Best best the student loan mess; how good intentions created a trillion dollar problem (2014)

The publisher gratefully acknowledges the generous support of the Atkinson Family Imprint in Higher Education of the University of California Press Foundation, which was established by a major gift from the Atkinson Family Foundation The Student Loan Mess This page intentionally left blank The Student Loan Mess How Good Intentions Created a Trillion-Dollar Problem Joel Best Eric Best university of california press Berkeley Los Angeles London University of California Press, one of the most distinguished university presses in the United States, enriches lives around the world by advancing scholarship in the humanities, social sciences, and natural sciences Its activities are supported by the UC Press Foundation and by philanthropic contributions from individuals and institutions For more information, visit www.ucpress.edu University of California Press Berkeley and Los Angeles, California University of California Press, Ltd London, England © 2014 by The Regents of the University of California “Awake at last.” Editorial cartoon by Edwin Marcus, New York Times (October 13, 1957) Used by permission of the Marcus Family “Does this mean we have to sell the Porsche?” Editorial cartoon by Kate Salley Palmer, Greenville [SC] News (December 14, 1982) Used by permission of the Kate Salley Palmer Collection, The Ohio State University Cartoon Library and Museum “We are moving back into my old room.” Editorial cartoon by John Darkow, Columbia [MO] Daily Tribune (October 28, 2011) Used by permission of Cagle Cartoons “Stylized Flow of Student Loan Processing.” Reprinted from Edmiston, Brooks, and Shelpelwich, “Student Loans: Overview and Issues (Update).” Federal Reserve Bank of Kansas City Research Working Papers, April 2013 Used by permission “Aren’t you tired of the rankings?” Doonesbury comic strip © by Garry B Trudeau (August 7, 2012) Used by permission of Universal Uclick All rights reserved “The True Size of the Student Debt Crisis.” Dēmos.org (2013) Used by permission Library of Congress Cataloging-in-Publication Data Best, Joel The student loan mess : how good intentions created a trillion-dollar problem / Joel Best, Eric Best pages cm Includes bibliographical references and index isbn 978-0-520-27645-1 (hardback) — isbn 978-0-520-95844-9 (e-book) Student loans—United States Student loans—Government policy—United States College graduates—United States—Finance, Personal I Best, Eric II Title lb2340.2.b48 2014 378.3′62—dc23 2013043272 Manufactured in the United States of America 23 22 21 20 19 18 17 16 15 10 14 In keeping with a commitment to support environmentally responsible and sustainable printing practices, UC Press has printed this book on Natures Natural, a fiber that contains 30% post-consumer waste and meets the minimum requirements of ansi/niso z39.48–1992 (r 1997) (Permanence of Paper) c onte nts List of Figures and Table vii Acknowledgments ix Introduction 1 Good Intentions and Wasted Brainpower: The First Student Loan Mess 13 Disillusionment and Deadbeats: The Second Student Loan Mess 43 Outrage and Crushing Debt: The Third Student Loan Mess 76 Dread and the For-Profit Bubble: The Fourth Student Loan Mess 103 What’s Next? Prospective Student Loan Messes 130 Beyond Making Messes? 157 Notes 181 References 203 Index 231 This page intentionally left blank figur es a nd table figures How student loan messes evolve Percentage of whites and blacks ages 25–29 having completed four or more years of college, by sex, 1940–2010 17 Percentage of Hispanics and Asians ages 25–29 having completed four or more years of college, by sex, 1980–2010 19 Uncle Sam awakens to the realization he’s been wasting brainpower (1957) 26 Student loans under the National Defense Education Act (NDEA) of 1958 28 Allocations for NDEA student loans, 1958–1964 30 Guaranteed student loans under the Higher Education Act of 1965 32 Allocations for NDEA and HEA student loans, 1958–1972 37 Guaranteed student loans under Sallie Mae 39 10 Average tuition and fees at four-year public and private institutions, 1976–2010, in 2013 dollars 47 vii 232 / Index Democratic party platforms, 105 Democratization of higher education, 20, 34, 49 Diploma mills See Fraudulent educational institutions Direct loans, 66–67, 94–95 85/15 rule, 58, 119–20 Entitlement programs, 50, 59 Failure factories, 113, 126 Federal support of