By Josh Mitchell
Inequity and personal responsibility clash in Josh Mitchell's The Debt Trap: How Student Loans Became A National Catastrophe.
Josh Mitchell, a reporter for the Wall Street Journal, takes us on an important journey. Mitchell traces the history of student loans from visionaries Lyndon Johnson and Carl Elliott (1957 - 1969) through seven historical phases in order to understand the financial catastrophe cascading down to the present (2016-2018). Along the way we meet Sallie Mae, Al Lord and Ed Fox (the two biggest architects of the student loan industry), discover how Presidents, Democrat and Republican, fostered the debt crisis by enabling colleges to "raise their prices with abandon," and we hear the stories of those strangled by mounting student debt.
The Debt Trap is history, economics, higher education, racial and social inequities, and politics. What it is not is a treatise on personal responsibility. Despite beginning and ending on Lyndon Johnson's dual values of personal responsibility and education, I felt Mitchell mostly neglected the former, though his treatment of the latter was exceptional.
As a college President, education and student loans are the stuff of daily life. When Mitchell pegs the student loan system as a national catastrophe, he is not uttering hyperbole.
Today, 43 million people owe $1.6 trillion in student debt, an amount that has tripled since 2006. Americans owe more in student debt than they owe in credit card debt and car loans (3)
As a parent of six, however, all of whom attended college on their own dime -- and none of whom were straddled by debt -- I was disappointed that discussions of personal responsibility were mostly neglected. For example, in Chapter 8, "State U In" (a fascinating chapter!), Mitchell recounts the sad tale of Thomas. Thomas graduated from the University of Alabama with $153,000 of debt. Sadly, he was barred from walking in commencement due to an outstanding bill of $2,800, a travesty in an institution whose football coach enjoys the highest salary in the nation ($9.75 million per year) and whose average faculty pay of $152,000 a year makes it a darling of higher education. Thomas' story is a travesty. However . . .
Thomas had cheaper options than Alabama. He could have gone to a state school in Florida for a lot less [because he was a Florida resident]. But he was responding to incentives built into the student loan system--and so was Alabama (181).
Was Thomas a "victim of the system?" Yes, I think he was. Could the system have served him better? Absolutely, and it should have. Is Thomas off the hook? No. There were other options. He chose not to take them. That is on him.
Neither Thomas nor most borrowers are asking for a handout. They are, however, asking for help. And my personal diatribe aside, Josh Mitchell gives us six recommendations to provide such help:
1. Forgive interest on student loans. Attempting to scale the ever-growing mountain of debt, many borrowers see no hope of ever paying it off. They don't want them forgiven, but they do want a shot at paying them off. Forgiving interest would help.
2. Make four-year schools put up their own money. This was Lyndon Johnson's original vision. With financial skin in the game, institutions would be more careful, thinking twice before giving away cash willy-nilly.
3. Make community college truly free: Mitchell does not support four years of free college for political and practical reasons. He is, however, a proponent of making a year or two of community college free so students can test the educational waters.
4. Revise the idea of the American Dream to respect and reward alternatives to the four-year degree, particularly apprenticeships. The research is clear: "Apprenticeship programs are effective at getting students well-paid jobs" (218).
5. The government should stop subsidizing grad school. Mitchell explains a number of financial educational products, among them Grad Plus, which he charges with being the most dysfunctional. Eliminating it would drive down graduate education and cause students to think twice before tackling the master's degree.
6. States, cities, and communities should step up. Mitchell cites Kalamazoo, Michigan, where wealthy philanthropists invested in the education of their own citizens.
In the balance of this review, I'll share some of my highlights ("Amen to that!"), recount a few shocking details I picked up reading The Debt Trap, and end with three considerations for the institution I lead, Lancaster Bible College | Capital Seminary & Graduate School.
My recommendation:
If you have been to college, work at a college, have a student who will one day go to college, are concerned about higher education in America or national economics, read this book. Josh Mitchell gives us a splendid history and analysis of student loan debt. But he doesn't stop there. He offers us alternatives to improve the financial system that makes higher education possible for millions. In doing so he moves us toward better education and personal responsibility for it.
Amen to that!
1. How institutions CAN help level the playing field: Don Lively opened Florida Coastal School of Law in 1996, in part, to serve Black and Hispanic students normally passed over by schools obsessed with moving up in national rankings:
Lively believed the practice deepened racial inequality. Those with the highest LSAT scores were predominantly white students who grew up in privilege. Law schools had "this perspective that certain people aren't cut out for this--they can't do it," Lively says. "They can do it if as an institution you're willing to make the commitment to enable them to catch up with those persons that have a more privileged heritage and background life experience" (150).
While I disagree with the "disadvantaged" premise which fails to account for personal responsibility, Lively makes a great point! By 2004, 80% of Florida Coastal graduates who sat for the state bar exam passed; the second highest success rate in Florida (154).
2. What online educators must do to help ensure student success: Reflecting on Florida Coastal's later failures, Lively notes: "It was the school's responsibility to provide help to those students--tutoring, mentoring, intensive one-on-one instruction--to ensure they succeeded.
"The whole system broke down," Lively says in retrospect. "We weren't ready to deliver on a scaled basis. To be successful at this level, you've got to have a really strong academic support program. And we haven't built up our academic support program to a level that would enable us to deliver those things that we were convinced we could deliver" (163).
3. Educational loans, a "moral hazard." "Studies show that the more an activity is insured, the more people take risks" (44). Lenders with a 100% federal guarantee to cover the debt will lend money more carelessly.
4. The shaky foundation of the twin pillars of the American Dream: Sallie Mae (student loans), as well as Fannie Mae and Freddie Mac (mortgage market) "infused banks with cheap money in the name of helping poor and middle class Americans build wealth." These twin pillars of the American Dream are inextricably linked to debt (93).
A few shocking details:
1. College loan defaults: By 2016, 3,000 people defaulted on a student loan every day (190).
2. Rise of student loan debt in America: Student loan debt nearly tripled from 2007, to $1.4 trillion (200).
3. Political pickles: Grad Plus (a debt multiplier) was born in the Bush 43 administration (177-18). The Obama administration leveraged student loan interest to help fund the Affordable Care Act (133).
4. Big BIG Debt! In 1990 (adjusting for inflation), only 2 percent of all borrowers had balances in excess of $50,000. In 2014 there were 5 million borrowers with student loan debt in excess of $50,000 (71% percent of all student loan borrowers) (192-93).
5. Student loan bankruptcy: It is near impossible to declare bankruptcy due to student loan debt. Authorities can call repeatedly, garnish wages, tax refunds, even Social Security checks (199).
6. Did you know? Prior to his rise to the presidency, Barack Obama was carrying student loan debt until a book deal "wiped his financial slate clean" (205).
7. Student loans and taxpayer liability: Private lenders lost about $535 billion in subprime mortgages when the housing market crashed. Taxpayers are on the hook for $500 billion in unpaid student loans (7, 208).
8. How bad is it? Between 1980 and 1990, all consumer prices rose 62%. Typical family earnings rose 68%. One Year at a private college rose 145%. Public college rose: 113% (76).
What can LBC do?
1. Perform a student debt analysis. What is our student default rate? Why?
2. Ensure the quality of our global education student success process by determining and consistently assessing system measures.
3. Study University of Alabama's model for recruiting students (c.f. p. 167).
5. Help student borrowers to assess their ability to repay student loan debt.
6. Ask the President's Cabinet to read The Debt Trap. Take a half-day to discuss implications. Make The Debt Trap required reading for financial aid, admissions, and student services.