STUDENT LOAN BORROWERS ARE LOOKING FOR AN ALTERNATIVE: 45 million Young Americans are Angry – Student loan borrowers say politicians don’t serve them

Excerpt from my upcoming book, PAMPHLET: Student Loan Borrowers have no option but change our electoral system

The growing problem of student debt has become one of the most discussed topics in the US political arena. Student loan debt is now the second highest in the consumer debt category - behind only mortgage debt - and higher than both credit cards and auto loans. According to published reports, there are about 45 million borrowers who collectively owe about $1.6 trillion in student loan debt. Many of these borrowers did not graduate on time and some of them dropped out of the colleges, still they have to pay their debt. Some pundits predict, it is not impossible to see another financial meltdown and it will happen from the student loan program.

There are many other issues young Americans take them dearly, such a gun control, healthcare, wage rates to name a few. During the last 5 years many young Americans joined hand on gun control, wage rates, and student loan issues but none were resolved. They did not achieve anything other than the lip services from the politicians. Now young Americans are frustrated, they are angry on conventional politics. They feel impotent, feel like there's no hope ever to fulfill their demands. The palpable power that they should feel as a major American voting bloc has been jettisoned by both circumstance and design. According to a research from Harvard University, “…two-thirds millennials think that politicians mostly go into public service for selfish reasons’. The inherent belief among young Americans is that politics doesn't serve their interests.

 As usual during the election cycle political candidates provide their lip services and this year is not different either. Some of the Democratic presidential candidates put forward ambitious goals and some are criticizing others’ program as unattainable. Most of the Democratic presidential candidates recommending some sort of debt forgiveness for student loan borrowers. Since the College financing is a major issue and is likely to continue doing so in the final push before the Democratic Convention. On the other hand, the Republicans are ignoring student loan forgiveness issue, and present administration made it more difficult for Federal student loan borrowers to cancel their debt, scaling back an Obama-era policy aimed at abuses by for-profit colleges.

Student loan debt payment is so huge that it creates a dent in their upper mobility. According to Politico/Morning Consult poll published in April 2019, roughly 67% of respondents said they had delayed major purchases, while 40% said they’ve delayed starting a family due to student loan. Most young Americans say none of the parties represent them. According to published reports about 75% of Americans aged 18 to 30 disenfranchised themselves by not voting in the 2010 midterm elections and believe Washington ignores them.

Due to political polarization and self-interest, Washington is indulged with political animosity – they will oppose any bill brought up by their opponent party, and not on the merit/demerit but for the sake of opposition. The party line politics already proven as a failure creating disconnect between politics and the general American public. If all student loan borrowers come under a single umbrella and vote only those candidates, who make commitment to work with them, irrespective of their party affiliation, American political landscape will be totally different. The two party system will lose its appeal to its constituents.

Tuition hike in American colleges become a very common phenomenon and it seems that there is no remedy of this issue. For a better future, young Americans are enrolling in colleges, and it is growing due to easy Federal loans. Higher rate of college enrollment is definitely a very good trend, but as the enrollment in colleges is increasing, so does the tuition hikes. From the 70s tuition hike in American colleges surpassed all other trends including inflation rate. The cost of higher education has surged more than 538% since 1985. In comparison, medical costs have jumped more than 286% while the consumer price index has jumped 121%. That says higher education is almost 4.5 times as expensive as it was 30 years ago. None of the US administration has ever taken any meaningful step to resolve this problem and debt is increasing at a faster pace and the future of our next generation is becoming bleak. Moreover, it is creating a threat for the conventional political system. Therefore, Washington must act decisively and act fast.

To understand the accurate picture of the financial investment for college education requires a focus on the total price of earning a degree, not just the price of one year of college. It includes tuition, meal & board, and transportation until they graduate. Therefore, a delay in graduating from any program require significant borrowing. In addition loss of work hours in American labor force. Among students who began their studies full time at a four-year institution for the first time in 2010, 41% had completed a bachelor’s degree at their first institution after four years and 60% had completed a degree after six years (NCES, Digest of Education Statistics 2017, table 326.10). The National Student Clearinghouse 2018 report shows that students who completed bachelor’s degrees in 2014-2015 were enrolled for an average of 5.1 full-time academic years.

