a college city-state and ground zero for the launch of the very successful Pell Grants that help fund educational pursuits nationwide.

Under the current administration, student loans have become more generous and easier to get. In response, tuition costs are soaring in an economy where wages are not keeping pace. Universities are almost all expanding to accommodate greater demand, and many are growing the kind of tangled, ineffective bureaucratic approach to growth that twists out of industries where financial success is divorced from efficiency or real value. One can’t help but think of the excesses of the Dot Com era. And the easy credit, snagged with the collateral of unproven future earning advantages, is reminiscent of the loan-mania of the housing bubble.

As my grandma used to say, if something seems too good to be true, it probably is. Does the dramatic influx of students and money in academia from this generation qualify? Is a bubble about to burst? We asked some experts on the topic.

“It’s not the sort of bubble that will pop with a single flashpoint,” explained Anne Bowers, one of the organizers of the Debt Collective, which helps students combat education debt. “It’s more like a slow bleed. Or you could think of it as the foam in a bathtub – lots of little individual bubbles representing personal defaults, individual financial lives that have been destroyed. Many of these little bubbles are popping all the time,” she says.

“There’s a socially established concept that student loan debt represents ‘good debt’ because it’s associated with education, and so if you’re getting more of it, you must be doing well. But it’s not good debt – it’s forcing education to remain the province of the wealthy,” expands Laura Hanna, another Debt Collective organizer. As the income benefits of a college education (relative to non-college education) decrease, and the cost of education continues to rise – tuition has risen by a factor of 15, while median college graduate income has risen only by a factor of 6.5 over the same period — there comes a point where the math will no longer make sense. And if the return on investment isn’t there, the world’s wealthiest developed nation would risk quickly becoming its least educated.

But should education be assessed strictly for its return on investment? “Part of me is concerned about the ROI,” says Tom Sgouros, RI author of Checking the Banks. “But I also believe that there’s a value to education – to understanding the humanities especially, history and art — that transcends the financial considerations. Education should also have value in just making us better at being humans. How do you quantify that?”

And whatever valuation you develop for education, there remains the question of how to pay for it. What are some ways out of this conundrum? The Debt Collective believes higher education should be considered a right for every citizen, like in countries — Germany, for example — where the majority of higher education is paid for by the government. If all education were covered by the state, predicts Hanna, “it would not add up to big money, and it would equalize opportunity and leave us with a much better educated citizenry.” (We’ll leave aside for the moment any question that politicians may not want educated citizens – or at least may not want them voting).

The Debt Collective is advocating for student loan forgiveness on a national scale. But their first battles have been against the worst of the worst – corrupted for-profit educational institutions like Corinthian College, which closed last year, and ITT Tech, another for-profit school that relied on federal loans to students who were often pressured or misled about the potential impact an ITT Tech education would have on their futures. Ironically, internal memos indicate that sales people were particularly encouraged to prey on the undereducated, who would have more trouble crunching the numbers involved in making educational decisions. In response to Debt Collective advocacy, the Department of Education had been investigating ITT Tech. Last week, the federal government withdrew support for further loans to students attending, and in response the educational chain immediately closed its doors at all locations. “ITT closing is not really a victory – it leaves a lot of student debt issues unresolved,” explains Hanna. Now, they’re focused on helping the former ITT students achieve debt relief. “There’s a ‘closed school discharge,’ but the Department of Education isn’t very forthcoming about how to activate it, so we’re working with the former students, most of whom are adults with families, to navigate that process.”

Predatory faux-schools aside, the current runaway growth in tuition, number of students, oppressive student debt and the unrelenting American tradition of aspiring to something greater seem to be a tangled snowball of tension that will need to resolve itself. Hopefully the air can be redistributed within the bubble without the trauma of anything bursting, or the importance of education evaporating with the American Dream.

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