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.  Embed from Getty Images

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?

Of Student Debt and Stagnant Wages

Student debt is bearing the blame for continued weakness in the housing market.  According to the Washington Post, “regulators and industry experts warn that young adults can no longer save for down payments or qualify for the mortgages they need to buy their first homes.”

But Rohit Chopra, student loan ombudsman for the Consumer Financial Protection Bureau, points out that debt burden alone does not tell the whole tale for first-time homebuyers:

“Real wages when adjusted for inflation have actually been flat for new college graduates for about the past ten years. So young people have more debt but are earning the same or less income.”

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.”

Wherefore Art Thou, Higher Education Act?

This week’s guest post is contributed by Marie Vanderbilt, a 3L at American University Washington College of Law.  Marie breaks down the past, present and future of the Higher Education Act, the umbrella statute for most federal aid.

Will Congress manage to reauthorize the Higher Education Act of 1965 (HEA) before it sunsets at year’s end? The HEA formed one of the main pillars of the Johnson Administration’s War on Poverty (watch LBJ deliver the 1964 State of the Union, minute 20:20.)  The goal was to ensure that no one would be denied an education because of their financial situation.  The HEA removed financial barriers to higher education by authorizing a program of need-based grants and student-support programs. Since 1965, the HEA has been repeatedly reauthorized, most recently in 2008. Each time, the HEA has been amended, edited, and expanded. However, the foundational belief in the importance of access to education remains.

With Congress deadlocked over the budget, it is hard to imagine a serious conversation about how we should fund our system of higher education.  The Senate HELP Committee held new hearings this past month, at least a glimmer of activity.  The last time, Congress didn’t manage to reauthorize until five years after the deadline.  The purpose of having laws sunset is to open up programs for inspection and debate.  In the case of higher education, that moment will soon be overdue.

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.

 

 

Are you sure you want to put that question to a jury?

Did Globe University fire Dean Heidi Weber for poor performance or because she blew the whistle on its deceptive marketing practices?  Heidi Weber sued Globe, a for-profit institution (profiled here by Minnesota Public Radio) in 2011, claiming that Globe fired her in retaliation for raising questions about compliance with accreditation standards in its medical assistant program.  She alleged that they paid commissions to recruiters, inflated job statistics and failed to provide training opportunities promised to students.

This week, a Minnesota jury awarded the former dean of the medical assistant program almost $400,000 for lost wages and emotional distress.  Globe alleges that they fired her for performance, but jurors seemed swayed by evidence of malfeasance, such as the school’s failure to disclose that credits were not as transferable as they had represented and to tell students that promised externships were not available.  They also seemed disturbed by the fact that the school had knowingly enrolled students with felony records, even though those students would not be able to get jobs in a field that requires background checks.  Like the verdict last month against Vaderott, this verdict seems to tap into  deep public disgust with the for-profit industry, fueled at least in part by high default rates on student loans at these schools.

 

 

 

 

 

 

 

 

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.