Recently on ABC’s “This Week with George Stephanopoulos,” the usually thoughtful George Will practically jumped from his seat at the prospect that the interest rate on student loans might continue at 3.4 percent (based on a federal subsidy that President George W. Bush signed in 2007), rather than move up to 6.8 percent. He was — for him — apoplectic at the idea of creating what he was sure would become yet another “entitlement.”
Will opposes such relief because the average college student graduates with around $30,000 in loans and, over a lifetime of earning superiority over non-college graduates, he says, “that’s a pittance.” One man’s pittance is another man’s fortune, I guess. Then again, Will has a much different opinion about a slightly greater amount — $36,900 — when it’s the additional tax he’d pay on a million dollars of annual income if the Bush tax cuts expire.
But rather than search for consistency that can’t be found, put Will’s comment next to Mitt Romney’s related suggestion that young people should do everything they can to attend college, even “borrow from your parents.” If only all college-bound students had parents who could float them six-figure loans for however long it might take to repay them.
About those big salary differences
That leads to the point that Will sidestepped: repayment could take a while. Will’s “pittance” argument relies on studies showing that a college degree produces better lifetime earnings for those who obtain them. Historically, that’s been true. But it ignores what’s been happening to the newest college graduates. The NY Times recently reported how unemployed graduates have been flocking to unpaid internships. Sadly, two years ago it ran a similar piece. Meanwhile, the Times also reports, they and their families are buried in debt.
Ultimately, many who get degrees will fare better than their non-degree counterparts. But at the moment there are more unemployed and underemployed recent college graduates than ever. Studies show that their delayed entry into the labor market will likely translate into huge lifetime earnings losses. As baby boomers defer retirement because the Great Recession wiped out their savings, the plight of young people worsens.
How about lawyers?
Among the most burdened in the youngest generation of debt holders are new attorneys. Their average law school debt exceeds $100,000 — and it’s climbing. So is their reported unemployment rate, especially now that law schools have to start disclosing the truth about their graduates. If you’re wondering why all of those students went to law school when there are legal jobs for, at most, half of them, deceptive deans have been a big contributor.
On their promotional websites, law schools routinely reported more than 90 percent of their graduates as employed. But they didn’t mention that the number included those with part-time jobs, non-lawyer positions (like working at Starbucks), or temporary employment by the law school itself for just long enough to count in their U.S. News ranking.
Tavis Smiley responded to Will’s position with this: Wall Street bankers got zero-interest rate loans from the government; why can’t students get a break on theirs? That’s not a bad question. However, not all students need relief from their student loans. Families like the ones Mitt Romney had in mind sure don’t, but many others do. The Wall Street Journal recently profiled one — a 34-year old unemployed attorney with more than $200,000 in educational loans, mostly from law school: “It’s a noose around my neck that I see no way out of.”
Here’s a compromise: get rid of the noose by returning to pre-1976 bankruptcy rules. In those days, any baby boomer who wanted out of even federal student loan debt could get it. Filing for bankruptcy was an extreme step and few did it. In fact, there was never empirical support for changing the rule. There was even less reason for the added protection against discharge that private lenders received in 2005 — a change that no legislator is currently willing to admit sponsoring.
Those who cry “moral hazard” should prove it — not simply list a theoretical parade of horribles that never happened under the old rule. If the bankruptcy option was good enough for baby boomers, it should be good enough for their kids.