The Class of 2018 is having an exciting summer. They get to figure out which dorms they will live in, which intro classes they will take, and, most importantly, which loans they will take out to pay for the next four years. Meanwhile, the Class of 2014 is experiencing some discomfort as they figure out how exactly to pay for those loans they took out four summers ago. Student loans burden a reported 40 million Americans. Read on to learn all about how these people and their finances are impacted by politics.

What is a student loan?

A student loan is pretty self-explanatory. It is a type of loan specifically meant to pay for university tuition and all other costs associated with going to college. This can include books, computers, and housing. Student loans differ greatly from other types of loans. For example, federal student loans do not have to be paid back until graduation. People obtain student loans by filling out the Free Application for Federal Student Aid (FAFSA), a form that gives students access to all sorts of financial aid, including Pell Grants and Federal Work Study.

Who provides these student loans?

While some students obtain these loans from private banks, many of them obtain loans from the federal government. Federal loans are all backed and funded by the U.S. Department of Education (DOE), which means that the interest rate is often lower than those provided by a private bank.

What are some problems with the student loan system?

The big problem is that so many students need them. Twelve million students each year, 60 percent of all college students, pay some portion of their tuition with student loans. This is partly because college is more expensive than it used to be. Over the last 24 years, the average cost of in-state public college education rose by $5,470. And that’s just in-state public school. Tuition at some private institutions is staggering.

This contrast illustrates it best: the overall consumer price index has risen 115 percent since 1985. How high has the college education inflation rate risen? Nearly 500 percent. It’s no wonder that more Americans than ever have student loan debt. Here’s President Barack Obama decrying skyrocketing tuition:

Interest rates used to be a problem. In previous years, the interest rate on student loans would be set permanently by Congress. However, these rates were set up so that, unless Congress reauthorized them, they would double. There was a fight to keep these rates low in 2012 and 2013. That’s why this weird clip from Late Night With Jimmy Fallon with Obama exists:

Congress quickly realized that going through this battle every year was not good for anyone. That’s why they passed the Bipartisan Student Loan Certainty Act of 2013. This law tied student loans to the 10-year Treasury note and locked in individual rates for life. This means that, while your own rate will never rise, the rates of future students will raise independent of action from Congress.

The bigger problem is that student loans have saddled 37 million graduates with serious debt. It takes years, sometimes decades, to pay off these loans. Worse, these debts have been steadily rising over the past few decades.

Why does it take so long to pay back student loans?

Simply put, graduates just aren’t very good at paying these loans back. Somewhere between a quarter and a third of borrowers are late on their payments. According to the Federal Reserve Bank of New York, 35 percent of American student loan borrowers were delinquent on payments in the third quarter of 2012. This local news broadcast called the situation an “economic crisis.”

Graduating students are also struggling to pay back these loans because they are entering an awful job market. For example, 6.7 percent of students who graduated in 2008 were still unemployed in 2012. How are these young people expected to start paying down this debt when they have little or no income?

Many graduates also do not know how to correctly pay these loans back. This advice column from The New York Times shows just how complicated paying back student loans can be.

If so many graduates cannot quickly pay off their debts, they may be left out of certain opportunities, like buying a house. Student loan debt is a drag on the economy.

PBS NewsHour has more on that issue here:

What assistance is available to those with student loan debt?

Not much. Some politicians are attempting to reform the system to help graduates (we’ll get to that later), but there are only a few ways the government can currently help.

Loan consolidation is one such option. This is when the government lets you combine all of your loans into one. Graduates who are having trouble paying off multiple loans consider this option so that they can only have one manageable monthly payment. There are also some instances in which debt holders can defer their payments on principle and interest. Find out if your student loan payments can be deferred here.

Private companies exist that offer to help lower monthly payments, but these companies have recently come under fire from federal and state regulators for using predatory practices and charging graduates hefty upfront fees for services that the DOE offers for free. Illinois has sued some of these companies and more states are likely to follow.

In the past, those looking for forgiveness of their debt were out luck. Even today, graduates who want an immediate forgiveness of their debts will have trouble doing so. This table shows just how hard it is to get student loan debt forgiven. Even bankruptcy does not always result in a forgiveness of student debt. However, action taken by President Obama made forgiveness a little easier. Read on to the next section to find out how.

How is President Obama trying to fix student loans?

Obama has used his executive power to bypass Congress and expand the Pay As You Earn program. Pay As You Earn is a federal program that allows borrowers to cap their monthly payments at 10 percent of their income and forgives remaining debt after 20 years. This program was previously only available to new students. Obama expanded the program to a majority of loan holders, who can begin to take advantage of it in 2015.

Obama also supports the Bank on Students Emergency Loan Refinancing Act. This bill, introduced this May by Sen. Elizabeth Warren (D-MA), would allow those with outstanding debt to refinance their loans based on newer and lower interest rates.

What does Congress think about these reforms?

As noted in the last section, Democrats are on board with Warren’s plan. Every single Democratic Senator voted for the bill when it was brought to the Senate floor. This is most likely because it is a targeted demographic of the Democratic Party’s base — young adults — and that it is paid for by a tax that that has been a part of their platform for years.