higher education, 15 Financial aid letters, 121 First student loan mess See Wasted brainpower Forgiveness, loan, 124–25, 175 For-profit bubble, 10, 103–129 For-profit colleges, 47, 98–100, 107–14, 116–19, 124–26, 146–47, 169, 194n9; dependence of on student loans, 108–9, 117–18; as example for traditional colleges, 127–28, 147, 149; stock prices, 126, 198n50 See also Proprietary vocational schools Fourth student loan mess See For-profit bubble Fraudulent educational institutions, 118, 196n31, 197n40 Gainful employment rules, 120–21, 169 GI Bill, 23–25, 185nn11,12; post-9/11, 118–19 Government documents, 181–82 Graduation rates, college, 16–19, 107–8, 183–84n2; at for-profit colleges, 107–10, 194n9 Great Recession, 82, 96, 104, 126, 133–35, 139 Growth: of college enrollment, 22–23, 46–47, 104; of student loans, 48–49, 81–84 Guaranteed student loans, 32–33, 44–46, 65, 77–78 See also State guaranteed student loan programs Higher Education Act of 1965, 30–35; amendments to, 58 Hispanics, college graduation rates, 18–19 Historically black colleges and universities (HBCU), 16, 22, 170, 184n4 Income-based repayment, 95–96, 191n21, 192n54 See also Pay As You Earn (PAYE) Indentured servitude, 89 Individualistic benefits of higher education, 13–15, 71, 97 Inequality, 85–86, 161–65, 190n9 Interest rates, for student loans, 91–93, 97, 144 Intergenerational compact, 28–29, 69, 74 International students, 148 Jackson, Henry, 57 Johnson, Lyndon, 30–31, 55 Legislature, state, 70–72 See also State support Lifestyle, student, 100–102, 143, 148, 178, 194n70 Major, choice of, 86, 132–33, 135, 163–64 Massive Open Online Courses (MOOCs), 128 Messes See Student loan messes Middle-class use of student loans, 34–35, 51, 61, 69–70, 79, 83, 85, 186n25, 187n10, 188n30, 189n51 Milestones in student loans, 30, 36, 49, 80, 106 Moral hazard, 146, 176 Morris, Dick, 91 National Defense Education Act of 1958, 25–30, 43–44, 77 Negro colleges See Historically black colleges and universities Index 90/10 rule, 58, 118–20, 124 Nixon, Richard, 35–36 Obama, Barack, 93, 95, 168–70, 175; administration of, 94–95, 97 Occupy Wall Street, 77, 89–90 Oregon, 170–71 Out-of-state students, 148 Parent loans (PLUS), 65, 87 Pay As You Earn (PAYE), 37–38, 95, 170–71 See also Income-based repayment Pell, Claiborne, 52–53 Pell grants, 81, 83, 108–9, 163, 175, 190n12 Price See Cost of college Price sensitivity, 56, 73, 147, 149, 151, 166, 200n39 Private (not-for-profit) colleges, 47–48, 150–52, 165 Private lenders, 32–33, 38–40, 44–46, 93–94, 153–55 Privatization, 72 Proliferation of student loan programs, 64–67 Proprietary vocational schools, 54–58 Public colleges and universities, 47–48, 71, 81–82, 147–50, 174 Reagan, Ronald, 44, 50–51; administration of, 50, 59, 63, 120, 188n30 Reform, 168–78 Repayment, 85, 95–97, 175–76, 193n55 Republican party platforms, 105 Reverberations, 9–10 Risk of student loan defaults, 49–50, 55, 61–63, 99, 104–5, 108–10, 114–16, / 233 136–37, 162–63, 176, 178, 187nn7,10 See also Default Sallie Mae, 35–40, 66–67, 154–55 Scandal, student loan, 93–94 Second student loan mess See Deadbeat students Silber, John, 53 Sociological imagination, Sputnik, 25–26 Stafford loans See Guaranteed student loans State-guaranteed student loan programs, 22, 186n25 State support, 81–82, 174 Student Loan Marketing Association See Sallie Mae Student loan messes, 6–7, 9–11, 179–80 Students: current, 142–44; former, 144–46; percentage of with student loans, 48–49, 141, 186nn22,34 Subsidized student loans, 65 Tax deductions and credits, proposals for, 34, 36, 67 Third student loan mess See Debt, crushing Tuition See Cost of college Tuition discounts, 150–51 Unemployment, 82, 116, 132, 134 Value, of college education, 131–35 Wasted brainpower, 2, 10, 13–42 Women, college graduation rates, 17–20 Yarborough, Ralph, 52 ... Congress Cataloging-in-Publication Data Best, Joel The student loan mess : how good intentions created a trillion-dollar problem / Joel Best, Eric Best pages cm Includes bibliographical references and... from the Atkinson Family Foundation The Student Loan Mess This page intentionally left blank The Student Loan Mess How Good Intentions Created a Trillion-Dollar Problem Joel Best Eric Best university... 97 8-0 -5 2 0-2 764 5-1 (hardback) — isbn 97 8-0 -5 2 0-9 584 4-9 (e-book) Student loans—United States Student loans—Government policy—United States College graduates—United States—Finance, Personal I Best,