Debt for Diplomas: The Sallie Mae Model
By Curtis Hierro, a SLAP member from University of Central Florida
As the economy continues to wallow in the aftershocks of the 2008 recession and subprime mortgage crisis a larger threat looms in the distance. This danger threatens to not just derail the country’s economic prosperity but also impede an entire generation from pursuing the so-called American Dream. This generational scourge is student loan debt. This past April, student loan debt held in the United States surpassed the one trillion dollar mark; indenturing an entire generation of students to debt. Today, the average student graduates with $25,000 worth of student loan debt. This is in an economic climate dominated by high unemployment and underemployment for those fortunate enough to attain jobs.
It was not always this way. Since 1978 education costs have gone up over 900%. Grants and scholarships are often not enough for students looking to pursue higher education. Grants used to cover on average 70% of tuition costs, today that figure is 34%. Over the past thirteen years alone, student debt has increased by 511% as students have struggled to pay for college. Over the past two decades the number of students who have gone into debt to attain their bachelor’s degree has risen from 45% to 94%. This debt for diplomas model is not sustainable and speaks to the larger issues at play in the nation’s economy. Since the era of Reagan, deregulation has made it easier for financial institutions to preside over predatory loaning practices. The corruption spawned from the lack of proper federal oversight revealed itself in the subprime mortgage crisis of 2008 and mirrors what has been alleged of the largest private holder of student loan debt; Sallie Mae. Sallie Mae has been sued for violating Generally Accepted Accounting Principles and Securities and Exchange Commission regulations. This includes allegations that the corporation has been utilizing predatory lending practices in addition to covering up their true figures on delinquent loans.
Sallie Mae stands as a sordid example of the result of decades of deregulation in the name of trickle-down economics. While the country’s economy has operated on this myth for decades, thus far the only thing to trickle-down for the working class and students has been the social and economic costs of society. This is evident in the numerous statistics on economic inequality and its growth in recent years.
While the U.S. economy has doubled, the average worker wage has remained stagnant, with profits increasingly accumulated by less than one percent of the population; the super wealthy. This exodus of wealth from the working-class has been coupled with the dramatic increase in education costs. This has created a crisis in which the American college graduate is entering an economy in which they face little wage growth while possessing more debt than ever before. This is due to the Corporate America and the politicians they have bankrolled who have systematically pursued policies, which have shifted the burden of society on those who drive its productive engines in the name of obscene profit. This is especially evident with lenders like Sallie Mae who have built their wealth off of the exploitation of people’s pursuit of socio-economic betterment through a college degree. Even more insidious is the inability of struggling graduates to seek help for their debt thanks to the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005”. Signed by Sallie Mae supported President George W. Bush, the law prohibits students from claiming bankruptcy on their student debt. Student loan lenders have been among the most prominent corporate interests lobbying in Washington. In the past ten years Sallie Mae alone has spent over $25,000,000 lobbying federal officials. Speaker of the House John Boehner has been among their largest recipients bringing in over $250,000 in Sallie Mae contributions over his career. Student loan lenders have bought off the political establishment in the name of creating an indebted generation.
This continued exploitation of college students is not sustainable. An economy is powered by the labor, skill and ability of the working-class not profiteering off of a generation’s pursuit of educational advancement. If the United States is to be competitive in a global marketplace it cannot have its next generation of workers be crippled under mountains of debt with stagnant wages. Major reform is needed in both economic and political spheres if student debt is to get under control. This includes lowering private interest rates to that of the federal level, instituting debt forgiveness, and limiting lenders influence on capital hill. Without serious reform student loan debt threatens to leave an entire generation of students indebted for their belief in the American dream, a belief in educational opportunity and a better life than their parents.