Robbing Peter to Pay Paul: Social Security and student loans

Social Security is the most important anti-poverty program in the country.  It kept 22 million people out of poverty in 2012.   What does this have to do with student debt?  Two words:  Treasury Offset.  The federal government can seize portions of your Social Security (including Social Security Disability) check to pay back defaulted federal student loans. 

These seizures are rising sharply. In 2001, 6 recipients had their Social Security offset.  This past year?  156,000.  The total amount garnished came to around $150 million– money that seniors did not put back into the economy.    This problem will continue to grow.  Millions of seniors have student loan debts, and their default rates are higher than the average, standing at roughly 12.5%.

Social Security garnishments are what I call a collateral consequence of default, along with tax and wage garnishment and destroyed credit scores.  Because there is no statute of limitations, it doesn’t matter when you or the student you co-signed for took out the loan.

What do these garnishment look like for real people?  Offsets are limited to 15 percent of a borrower’s benefit, and the first $750 per month of benefits is shielded from student loan offset.  In July 2014, the average retirement benefit was $1255.  Someone with this benefit level would lose $75 to a student loan garnishment.  Twenty-two percent of married couples and about 47 percent of unmarried people rely on Social Security for 90 percent or more of their income.  Women, especially women of color, are more likely to rely almost exclusively on Social Security for income.  While $75 a month might not seem so much to high wage earner, it pushes seniors on fixed incomes that much further into poverty.

Which brings me to the real question:  Why are we prioritizing the collection of old federal student loans over keeping seniors out of poverty?

In my day we worked our way through college…

The Milwaukee Journal Sentinel notes that working your way though a four year public institution, even in a low-cost city, would be impossible at minimum wage.

“In 1978, a UW-Madison student paying his or her own way, without any help, had to earn $2,362. It could be done at minimum wage by working full-time through the summer and about 10 hours a week through the academic year, or a total 891 hours.  Today, a full-time UW-Madison student going it alone couldn’t physically work enough hours at minimum wage to earn $18,402 for tuition, fees, room and board. It would take 2,538 hours, or about 50 hours per week for 50 weeks.”

Climbing the Tuition Wall

Are climbing walls driving the increase in tuition?

The Wall Street Journal has argued since since the late 1990s (sorry, the WSJ hides its light under a pay wall) that universities are able to raise tuition because the government gives students loans to pay that tuition. Universities, in an attempt to lure students, build “Club-med style amenities,” like climbing walls. But are these the drivers of the massive increases in tuition that students and their families are now expected to bear?

Not necessarily. The New York Fed points out that, since the 1980s, state subsidy for higher education has steadily decreased. Between 2000 and 2010, state funding decreased by 21%.  The economics of this are relatively simple, even for a lawyer like me:  In the face of declining state subsidy, public colleges raise tuition to cover costs.

For more information, check out these reports by the Center on Budget and Policy Priorities and the American Institute for Research.  And the situation may not improve anytime soon.  The American Institute for Research reports that the amount that tuition has been raised is not enough to make up for the gap in state funding.

Defaults rise, by any measure

The Department of Education has released the most recent numbers for federal student loan default:  “The national two-year cohort default rate rose from 9.1 percent for FY 2010 to 10 percent for FY 2011. The three-year cohort default rate rose from 13.4 percent for FY 2009 to 14.7 percent for FY 2010.”

The Department is in the midst of changing the time frame in which it measures default, from a two- to a three-year window.  Under the new measure, 14.7% of the students whose loans entered repayment between October of 2009 and September of 2010 defaulted before the end of September of 2012.  This means that around 600,000 student loan borrowers (out of a cohort of 4 million) defaulted.  The consequences of default are severe and can be disastrous for students and their families.

The Huffington Post points out that these default numbers are only one component of an increasingly troubling picture, noting that “about $52 billion in student loans that had been current became delinquent in the first half of the year, the highest first-half total recorded since 2003.”

Does student debt reduce lifetime wealth?

Last week an economist asked me for my most impressive fact about student debt (yep, people in DC really do ask that sort of thing over dinner.  Maybe that’s why they don’t let us outside of the Beltway.)

Student debt swims in facts and figures, but the one that I tend to pull out a parties filled with young urban professionals is that a dual income young couple with bachelor’s degrees and an average amount of debt ($53,000) will lose over $200,000 of lifetime wealth compared to a comparable couple without debt (read the study, by Demos, here.)  A huge chunk of this loss is in retirement savings, despite the higher incomes that go with higher education.  This fact tends to bring the conversation about “why is student debt bad” home in ways that talking about the possibility of default might not.  Then people are usually better primed for the most important part of the story:  that 200K is the best case scenario.  Low-income students, students of color and students of for-profit schools — especially those who default– will see even larger lifetime losses.

Student Debt Blame Game

Jordan Weissman over at the Atlantic wants to know which colleges are to blame for the explosive growth of student debt.  He notes that public disinvestment is driving up debt at public schools (which generate the lion’s share of debt because they educate the majority of students) but that for-profits have the highest rates of default.  And don’t worry, he points the finger at private non-profits that have failed to rein in costs, too.  Apparently, there is plenty of blame to go around.

 

 

How are you paying for school?

The National Center for Education Statistics released the results of its 2011-2012 National Postsecondary Student Aid Study, a survey that measures how students and their families are paying for higher education.  The AP’s summary of the study (find it here in the Washington Post) emphasizes that increased federal grants are not enough to offset the double whammy of declining state and school aid and rising tuition.

 

 

 

 

 

 

By the numbers: Almost $1.2 trillion and counting

In late July, the CFPB released new data indicating that total student debt has increased by 20% since the end of 2011.  As of May, 2013, the Bureau estimates that the combined total of federal and private loans approached $1.2 trillion.  For those keeping track at home, that’s $101 trillion in federal loans and $165 billion in private loans.