American Dreams (11 page)

It's a statistic you've probably heard: American students collectively owe over $1 trillion in debt—$1.25 trillion to be exact, according to the Federal Reserve.
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Of course, student loan debt isn't experienced collectively, as a number on a ledger or in a political speech. It's an individual burden that is altering—and in many cases limiting—the lives of millions of young Americans. To begin with, student debt isn't like other kinds of debt. It can't be expunged through bankruptcy, and it has a nasty habit of lingering in the lives of its owners. Kristi knows this firsthand.

For a while after graduation, things went well for Kristi. She had a job she liked—with the McDonald's franchise, no less—for about a year and a half. Then, in December 2008, she got laid off. Still in debt and out of work, she started cutting back expenses where she could. She moved back in with her parents. But she soon discovered the trap that awaits the unemployed with student debt.

“You can defer maybe one car payment a year,” she says. “But you can't defer a credit card payment. You can't get out of the contract with your cell phone. You can't defer car insurance. The only bill you can defer is student loans.”

So Kristi deferred. She got another job in January 2009, but when the company went under that September, she deferred again. After a long stretch without a job, the car dealership she worked for in college hired her in September 2012—and then laid her off early in 2014. She deferred payment on her loans once again. Today, Kristi is eight years out of college and unemployed. And because her student loans continued to accrue interest even when she was deferring payment on them, her student debt is actually greater than the day she graduated.

“I owe ten thousand dollars and I graduated eight years ago,” she says. “The way it looks, I don't know if it's going to get better or worse. I may end up paying them for the rest of my life. Who knows?”

It's that sense of pessimism—the sinking belief that they will never claw their way out of debt—that is limiting the lives of so many young Americans today. Economists are starting to worry that these young lives put on hold by student debt are dragging down the economy as a whole. In testimony before Congress last year, Federal Reserve Chairwoman Janet Yellen conceded that out-of-control student debt might be holding back the housing market and slowing the economic recovery. A study of the relationship of student debt to business and job creation found that Americans with student loans are less likely to start businesses of their own. Either they can't qualify for a loan given their existing debt or they're afraid to go deeper in the hole.
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Student debt is harming the economy by literally preventing young Americans like Kristi from starting their lives. Having a student loan used to correlate with higher rates of home ownership and car ownership. It makes sense. More education used to mean more income, which meant being able to afford things like mortgages and car loans. Not anymore. Young Americans burdened with student debt had lower rates of car and home ownership than those without debt in 2012.
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More of them live with their parents and fewer are getting a place of their own. The number of households in America rose by 1.35 million a year between 2001 and 2006. In the last seven years, that number is down by more than half, to 569,000.
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And because consumer purchases like houses and cars are not only the building blocks of individual lives but are also the primary drivers of the economy, we have arrived at a paradox: Investing in our future through higher education is destroying our future, one young life at a time.

How did we get to this point? Expanding access to higher education can't mean driving more and more young Americans into their parents' basements. Solving the student loan crisis doesn't mean we should cut off federal loans to students, nor does it mean we should allow millions of Americans to default. It means building a higher education system that is in sync with the demands of the new economy. It will require new levels of accountability and transparency on the part of both students and universities, turning students into smarter buyers and colleges and universities into more accountable sellers.

I'm one of those Americans who wouldn't be a college graduate if it weren't for federal grants and loans. I understand the temptation to resolve the conflict between the high promise and the high cost of higher education by taking out loans and hoping—praying—they're a good investment. Still, when you're young, essentially clueless and focused on your dreams, it's hard to know for sure.

Evan is a young college grad who still isn't sure. He and I share a love of sports and, with my younger self at least, a certain lack of vigilance about going into exorbitant debt. Evan grew up in Fort Myers, and when it came time to go to college, he knew he wanted to study sports management. He chose Liberty University in Lynchburg, Virginia, over cheaper options closer to home because it is a Christian school where he, in his words, knew he “wouldn't get off track.” Liberty also offered a sports management degree. So every semester Evan signed a promissory note for the student loans he needed to pay for his degree. He admits that when he graduated, he had no idea how much he owed.

That is, until he got the letter. A couple of months after graduating in December 2013, Evan got what he calls a “very depressing letter” notifying him that his bill had come due. “It didn't hit me until I got that letter in the mail. It was my lender saying, ‘Hey, we're going to start pulling money from your bank account in three months,'” he recalls. He owes almost $20,000. Even though he was working two jobs, his finances were already teetering on the brink. This pushed them over.

I know Evan's pain. By cobbling together the proceeds from Pell Grants, student loans, work-study and summer jobs, I managed to pay for my undergraduate degree without going too far into debt. Law school, however, was another matter. Like Evan, every semester I would sign promissory notes to borrow more money. When I finally got the depressing letter informing me that I was over $100,000 in debt, I had no idea what I was in for.

I've never regretted the money and the time it took to get my degrees, but I do wish I had been better informed about what I was getting myself into. I never sat down and calculated how much I could expect to earn when I graduated or whether it would be enough to cover my loan payments. Even if I had had the foresight to do so, there wasn't a source to tell me how much someone with a law degree from the University of Miami could expect to make. As with Evan, there was no guide to tell me whether the debt I was accumulating was a good investment in my future or a financial anchor that would weigh me down for decades.

