UC fee increase will only exacerbate student loan crisis

The protests at UC Berkeley this past week have rendered national media coverage, echoing the Free Speech Movement of the 1960s when Berkeley became known as a radical university. It’s refreshing to know that Berkeley still has those seeds of malcontent within her.  Many of us are happy to see that the students are embracing their heritage of bucking the system.

We need to look past the protest, however, to see what’s really going on.  A 32-percent tuition increase at UC will essentially hammer another nail into the middle class coffin. For a half century the UC system, which provided an excellent education at an affordable price and provided opportunity for the lower- and middle-class Californians, was the envy of the entire nation. With tuition rates toppling $10,000 per semester, you may as well accept the inevitable: Unless you are really wealthy, you will have to take out student loans to pay for college.

The public has been ignorant for years about student loans. Students who take out loans are required to begin repaying what they borrowed within six months after they graduate, sometimes sooner. The allure of higher-paying jobs promised by their colleges (particularly on-line universities and trade schools) is often a ploy just to get more people to enroll. This is, after all, a service-based economy, and many of these schools are exploiting the American value of education simply to make a profit.

But it’s not just these junky schools making a tidy profit; the student lenders themselves are making a ton of money. In fact, they profit more on defaulted loans because of the creative way that loans these days are packaged. In 2003, Sallie Mae, initially a government-sponsored entity like Fannie Mae, reported that its company’s profits came from the penalties and fees it collected on defaulted loans. In fact, Sallie Mae’s fee income increased from $280 million to $920 million between 2000 and 2005. Before the sub-prime mortgage crisis of 2007-2008, Sallie Mae’s stock enjoyed an average annual rise of about 160 percent. Sallie Mae certainly is the envy of the banking world, yet millions of Americans have never even heard of this multi-billion dollar corporation, which has been under investigation for its illegal practices.  (For a thorough expose on this subject, see Alan Collinge’s book, The Student Loan Scam, available through Amazon.)

Is education important?  Of course, it is! Is Obama wrong for encouraging young Americans to finish school? Of course, he’s not!  Is Obama wrong for encouraging adults to go back to college?  No, no, no!  But the inherent problem of higher education has yet to be addressed:  How are the students who do take that educational plunge going to pay back their student loans?  While there is legislation presently on the table to do away with the corporate middleman (i.e., Sallie Mae) and structure all loans through the Direct Loan Program, no one is talking about all of the borrowers who owe loans right now – those who have been paying back their loans at exorbitant interest rates, or those who have had their income taxes or Social Security intercepted because they were forced into default. People like you and me.

The problem is this:  Student loans have no consumer protections. Unlike credit cards, mortgages, and other types of consumer debt, student loans – even those offered by private schools – are not dischargeable in bankruptcy unless you can prove something called an “undue hardship” in bankruptcy court through an adversary proceeding. This means you can’t call one of those 1-800-Consumer-Help numbers to help negotiate your student loans like you can do with credit cards. There are no student loan modification programs like there are for mortgages. There are some income-based programs that might help, but only if you can pay the accrued interest and fees on the balance of the loan after you’re done with the program. Student loans are simply non-negotiable.

It all started in the 1970s when a handful of doctors and lawyers and other professionals, overburdened by financial debt upon graduation, immediately filed for bankruptcy to discharge their student loans. For some reason, the media glommed onto this “scandal,” exaggerating the numbers, and Congress, in response to the public outrage, passed a law that put federally guaranteed student loans in the same category as deadbeat dads, tax evaders, and criminal restitution. But Congress hadn't done its homework; it was simply responding to constituent outrage without having facts in hand. It turned out that a study showed that the actual percentage of student loan borrowers who had filed for bankruptcy to discharge their loans was only one-half of one percent!

Even with these results in hand, Congress did nothing to rectify its draconian legislation. Rather, it has continued to pass more anti-consumer bills, including the elimination of the statute of limitations and the inclusion of private loans as nondischargeable debt, to make it more difficult for people to discharge their student loans. Today you must be either completely disabled or exist at poverty level to have your student loan considered an “undue hardship.” It doesn’t matter if your loan has quadrupled because of interest, deferment, forbearance, or default. You have to pay. Period.

This is a huge problem for hundreds of thousands of people across the country, but most people are reluctant to admit how much they are in debt. It’s an embarrassing topic. Yet today there are more than five million defaulted loans on record with the U.S. Department of Education. Certainly the tuition hikes at UC will greatly compound this number within just a few years. We cannot afford a public university that forces everyone to take out student loans just to get an education; the danger to our future is just too great.

Thus, the recent protests at Berkeley are a merely a symptom of a much greater problem than even the student protesters realize:  The Student Loan Crisis.  When you take out a student loan, and for some unforeseen reason you cannot repay it, you are lumped into a category akin to a criminal. It doesn’t matter how hard you worked to get your Bachelor’s degree, your medical license, your law degree or your Ph.D. If you can’t pay the loan, plus all the interest and fees that accumulate with the age of the loan, you are screwed. Forget ever buying a home or a new car or going on that long-awaited trip to the Bahamas. You have chosen to be “educated,” and with that choice comes a price tag much higher than you ever expected to pay.  

Sorry to be all doom-and-gloom here, but as an Oakland neighborhood reporter, I want my neighbors in Berkeley to understand what it really means for the students at Berkeley who will be forced to pay ten times more for their education than most people did a decade or two ago. While you can walk away from your mortgage, sell your expensive car, or negotiate your credit card debt, student loans can never be erased, except through the “undue hardship” procedure in bankruptcy court. Good luck with that.

There is something fundamentally wrong with this picture.

It would behoove the UC Regents to examine the long-term effects of its astronomical tuition hike before they impose this increase. Similarly, the legislature needs to get involved. This tuition increase is essentially inviting Californians to dive further into a deep financial hole, since most students will be in debt up to their ears by the time they graduate. That certainly was never the intention of those who constructed California Master Plan for Higher Education back in 1960 which strove to ensure quality education at a low price for all state residents. Raising UC’s tuition by 32 percent will only exacerbate the student loan crisis and will essentially wipe out California’s middle class.

Sources for this article:

Collinge, Alan Michael. The Student Loan Scam: The Most Oppressive Debt in U.S. History – and How We Can Fight Back (2009) Beacon Press, Boston.

Gammon, Robert. “The Broken Promise” East Bay Express, November 18-24, 2009.  

Photos taken by Cindy Warner of Student Loan Justice.org

For more information, or to get involved, please visit these websites:

http://www.studentloanjustice.org/problem

http://www.studentloanjustice.org/California.htm

http://groups.google.com/group/student-loan-justice-california

http://www.defaultmovie.com

http://www.washingtonmonthly.com/features/2009/0911.burd.html#Byline

http://www.newamerica.net/blog/higher_ed_watch

http://www.reducetherate.org

http://www.democracynow.org/2009/3/12/reduce_the_rate_rev_jesse_jackson