Republicans in Congress are not a fan of Warren’s bill, mainly because it would be funded by the Buffett Rule. The Buffett Rule, proposed by Obama before the 2012 election, is a plan to tax millionaires so that they are not paying a lower share of their wealth in taxes compared to middle-class Americans. Even Senate Republicans, often seen as more moderate than House Republicans, rejected the bill, calling it a “political stunt.” Only three Republicans voted for the bill.

Sen. Marco Rubio (R-FL), a possible 2016 candidate, has introduced a bill that looks nearly identical to the Pay As You Earn program, but applies the same logic to every single student loan. It caps payments as a percentage of income and allows for debt forgiveness. However, while Pay As You Earn forgives all debt after 20 years, Rubio’s bill would only forgive that debt if it were less than $57,500. The debt would be forgiven in 30 years if it were any higher than that figure. Still, there is a lot of common ground between conservatives and Democrats. Common sense would dictate that this bill has a real chance of being passed.

Yet, as those who follow Congress know all too well, common sense rarely impacts Congressional results. The main obstacle for Rubio’s reform bill is that not all conservatives are the same. There are significant divisions in the Republican party on this issue. Many conservatives do not even believe that the federal government should be in the business of paying for young people to go to college. When asked about his vote against Warren’s bill, Senate Majority Leader Mitch McConnell (R-KY) stated that it is not Congress’ job to forgive “obligations that have been voluntarily incurred.” He also said “not everybody needs to go to Yale,” presumably arguing that students who cannot afford college should look for cheaper options instead of depending on the government. There are certainly cheaper options than Yale, such as for-profit college. McConnell believes that students should consider these less-expensive options before depending on the government.

How do Americans feel about student loan reform?

There has not been much polling done on the issue of student loan reform; however, one 2013 Public Policy Polling poll shows that all Americans are unsurprisingly unified on one issue: 83 percent of all Americans want Congress to either keep rates on student loans the way they are or lower them. This poll was taken back when rates could have potentially doubled, so it does not reflect feelings toward current reform packages, but it does show that the American people are in favor of Congress acting to keep interest rates low.

Americans are much more divided when it comes to opinions on the worthiness of their own loans. A poll by the National Foundation for Credit Counseling shows that, by a two-to-one margin, most Americans believe that their own student loan was worth the cost. However, most would not recommend taking out student loans to finance an education and some claimed they would not have taken a loan out if they were aware of how much it would cost them in the long run.

Congress would be wise to spend time on this issue, regardless of which reform plan they support. According to a Harvard University Institute of Politics poll, 57 percent of Millennials believe that student debt is a major problem. That concern is consistent across party lines. This statistic will likely keep the student loan issue on the Congressional agenda for quite some time.

Resources

Primary

U.S. Senate: S 1241 The Bipartisan Student Loan Certainty Act

Additional

U.S. Department of Education: FAFSA

College Board: Average Net Price Over Time for Full-Time Students at Public Four-Year Institutions

Forbes: College Costs Out of Control

Huffington Post: Elizabeth Warren Slams Mitch McConnell: He Wants ‘Students to Dream a Little Smaller’

U.S. News & World Report: Congress Approves Student Loan Deal

Huffington Post: How Millennials and Students Won a Massive Victory on Loan Rates

Huffington Post: Why the Student Loan Deal is Bad News for Students

Vox: 2008 Was a Terrible Year to Graduate College

The New York Times: A Beginner’s Guide to Repaying Student Loans

U.S. News & World Report: Obama Sidesteps Congress to Expand Student Loan Repayment Program

CBS: Senate Republicans Block Consideration of Student Loan Bill

Eric Essagof

Eric Essagof attended The George Washington University majoring in Political Science. He writes about how decisions made in DC impact the rest of the country. He is a Twitter addict, hip-hop fan, and intramural sports referee in his spare time. Contact Eric at staff@LawStreetMedia.com.

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I spent much of this past holiday season mulling over a sob story about a JD who got screwed by the law school racket. Though the media landscape of the past several years is strewn with such wreckage, this particular tale of woe stood out for me. For one thing, the victim went to an unspecified top-20-ranked law school and yet is still struggling on a $45,000-a-year salary, living with his parents and staring almost $200,000 of debt in the face. For another thing, he met with this fate after spending two years working at “miserable small law firms” for one abusive, larcenous boss and for another who made him work for nothing for 3 months, for a paltry $1,000/month for the next 3 months, and for a measly $2,000/month for another 3 months after that.

Though this poor man ended the article on a self-blaming note — “At the end of the day, it’s my own fault for being a sucker” — the gist of the piece is that his dire straits are really his law school’s fault. The school fed him a slew of misleading, half-true statistics about his post-graduation employment prospects, never informed him about the demoralizing nature of much legal practice work or the non-transferability of legal skills in the job market, etc. The tireless law school detractor Elie Mystal at Above the Law agrees: “If we’re going to blame the guy for something, blame him for believing the hucksters who were selling him on legal education. It’s fine if you want to look down on the fool who buys the snake-oil thinking that it will cure cancer, just don’t forget that the real culprit here is the snake-oil salesman.”

