Thursday, July 4, 2013

Emigrate! To Avoid Becoming Sharecroppers, Some Young People Will Leave the United States to Escape Student Loan Debt

Last Sunday’s Times contained an article by Felix Marquardt, a French writer who urged French young people to leave France to find better economic opportunities in other countries. France has become a “decrepit, overcentralized gerontocracy,” Marquardt argued, and “French youths should pack their bags and go find better opportunities elsewhere in the world . . .”

At this very moment, young people all over the world are emigrating from their home countries in search of a better life. Eastern Europeans, Asians, and Africans are particularly prone to emigrate. But the notion that young people in 21stcentury France should emigrate for economic reasons seems incredible. Indeed, according to Marquardt, he and two colleagues sparked a national uproar when they first proposed emigration for French young people in a newspaper article last year.


State Highway Officials Moving Sharecroppers
Photo credit: Arthur Rothstein, 1939

How about young Americans? Should they consider leaving the United States to begin new lives in other countries? Yes, the time has come for the nation’s young people to seriously explore emigration--especially if they are burdened by crushing student-loan debt.

Americans have amassed more than $1 trillion in student-loan indebtedness. Currently, more than 37 million people are burdened by student loans, including several hundred thousand elderly people. Nearly 6 million borrowers are behind on their loans or in default, and that doesn’t include people who received economic hardship deferments and are not making their loan payments.

Thanks to congressional legislation and heartless bankruptcy courts, this debt is almost impossible to discharge in bankruptcy. And thanks to a Supreme Court decision, the government can garnish loan defaulters’ Social Security checks to collect unpaid student loans.

Student-loan debt is not a big problem for people who hold good jobs and can comfortably make their loan payments. But young people are having a hard time finding good jobs. Sixteen percent of young people in the 18 to 29 age bracket are unemployed (Deruy, 2013), and that doesn’t include young people who are holding down low-wage jobs because they cannot find jobs suitable for their skills and training. About half of the nation’s college graduates hold jobs that do not require a college education and many of these graduates are working in low-paying jobs in the restaurant and service industry.

Thus, for Americans who are burdened with massive student loans and declining economic opportunities, emigration to another country is a reasonable option. Marquardt suggested that nations with growing economies such as China, Brazil, Turkey, India and Indonesia might be good places to emigrate.

Income Based Repayment Programs Turn Student-Loan Debtors Into Sharecroppers

President Obama knows that the federal student loan program is a huge problem for young Americans (and some not so young). In 2012, his administration introduced a modified IBR called a “Pay as You Earn” plan, which allows student-loan debtors to pay back their loans over a 20 year period based on a percentage of their income (U.S. Department of Education, 2012). At the end of the 20-year repayment period, any unpaid loan balance will be forgiven.

There are lots of problems with IBR initiatives--including the Obama administration’s “Pay As You Earn” plan. First of all, under current IRS regulations, loan debt that is forgiven is counted as taxable income. Thus, theoretically, at least, some people who conscientiously make their monthly loan payments for 20 years based on their income could face a huge tax bill when the repayment period comes to an end.

Second, an income-based repayment program removes a student’s incentive to avoid borrowing more money for college than is needed. Students who know their loan payments will be based on their income and not the amount they borrowed will have little reason to limit the total amount of their loans.

Some of these problems can be addressed through legislation or modified program design. For example, the IRS can amend its regulations to eliminate the tax consequences of forgiven student loans; and an IRP program can surely be designed to keep students from borrowing extravagantly.

In my mind, however, the chief evil of income-based repayment programs is that they require students to pay a portion of their income to student loan agencies for the majority of their working lives. In essence, an income-based repayment plan turns student-loan debtors into sharecroppers--people forced to fork over a portion of their income to the government for 20 years in return for the privilege of going to college.

Indeed, IBRs are identical to the economic model of the sharecropper system that prevailed in the South during the early 20th century. Sharecroppers paid a percentage of their crop to wealthy landowners in return for permission to work someone else’s land (Woodward, 1951).

Eventually, the rural sharecropper system collapsed, and hundreds of thousands of Southern sharecroppers abandoned farming and immigrated to California during the 1930s. John Steinbeck memorialized this tragedy in his great novel, The Grapes of Wrath.

Higher Education Insiders Endorse the Sharecropper Option

One might think the American higher education community could come up with a more creative proposal for addressing the student-loan crisis than income-based repayment plans. Unfortunately, a number of higher education policy groups have endorsed IBRs.

Recently, the Bill and Melinda Gates Foundation awarded more than $3 million to various higher education advocacy groups to make recommendations for improving our nation’s financial aid program for college students. Titled “Reimagining Aid Design and Delivery”(RADD), the project produced 16 reports from such groups as the National Association of Student Financial Aid Administrators (NASFAA), Education Trust, the Association of Public and Land Grant Universities, and the Institute for Higher Education Policy.