The dirty little secret of student debt is that it
is
an investment—and not all investments in college degrees are equal. Some bad investments in college and graduate degrees are—or should be—foreseeable. Joe Therrien, the Occupy Wall Street protestor who left his job as a teacher and borrowed $35,000 to get his master's degree in puppetry, comes to mind. He was last seen, out of work, protesting his plight with his colleagues in New York's Zuccotti Park.
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Good for Joe for pursuing his passion, but few prospective students can afford to allow only their passion to guide them when it comes to student loans. After our homes, this is the second largest investment most of us will ever make. It's wrong and misguided that conscientious young people like Evan are going into massive debt with little or no information about what the expected return will be.

The fact is, it's no longer enough just to get a degree. If students want to increase their chances of getting a job and decrease their chances of ruining their credit, they have to get the
right
degree. In a report aptly titled “Not All College Degrees Are Created Equal,” researchers at Georgetown University found that unemployment rates are highest among recent college graduates in the arts (11.1 percent), humanities and liberal arts (9.4 percent), social sciences (8.9 percent) and law and public policy (8.1 percent). Tellingly, the report found that majors that are more targeted to specific industries have the fewest numbers of unemployed graduates. Health care and education majors, for instance, were more likely to find jobs. As for future earnings, college students and their families should keep their eyes open here. Engineering, computer and mathematics majors get the biggest payoff for those eight a.m. classes. Arts, psychology and social work? Not so much.
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Before I start hearing from indignant poli sci majors, let me say something in defense of a liberal education (“liberal” with a small
l
, as in a broad education, not a left-wing one). This kind of education has played an important part in America and in pursuing the American Dream. Our founders knew that we are born with the
right
to self-government but not the
tools
for self-government; these tools—the knowledge of history, government and our fellow man—must be taught. All education, be it at home or in elementary school, high school or college, should prepare Americans to be good citizens. And students with a passion for government or literature should follow that passion, but they also have a responsibility to understand the consequences. Let's be honest—Bill Murray was on to something when he laughed at Andie MacDowell's degree in nineteenth-century French poetry in
Groundhog Day
. French poetry may be beautiful, even enlightening. But how useful is it when it comes time to get a job to pay back the loans it took to study Baudelaire?

With the responsibility of colleges and universities to deliver more educational bang for their hugely inflated buck comes the responsibility of students to make their education a wise investment. I was very encouraged when President Obama made this point during a visit to a manufacturing plant in Wisconsin early in 2014. He pointed out that we need to stop looking down on manufacturing and the skilled trades as lesser occupations. After all, he said, “Folks can make a lot more, potentially, with skilled manufacturing or the trades than they might with an art history degree.”

But then, a few days later, when President Obama heard from some art history majors about this remark, he apologized for what he said. I thought that was kind of pathetic and I said so. The point he was making was an important and legitimate one. We no longer live in an economy in which most young people have the luxury of going deep into debt for an education that prepares them for an entry-level job at Starbucks. There's nothing wrong with being a coffeehouse server, of course; you just don't need to go into college loan debt to get the work.

The Department of Education reports that 10 percent of Americans whose student loans came due in 2011 were in default by 2013. Not acknowledging that the field of study chosen by the student has a role in the ability to pay back loans may spare some people's feelings, but it doesn't help anyone avoid a debt crisis.

Too many would-be students and their families are entering into one of the most significant investments they will ever make with little or no information on what to expect. What makes this situation all the more inexcusable is the fact that most colleges and universities already have the answers to the questions Americans have about the returns they can expect on their college investment. They're just not sharing it. To change this, I have teamed up with a Democrat, Senator Ron Wyden of Oregon, to propose the Student Right to Know Before You Go Act.

The idea is to create an online database—a Web site—of real, on-the-ground information for students and families to help them make smart decisions about their futures. Think a
U.S. News & World Report
–style ranking of all programs at all public and private degree-granting institutions, but with much more information about the graduation rates, average debt and starting salaries of students who go through them. With this database, students and their families could comparison shop. Thinking about a business program at College X? This database will show you if the cost is lower and the average wage higher at University Y. Or, after perusing the Web site, a student might decide to forego a business degree for a major that promises a better chance of landing a good job. In time, I can see this database becoming an essential reference, not only for students and their families, but for policy makers tasked with deciding where to invest taxpayer funds.

For other students—those who have already compiled a lot of debt—there is much more we can do to ease their burden and allow them to begin their lives. Today, students who have federal loans choose among repayment plans and their natural impulse is to get their loans paid off as soon as possible, which typically means they choose a monthly payment that is the same no matter how much they're making. The government offers repayment plans that are tied to income—if you're not making that much, you don't have to pay as much. There are actually four of these income-based plans, with confusingly alike-sounding names, with different eligibility criteria and repayment options. The whole system is so convoluted that few students use the income-based plans. And those brave souls who do attempt to use them too often get tangled in a slow and frustrating federal bureaucracy.