How Good Intentions Created a Tool of Oppression

Lakisha Johnson and daughter. Photo credit: Reuters

Politicians had the best of intentions when they crafted policies to make higher education more accessible to everyone by handing out generous student loans. But they ended up plunging millions of Americans deep into debt and subjecting them to relentless efforts to recover that debt.

A Reuters investigation into student loan debt collections highlights the plight of a Philadelphia woman, Lakisha Johnson.

Lakisha Johnson figured all she needed was her 2016 tax refund to get her and her daughter out of a homeless shelter and back into a place of their own.

The U.S. Department of Education had other plans.

Johnson, a home health aide, and 12-year-old Aijiah were forced to move out of their West Philadelphia apartment just before Thanksgiving last year, after the landlord jacked up the rent from $675 to $875. Soon, they were living on a bunk bed in the shelter a few blocks from Aijiah’s school. The girl was petrified that a classmate would see her using the secured entrance of the crowded, noisy shelter.

With the $13 an hour she earns caring for her elderly charges, Johnson planned to stay at the shelter — or with anyone who would let the two sleep on a floor, a couch or a spare mattress — until April. In past years, that’s when she received her federal Earned Income Credit tax refund.

The check never came.

On the phone, an Internal Revenue Service agent told her the Department of Education (DOE) was “holding back” the $8,220 refund to recoup some of her student loan debt. It would probably do the same next year, the agent told her, to recover the rest of the nearly $17,000 she owed.

Johnson is just one of eight million borrowers in the United States who are in default on a combined $137.4 billion in government-held or government-backed student loans. Eleven percent of all student debt is severely delinquent or in fault, a higher rate than the mortgage foreclosure rate at the peak of the sub-prime real estate bust. But unlike mortgages, a form of debt that can be discharged, there is no way to shake student loans.

Since the summer of 2015, Reuters has found, student loan servicers and private debt collectors have garnished about $3 billion in wages. And last year, tax refund seizures and Social Security benefit reductions amounted to another $2.6 billion, up from $2.2 billion in 2015. Since 2009, the federal government has clawed back at least $15.2 billion. Writes Reuters:

Default, which usually occurs when a borrower hasn’t made a payment for 270 days or more, can make it only harder for a debtor to regain financial stability. It can trash credit scores, scaring off potential employers. It can disqualify debtors for auto loans, apartment rentals, utilities and even cellphone contracts. In about 20 states, student loan borrowers who default can lose their driver’s and professional licenses.

Needless to say, those impacted from the student debt-collection regime are disproportionately poor and minorities.

The Reuters article focuses mainly on the aggressive tactics of debt collectors and the failure (or refusal) to inform many debtors of all of their options, such as shifting to a plan that limits repayments to a percentage of income. In effect, the debt collectors come across as the “bad guys” in the story.

But Reuters does quote Jack Remondi, CEO of Navient Corp., a loan servicer operating under contract with the Department of Education:

Remondi blamed rising student loan defaults on “the front end of the process,” such as the government policy of lending to borrowers regardless of their credit standing and without consideration of “whether the investment they are making is reasonable.”

Bacon’s bottom line: That is the root of the problem. Under the guise of creating opportunities for the poor, the government policy of treating access to higher education as a “right” and indiscriminately handing out loans to unsophisticated consumers turned millions of Americans into debt peons. Government policy made their condition worse. Government policy, far from liberating the American poor, is grinding many into deeper poverty. Between shoveling out student loans and stoking the issuance of sub-prime mortgages a decade ago, misguided policies emanating from the good intentions of federal policy makers have shattered the lives of millions of poor. (Don’t get me started on the issues of under-performing schools and the mal-incentives of the welfare state.)

Meanwhile the poverty-creation machine chugs on unperturbed in Virginia. Here is data from the State Council of Higher Education for Virginia encompassing public four-year colleges, private four-year colleges, and community colleges:

  • 10% of from first-time-in-college students dropped out after the first year of enrollment.
  • 40% of those students had debt, which averaged $8,036. The wages of college drop-outs the following year averaged $12,500.

All told, 36% of students at 20% of the poverty line and below fail to graduate. College loans, it must be said, also have allowed many students to lift themselves out of poverty, so it would be a mistake to dismantle the entire system. But student lending is in desperate need of reform. Good intentions are not enough.