To achieve the economic advantage in the global market, many nations are trying to put greater emphasis on education so that they can produce technically sound, highly trained, disciplined quality skill workforce. In global economy, where international trade took the top stage, only science and technology alone cannot keep a nation competitive. They also require other skills, such as business, finance, negotiation and communication skills. In order to achieve this goal many European countries are incentivizing education and training through tax breaks and write-offs, in addition to investments on creating modern educational and research facilities. 

The public loan systems that have been adopted in Europe dependent on structural national goals and its ultimate future returns. In human capital investments, as it supposed to be, the major driving factors are cost associated with education and training and its ultimate return, such as employment opportunity, wage, quality of job and livelihood. For quality employment one requires quality education which prepares to deal with ever ending demand.

A late 2017 study by the Organization for Economic Co-operation and Development (OECD) on higher education costs throughout the world found that the US has the highest average tuition costs of the 35 OECD member countries. About a third of the countries in the report, don't charge any tuition fees at all for public institutions at the bachelor level. In other countries tuition and fees are much lower than USA. It is to mention here that the quality of education in the institutes of higher learning are pretty much as equivalent as US accredited colleges.

On the other hand maximum students attend non-selective colleges, which admit at least half of their applicants. No one knows for sure how good these colleges are at their core job of educating students. Majority of private colleges in America are reducing their expenditure by hiring adjunct instructors, compromise on quality of education. This can be backed up by the recent findings on adult skills (OECD’s Program for the International Assessment of Adult Competencies), Americans under age 35 with a bachelor’s degree performed below their similarly educated peers in 14 other countries on the test of practical math skills. They did only slightly better than high-school graduates in Finland. America’s college grads did better in reading, performing below just six other countries, but dropped off again in another test, scoring below 13 other countries in their ability to solve problems using digital technology. However the college tuition is the highest among the countries survey by the OCED.

Report shows, Denmark, Estonia, Finland, Germany, Norway, Turkey, Poland, Slovak Republic, Slovenian Sweden public schools do not pay any tuition and fees to earn a bachelor degree. The nations who are within the European Union countries, the same rules applies for students coming from other EU member countries. 

Other countries such as France students pay from 190 euros to 620 euros; Hungary, students average tuition cost is $766; Austria an average of $914 a year; Mexican students pay $527 a year on average; Luxembourg tuition & fees cost between $454 and $907; Italian colleges charge on an average $1,658; Portugal charges between $1,124 and $1,821; Switzerland $1,168; Spain $1,880; Latvia requires between $1,745 and $5,200; Netherlands students pay an average of $2,420; New Zealand the average of $4,295; Australia $4763.00; Canada $4,939; Japan $5,229; and UK $6,180.00.

That says US students pay highest tuition but get inferior education. To avert the situation both Obama administrations took some initiatives to punish criminal for-profit colleges: gainful employment programs and rate colleges – to control the flow of Federal funding to predatory for-profit colleges. The first version of gainful employment was thrown out by a Federal judge in response to a lawsuit filed by the for-profit sector’s primary trade group. And the plan to rate colleges, collapsed of its own weight. 

American Middle Class and Their Upward Mobility

College graduates earn more than non-college graduates in the United States and therefore, a huge numbers of student enroll in colleges. This made possible due to easy Federal Student loan, irrespective of their backgrounds and family income. College graduates are future American Middle-Class.

The American middle class is the most productive social class in the country and constitutes anywhere from 25% to 66% of US households. Middle-class persons commonly have a comfortable standard of living, economic security for the future, and quality family life. The college attainment and college education is the only major requirement to be the middle class American. But the return on college investment is not paying off. The burden of that debt has led some millennial to delay marriage, children and home buying and a growing number of Baby Boomers to enter retirement still paying off student loans. 

