The Occupy Wall Street movement is perhaps to be congratulated for raising the profile of the student-debt issue. A vigorous debate on student loans and student debt, of course, was already underway long before the first tent was pitched in Zuccotti Park. But the Occupy movement’s human megaphone has made the distress—and the cynicism—of the newly degreed unemployed much more audible.
Mostly this has taken the form of graduates demanding forgiveness of their loans and at the same time castigating the banks for loaning the money in the first place. The illogic of these pleas may be beside the point. Antonio, in the Merchant of Venice, was imprudent in his decision to stand security for his friend Bassanio’s large loan from Shylock—a loan he wants to pay for a lavishly expensive attempt to win the hand of a rich heiress.
In the modern re-write, frivolous Bassanio might be asking Bank of America for $80,000 to smooth his way through a sociology degree program at NYU. It is the rest of us who collectively play the role of Antonio, since student loans from private lenders are mostly unsecured.
Theater-goers for centuries have tended to make allowances for Antonio’s bad judgment as well as Bassanio’s fortune-hunting. Antonio meant well, and Bassanio does get the girl. Will America respond with similar soft-heartedness to today’s over-leveraged college grads? Are our financial institutions the corporate equivalent of Shylock out for his pound of flesh?
I suspect that, after a little reflection, the public won’t buy this narrative. First, the OWSers are becoming less sympathetic by the day. A movement that seeks broad public support is now associated with riot (Oakland), arson (Oakland; Portland, Ore.), vandalism, assault, endangerment, rape (Philadelphia, New York), murder (Oakland), suicide (Burlington), drug ODs, including a fatal one (Salt Lake City) and obstruction of police attempting to investigate serious crimes—not to mention filth, disease, and disrespect for the neighbors. Although a certain segment of the academy looks on these developments as minor blemishes, they register more emphatically with the general public. And they don’t add up to, “Let’s support a massive new bailout for these young people who were duped into taking loans.”
The bank bailouts and the overpaid Wall Street executives don’t win much sympathy either, but the Occupy movement has pretty much squandered the opportunity to build on popular discontent with crony capitalism.
Be that as it may, too many college students and graduates do have too much debt. How much is too much? The Wall Street Journal reported over the weekend on one portion of the debt—the $242-billion in securitized loans traded on the bond market. A hedge-fund manager, Daniel Ades, explains that he is steering clear of the bonds because the low levels of employment among recent college grads make it difficult to predict default rates. The Journal explains that bond investors have “assumed 25 percent to 30 percent of student loans bundled into their bonds will default.” But current predictions notch that up to 30 percent to 40 percent default rates, and “could ultimately go higher if unemployment rises.”
The situation has consequences that may not yet be in focus for many faculty members. If bond-buyers aren’t buying student-loan bonds, lenders will be more reluctant to make student loans. They will issue fewer of them and set interest rates higher. That in turn will deter students from attending higher-priced colleges and universities. And since most colleges and universities are highly dependent on tuition income, it will further squeeze their operating budgets.
Is this mere speculation? The Wall Street Journal provides some hard numbers. Bonds based on student loans that are not guaranteed by the government have declined precipitously. The bonds based on Sallie Mae loans are “at just 16 percent of the level in 2009.” And Sallie Mae now insists that most students who take loans have their parents co-sign them. About half of Sallie Mae loans required a parental co-signer in 2007; the figure is now “almost 70 percent.”
These add up to some very good reasons why students now in high school should think about college in some ways that contrast to earlier cohorts. The main question has probably shifted for a lot of students from “What college is the best fit for me?” to, “Is pursuing a college degree the best thing I can do right now?”
If they are consulting the evidence of the Wall Street Occupiers, reading the bond market reports in the Wall Street Journal, or paying attention to Richard Vedder’s sobering studies, many might well conclude that attending college, especially in the form of a full-time commitment to an independent college or university, is not the best approach. Other options beckon: community colleges, public universities, military service, the merchant marines, online study combined with employment, and apprenticeships to name a few. Staying out of student debt or minimizing it ought to be most would-be college students’ priority.
The number and variety of observers examining this situation is growing rapidly. I don’t expect that very many high-school students are tuning into the details, but parents may be beginning to process the changing economics of college-degree seeking. Kenneth Anderson’s succinct essay, “Explaining the Diminishing Returns to Non-STEM Higher Education,” for example, is the sort of thing that is likely to register. Those of us who care deeply about the non-STEM portion of the liberal arts might not like to hear about this, but the effort to market college (in the form of a four-year degree program) as best for nearly everyone has reached its expiration point.
I have been reading Sheldon Garon’s Beyond Our Means: Why America Spends While the World Saves, just published by Princeton University Press. Garon is a Princeton historian who specializes in East Asia, but in this case offers up a broad-ranging comparison of how a variety of developed nations have cultivated habits of thrift or habits of spending. It isn’t a book in which higher education gets much mention, although among its numerous photographs, there is one of a bronze statue of Ninomoiya Kinjiro, “the Japanese paragon of diligence and thrift,” who is depicted carrying a heavy bundle of wood on his back while raptly reading a book. He was a poor farmer who rose to prominence as an exponent of agricultural development.
America has its own tradition of thrift—or rather, had its own tradition. Its demise can be told in a number of ways. Garon offers the instructive example of “postal savings systems,” a form of small-scale savings still popular in Europe. The idea was long opposed by American commercial banks that didn’t want competition, but after the financial panic of 1907, postal savings gained traction and it was adopted in 1910 with the support of the Taft administration. It proved especially popular with immigrants. The system swelled during World War II, but after the war it fell into decline and was abolished with little fanfare in 1966.
What happened? Garon’s basic answer is that the United States, in contrast to European nations, had a “weak commitment of government and society to establishing the institutions that promoted [small-scale] saving.” Later, “consumer goods overpowered impulses to save.”
The post-World War II rise of mass higher education parallels these changes. America became enamored of the metaphor that the cost of attending college—both its monetary costs and the time spent studying instead of being engaged in paid employment—is an “investment.” Of course, for many college graduates, this proved true. Lucrative careers followed college degrees. But the potency of the metaphor disguised the reality that the cost of college is really a form of consumption. As a nation we channeled our already weak impulse to save into a form of consumption that we could imagine was an “investment.” And then this consumer good took on a life of its own, often in Thorstein Veblen’s sense of conspicuous consumption. It began to matter that our children be seen as attending prestigious (and expensive) colleges and universities, and sometimes this appearance mattered more than the actual quality of education they received.
That game may never entirely run its course, but the metaphor that college is a nearly fool-proof “investment” is down on its heels, camping out in Zuccotti Park.
This article first appeared at the Chronicle of Higher Education's Innovations blog on November 15, 2011.