As an underemployed 28-year-old who also wonders whether law school was the right choice for him, I sympathize with my compatriot’s quandary. Yet I must confess that I’ve never felt that kind of resentment toward my law school, and never felt as if anyone were to blame but myself for the challenges I’ve faced in the job market. More broadly speaking, I’ve never joined wholeheartedly in the chorus of condemnation being directed at the legal academy.

Admittedly, it may be because I haven’t yet suffered quite the same misfortune as the subject of the article. My status as an international student (I hail from Montreal, Canada) slammed the federal student loan door shut in my face when I applied. While this had the obviously detrimental effect of saddling me (oh, hell, who am I kidding — on my mother, really) with a vastly heavier up-front tuition burden, it also required me to rely on my school for its modest financial aid grants and loans. As a result, I’m facing maybe a third of the student loan debt that the average law school graduate has to shoulder.

Also, my extracurricular activities and my post-2L summer internship plugged me into a network of public-interest and public policy organizations and foundations inside the Washington, D.C. Beltway. Those connections have so far netted me two back-to-back legal internships with nonprofits in the nation’s capital that have kept me employed since I graduated last May. I obtained the first position through an internship-stipend program that paid me $10 an hour during the summer — $1,600 a month. Last fall, I did a stint at a prominent D.C. think tank that was able to pay me a stipend of $1,400 a month. Each sum was too stingy to enable me to do much more than scrape by, especially after taxes…but scrape by I’ve so far managed to do, and without having to work for any bosses from hell, either. In those respects, I’ve been luckier so far than the hapless JD from the Business Insider article.

Yet I have a broader reason for steering clear of the “damn law schools” bandwagon. It is the applicants’ responsibility to conduct thorough research into the academic programs to which they apply and the careers to which they grant access, the better to ensure that they’re investing their time, tuition/loan money and work in the right places. More specifically, I think applicants have always borne that responsibility, since even before it became fashionable for pundits to pillory law schools for their purported racketeering.

Consider, for instance, this Business Insider interviewee’s own story. He rightly advises prospective law school applicants to “work for a law firm for at least a year before going to law school and see if it’s something you want to do.” (Sound familiar? I sure hope so.) Yet he seems to have learned this lesson the hard way, since at the interview’s outset, he answered the question, “Why did you decide to go to law school?” with “Because I wanted to be a lawyer. I also wanted greater career opportunities than my BA offered me.” Left unmentioned is the issue of what made him want to be a lawyer, or why he thought that a JD might be a ticket to any careers beyond just practicing law. It’s a pity the interviewer didn’t ask about it, for the answer might have shed some light on whether he had any business going to law school in the first place, regardless of the current state of the legal job market.

He further mentions, “I believed the legal education industry’s sales pitch circa 2007-08 that lawyers will always be in demand and that bankruptcy will be a hot practice area when the economy is poor.” Insofar as this pitch was misinformed or even downright dishonest, I sympathize — but only so much. These claims were certainly plausible and believable, especially from the vantage point of that period, when the economic crisis was just taking off and the arguable folly of law school wasn’t yet obvious. Nonetheless, these were law school officials leading our man astray — not actual lawyers. While he can be forgiven for listening to this advice, given its supposedly reputable source, it’s fair to blame him for falling for it hook, line and sinker. He shouldn’t have believed the hype without consulting some practicing lawyers who could have set him straight. They would have been much less biased sources of advice; after all, as he himself puts it, “law grads do not have an economic interest in your attendance at law school. The law school always does.”

Could he have been expected to know any of this back in his younger, more callow days? I think so. Anytime a school that mires its students in debt to the tune of hundreds of thousands of dollars paints a glowing portrait of its program, without mentioning any caveats or sounding any cautionary tone, one should always take its cheerleading with a grain of salt. Is his naiveté nonetheless understandable? Certainly it is…but there is a more general principle here, one that applies to the analysis of whether one should apply to any academic program. The people running these programs have a vested interest in getting you in their doors; what they tell you isn’t necessarily to be trusted. You should never base your decision entirely on their word.

None of what I’ve said here should be taken to mean that law schools themselves don’t deserve a hefty share of the blame for so many of their graduates’ predicaments. It’s only right to criticize them for their lack of transparency, which can and does have destructive consequences. Yet that doesn’t absolve applicants of their own responsibility to do their homework before jumping in with both feet. That principle holds truer than ever these days, with law school enrollment plummeting and law school-bashing so popular. I salute all those who continue to warn young people of the perils of going to law school unprepared, or for the wrong reasons, or at all; they are performing a valuable service to the public. I just hope that the intended beneficiaries of these warnings continue to be smart enough to listen up — before it’s too late.

Featured image courtesy of [Michael Fleshman via Flickr]

Akil Alleyne

Akil Alleyne, a native of Montreal, is a graduate of Princeton University and the Benjamin N. Cardozo School of Law. His major areas of study are constitutional and international law, with focus on federalism, foreign policy, separation of powers and property rights. Akil is also a member of Young Voices Advocates, which connects students and young professionals with media outlets worldwide to facilitate youth participation in political and social discourse. Contact Akil at Staff@LawStreetMedia.com

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