The median earnings (in constant 2017 dollars) of young adults who worked full time, year round declined from 1960 to 2015. During this period, the median earnings of young adult high school graduates declined from $35,600 to $32,000 (a 10 percent decrease), while the median earnings of young adults with a bachelor’s degree declined from $56,800 to $51,800 (a 9 percent decrease). Moreover prices of household goods, rents and healthcare costs have increased, making unhealthy social status for the middle-class Americans.

How middle-class is doing in terms of earning is of interest of researchers. Pre-great recession, employees were getting salaries and benefits for the services. But after the recession, there is a shift on hiring practices in the United States. Now employers are hiring more, but their yearly earning did not rise. More employers are hiring temporary workers on a permanent basis and calling them independent contractors or freelancers. These workers are usually paid by the hour. Some are paid one fee for the project, or contract basis.

On the same token the "Advisor Prospective" published an article following the release of the November 2019 monthly employment update by the Bureau of Statistics that shows the average hourly rate for non-managerial employee is $23.83 per hour. The analysts claim, which is self-explanatory, that the latest hypothetical real (inflation-adjusted) annual earnings are at $39,915 for non-supervisory employees, down 11.1% from 45-plus years ago.

The article borrowed and analyzed yearly income based on the average working hours of non-supervisory employees per week, which is 33.5 hours in December, 2019 in compare to 38.9 in 1965. They adjusted the hourly earnings to the purchasing power of today's dollar using the Consumer Price Index for Urban Consumers (usually abbreviated as the CPI) and developed the figure for average weekly earnings of this middle-class cohort, currently at $798 — below its $846 peak back in the early 1970s, which translate into an annual figure of $39,915. That is an 11.1% decline from the similarly calculated real peak in October 1972.

Quality of Education & Impact on National Revenue

As U.S. graduation rates have stagnated, a smaller share of the next generation is achieving the upward mobility that a college education has traditionally brought. About half of young people in OECD countries have attained their parents' level of education. But in the United States, only 20 percent of U.S. men and 27 percent of U.S. women have more education than their parents. As a smaller share of Americans reach their parents' level of education, they will earn lower incomes than previous generations.

In 2017-2018 academic year US average four year college graduation rate was 46.34% and average retention rate was 59.70%, i.e., the dropout rate was 30.1%. Bill Gates in his blog of 2017 says, “The U.S. has the highest college dropout rate. We’re number one in terms of the number of people who start college but we’re like number 20 in terms of the number of people who finish college.”

Gates further asserts, “Based on the latest college completion trends, only about half of all those students (54.8 percent) will leave college with a diploma. The rest — most of them low-income, first-generation, and minority students — will not finish a degree. They’ll drop out.”

“This is tragic,” he says. “Not just for the students and their families, but for our nation. Without more graduates, our country will face a shortage of skilled workers and fewer low-income families will get the opportunity to lift themselves out of poverty.”

Student Loan delinquency or default rate are increasing and already 3.9 million borrowers dropped out of colleges and no longer enrolled anywhere but must repay the loan and discharging the student loan is not an option. The following graph shows institutions wise college graduation and dropout rates.  

It is important to have a look at the middle-class Americans income structure on Federal Revenue cycle. Based on the Office of Management and Budget for Fiscal year 2015, the Federal government received $3.25 trillion taxes. This tax revenue comprised of Individual Income taxes contributed 47 percent; Payroll taxes for Social Security, Medicare, and unemployment insurance added 34 percent; and the corporate taxes provided 11 percent. The remaining taxes came from excise taxes and tariffs, earnings from the Federal Reserve's securities holdings, and miscellaneous revenue.

Let us review the US Total households and their tax returns of 2015 Tax Year. Based on the IRS statistics, for Tax Year 2015, 150.6 million U.S. households filed income tax returns and Federal government collected a total amount of $1.52 trillion. The household income tax is the largest chunk of revenue collected to run the government. IRS divided the households into following seven categories based on their collections.