Incredibly, not one of these 16 reports recommended significant bankruptcy relief for student-loan debtors or legislation barring the garnishment of Social Security benefits from elderly people who default on their student loans. (Commendably, two of the 16 reports recommended legislation that would allow private loans to be discharged in bankruptcy.)

Even more incredibly, eight of the reports--fully half--recommended that college students be automatically enrolled in income-based repayment plans when they take out student loans. That’s right--half of the organizations responding to the Bill and Melinda Gates Foundation’s RADD project recommended putting all student-loan participants in a giant sharecropper program.

The specifics varied somewhat, but eight of the so-called RADD reports recommended some variation of an income-based repayment program as the default option for all student-loan debtors. All these proposals would require students who participate in the federal student loan program to make monthly payments based on a percentage of their income for a long period of time--at least 20 years.

For Some Overburdened Student Loan Debtors, Emigration Will Be Preferable to an IBP

The cost of a college education goes ever upward. The cost of attending an elite private university--tuition, feels, and living expenses--is approaching a quarter million dollars. Higher education leaders may think we can continue on this catastrophic spiral by forcing students to borrow more and more money and pay it back over an expanding period of time. In essence, they think America’s young people will consent to be sharecroppers.

I think they are wrong. Increasingly, we will see bright and talented young people forego expensive colleges altogether rather obligate themselves to 20-year repayment plans. I also think we will see some of the nation’s brightest young people immigrate to other countries where they perceive better economic opportunities than are available to them in the United States.

Marquardt described France as a country run by a “decrepit, overcentralized gerontocracy.” I see the United States as a plutocracy--a nation governed by the wealthy for the benefit of the wealthy. Exhibit A, in my opinion, is America’s prestigious universities, with their overpaid executives and obscene tuition prices. They say they offer financial aid to deserving applicants who are poor--but their main goal is to preserve the status quo for the rich.

Just as Europeans immigrated to the United States to escape plutocratic government, perpetual wars, military conscription, and lack of economic opportunities, American young people will soon be emigrating to other countries where they see brighter economic futures for themselves. And when that happens, America’s higher education community will bear a large part of the blame.

References

Burd, Stephen, et. al (2013, January29). Rebalancing Resources and Incentives in Federal Student Aid. New America Foundation. Accessible at: http://newamerica.net/publications/policy/rebalancing_resources_and_incentives_in_federal_student_aid#ACCOUNTABILITY,%20TRANSPARENCY,%20and%20REFORM


Durey, Emily (2013, May 3. April Jobs Report Paints A Bad Picture for Young Adults. ABC News. Accessible at http://abcnews.go.com/ABC_Univision/News/april-jobs-report-makes-clear-young-adults-struggle/story?id=19101235#.UdXM3DubP6c


Education Trust (2013). Doing Away With Debt: Using Existing Resources to Ensure College Affordability for Low and Middle-Income Families. Accessible at: http://www.edtrust.org/sites/edtrust.org/files/Doing_Away_With_Debt_1.pdf

Institute for College Access and Success. (2013 February). Aligning the Means and Ends: How to Improve Federal Student Aid and Increase College Access and Success. Accessible at: http://www.ticas.org/files/pub//TICAS_RADD_Executive_Summary.pdf

Marquardt, Felix (2013, June 30). The Best Hope for France’s Young? Get Out. New York Times, Sunday Review Section, p. 4.

National Association of Student Financial Aid Administrators. (2013, March 14). Policy Themes in RADD Reports: A Summary Matrix. Accessible at: http://www.nasfaa.org/EntrancePDF.aspx?id=13701

National Association of Student Financial Aid Administrators (2013). Reimagining Financial Aid to Improve Student Access and Outcomes. Accessible at: http://www.nasfaa.org/radd-event/

Rothstein, Arthur (1939). State Highway Officials Moving Sharecroppers, January 1939. A Photo Dossier on Sharecropping. Accessible at http://www.english.illinois.edu/maps/poets/a_f/brown/photos.htm

United States Department of Education (2012, December 21). Education Department Launches 'Pay As You Earn' Student Loan Repayment Plan. Accessible at: http://www.ed.gov/news/press-releases/education-department-launches-pay-you-earn-student-loan-repayment-plan

Woodward, C. Vann. Origins of the New South: 1877-1913. Baton Rouge, LA: Louisiana State Univsersity Press, 1951.



2 comments:

  1. Students are suffering badly from student loans. The return on these loans are usually very high.

    ReplyDelete