Jeffrey Dorfman wrote an online essay for Forbes this week entitled "Time To Stop the Sob Stories About Student Loan Debt." Basically, Dorfman argued that there is no student-loan crisis, pointing out that most students have only modest student-loan debt loads, usually smaller than a typical car loan.
Mr. Dorfman is right to point out that the number of people who have borrowed extravagantly to
attend college is relatively small. "In fact," Dorfman wrote, "only four percent of households headed by people between 20 and 40 years old have student loan debt of over $36,000 per person and two-thirds of those have a graduate degree to show for that debt."
But I think Mr. Dorman's article overlooked some key data that are very troubling. First, as Mr. Dorfman pointed out, the three-year student-loan default rate is 14.7 percent, and that number is disturbing by itself. Student-loan default rates have doubled in just six years.
Moreover, the Department of Education's official student-loan default rate only measures people who default in the first three years of the repayment period. Many people default on their loans after three years. And the student-loan default rate for people who attended for-profit colleges is more than 20 percent. That's right--one out of five people who attended for-profit colleges during DOE's latest measurement period defaulted within the first three years of repayment!
And, as Senator Tom Harkin's Senate Committee report pointed out, the for-profit colleges are encouraging their former students to get economic hardship deferments that temporarily excuse debtors from making loan payments. This strategy helps the for-profits keep their institutional default rates down.
But in reality, many people who obtained economic hardship deferments will never pay back their loans, and their loan balances get larger as interest accrues during the time they are not making loan payments.
In my opinion, the student-loan default rate for people who attended for-profit colleges is probably 40 percent when measured over the lifetime of the loan repayment period, and that should alarm everybody--even Mr. Dorfman.
And Mr. Dorfman did not comment on recent reports that more and more people in their late 20s and early 30s are living with their parents and that more than 40 percent of college graduates hold jobs that don't require college degrees. Nor did he comment on recent efforts by the Obama administration to lure student-loan debtors into long-term income-based repayment plans that will require debtors to pay on their loans for 25 years. Isn't that a sign that the student-loan program is in trouble?
Finally, although Mr. Dorfman is correct to say that most people with student loans have modest loan balances, even $10,000 is very hard to pay off if you are holding a minimum-wage job. Many of the people who borrowed money to attend for-profit colleges are from low-income families. If those people dropped out of a for-profit college without getting a degree (and a large percentage of people fall into this category), paying off even a small loan may be impossible.
The Brookings Institution, which Mr. Dorfman cited, has been downplaying the student-loan crisis even as it advocates for long-term repayment plans. But the crisis is real.
A lot of people who live in Mr. Dorman's world are making money off the federal student loan program or the private student loan industry. Sallie Mae is making money off of student loans, the banks are making money off of private student loans, the loan servicing companies are making money chasing down student-loan debtors who are in default,and colleges and universities are making money as they raise their tuition every year. Goldman Sachs owns an interest in Education Management Corporation, the entity behind several for-profit colleges, and the Washington Post Company has a stake in Kaplan University.
But millions of Americans are suffering under unsustainable student-loan debt, and the crisis grows larger every day. Mr. Dorfman is living in a fantasy world if he thinks otherwise.
Dorfman, Jeffrey. Time To Stop the Sob Stories About Student Loan Debt. Forbes, September 18, 2014. Accessible at http://www.forbes.com/sites/jeffreydorfman/2014/09/18/time-to-stop-the-sob-stories-about-student-loan-debt/
Ashlee Kieler. For-Profit Colleges: Good For Investors. . . Not-So-Good For Students. Consumerist, April 24, 2014. Accessible at: http://consumerist.com/2014/04/24/your-college-education-might-be-a-better-investment-for-goldman-sachs-than-it-is-for-you/