Publications show the average salary of new college graduates is around $50,000 annually and employee without a college degree earns less. Look at the tax returns data on the above table, and inspect the tax contributions among the selective groups (highlighted in grey $35k to $50k and $50k to $100k) it shows that the average tax paid per household in these two categories were $2,407 and $6,684 respectively, i.e., a difference of $4,276 per households. Due to the dropout out of college, these 3.9 million will automatically falls in the lower tax bracket ($35k -$50k). And this difference will cost the Federal government a reduction of at least $17 billion tax revenue a year. While this data is not directly comparable, but it is the most conservative estimate, these numbers provide an equivalent comparison of the magnitude as the exact earning of these dropout is hard to enumerate.

In addition, on the market side economy, these dropouts will contribute much less in the national economy: home & car buying, shopping, restaurant visits will put a larger dent on the national economy.

More than 60% of students are relying on student loans to pursue their post-secondary education, therefore, the number is huge and can have impact on national economy. Failure to repay the loans will compromise their credit report further impacting the socio-economical mobility of young generation. It is already seen that the young Americans are chipping away from the home ownership costing a negative impact on their future and retired life. Various published report shows, the home-ownership among the young Americas are declining every year from 1980s and one of the main causes of such decline is delinquency in student loan repayment. America always treated home-ownership as an American dream, as the lifetime wealth is the equity in their homes. In other words, the impact of student loan debt is harmful to the national economy, it is huge and it will worsen as days go by- it is a slow but steady sinkhole that is quietly gobbling up any hope for sustainable long-term growth in the U.S. economy.

Politics & Student Loan Borrowers

Politically Washington is divided, and the media is reporting the political in fight between the Republicans and Democrats on every issue. For any bill, which have impact on middle-class Americans as a relief, we observe huge debates and arm twisting, and at last a compromised bill is passed and unfortunately, it costs the middle class Americans. That says the Middle-Class Americans will go and vote for the elected officials and ultimately becoming the pawn of this political system. Then why should they support these political platform, which just use them? Before voting on party line, rather they should consider candidates’ positions on loan borrowers’ issue. Because both parties are the same – they are known for not keeping their campaign promises.

The student loan borrowers are 45 million strong and are suffering from their debt. Say for example, this 45 million borrowers have their spouses, siblings, and parents by their sides and they are also concerned about the future of these borrowers. For instance, even we take 2 intimate family members supporter for each borrower, it will exceed 100 million voters, which will be much more voters than any President bagged in the history of American election. This force can easily change the American political landscape. If a nationwide referendum is sought on Student loan disbursement, it will pass without any problem.

Corporate America controls the election process with huge political contributions. Except for a few, both the Democrats and Republicans accept such contributions, as for election they need huge funds, as US election system is very expensive. Published reports show it takes about $1.5 million to be elected in any house seat. Therefore, they do not have any other option but rely on campaign contributions. In reality, our elected members became pawn in the hand of their large donors and are obligated to serve them rather than their constituents. Most likely, none of our elected members like this situation, but they do not have any option. 

Recent development in campaign donation started during the 2008 election cycle shows a hope thanks to the access of internet. Before that election cycle there was a little movement was observed in this sector, but it got popularity and acceptability during the Obama campaign. Now all major candidates are raising millions of dollar using small contribution via internet. These contributors can be seen as direct voters for the same candidate. This technique along with political consciousness of voters can go a long way to free US election from the grips of Corporate America. Voters should emphasize their local issues and elect the right members who will deliver their campaign promise. After the election their performance also needs to be checked. If the elected member meets his/her campaign promise, he will be reelected otherwise a new member will be elected to replace him in the next election cycle. After a couple of election cycles with close monitoring of campaign promise vs performance in Washington, our Congress will be successfully serve independently of corporate America. It does not matter whether the candidate is Republican or Democrat, voters should elect the right members. And the time is right now or never.