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12 responses to “How Good Intentions Created a Tool of Oppression

  1. Agreed. I saw an article which won’t make people happy but it said the reason why millenials had no money, etc. was because they made choices out of order:

    http://www.msn.com/en-us/money/markets/report-millennials-are-broke-because-theyre-making-choices-out-of-order/

    Maybe Comrade LarrytheG can work that into his 5 year plan.

  2. GADZOOKS.. you mean that money is not “free”… and actually has to be paid back? Who KNEW? certainly not those poor Millennials, eh?

    but hey… Bacon seemed more concerned about the “poor”: ” Under the guise of creating opportunities for the poor, the government policy of treating access to higher education as a “right” and indiscriminately handing out loans to unsophisticated consumers turned millions of Americans into debt peons. ”

    oh.. those poor “poor”.. but no excuses for those poor Millennials? they should know better! “peons” ?

    Maybe in order to save the poor “poor” peons, we’ll have to not give them loans loans in the first place to save them from “oppression”, eh?

    then College will become more “affordable” for those more likely to graduate?

    oh , bite my tongue!! bad! bad!

  3. Why is it that an entire culture has arisen (not racial, not generational, not educational, but it’s plainly there) that believes there is no need to plan ahead, no hard consequence from failure to plan, no benefit from weighing costs and benefits before you commit, all you need to do is live impulsively, in the moment — because someone always will come to the rescue.

    • That culture is not new. Edward Banfield wrote about it in 1968 in a sociology classic, “The Unheavenly City.” The willingness to defer immediate gratification for future reward is one of the traits that distinguishes the lower classes from the upper classes. As I recall, he obtained his original insights from studying an Italian village.

      For a variety of complex reasons — largely tied to the rejection of “bourgeois” values, but also possibly including the influencing of advertising — America has become increasingly a nation geared to instant gratification.

  4. I have a different take on it… but more along the same church but different pew – in part – because if it were the student themselves signing up for huge debt, you could attribute some of it to a lack of experience and sophistication with regard to debt…. someone a lot of young folks are prone to fall into .

    But the College debt thing is aided and abetted by parents…people who have themselves likely gone through several car purchases, a home, and know the serious consequences of a damaged credit score – so in a lot of these cases the parents are complicit.

    They KNOW what it means when you sign up for a bunch of money and on that paperwork it tells you how much you owe and how much will have to be paid back for how long… month by month by month. If you never knew the first couple of times. you usually gained enough appreciation on the loan process that the signing moment is a sobering one. Kids…. typically are not as “impressed” until AFTER they have been through years of watching their paycheck get decimated before getting what is left over for the rest of their expenses.

    So… the “rescue” part to me is even worse… it starts to get into a lack of personal responsibility at that point…. a failure to take responsibility – and motivation and intent on the front end of the process to be thinking about not paying back…. if things “don’t work out”.

    You can blame the govt for this… but I don’t see them much different than any lender more than willing to give you a gob of money but also more than willing to go after you and your assets later if you fail on your responsibility.

    We have seen this before during the great housing meltdown where people were signing up for loans with the idea that if they could not make a profit on the home – they’d bail…. and blaming that mess on the govt… well.. no can do.

    And right now – there is a disconnect between an expectation of “rescue” and the fact that the lenders are, in fact, “going after” the miscreants …and there is ..what? surprise and horror than it happened and the Govt needs to step in and “help”?

    This is not , as Bacon seems to surmise, a problem with the “poor” and “less educated”… no.. it’s pretty systemic across the board – way more income levels than just the lower tiers.

    So what is going on? why is this happening? Why are people of age… ALSO apparently more than willing to either go deep into debt themselves or encourage, aid and abet their kids to do so ? It’s sort of a rhetorical question in a way – as most parents KNOW that without College the kids lives are going to be harder..

    but back in the day – the College loans were for folks where there was no alternative… the parents could not afford to help their kids…. TODAY – those loans are treated as “affordability” with the parents no longer willing to forgo their own lifestyle wants – e.g. get a home-equity loan for their own home … or put off buying a car or some other major expense until “after”.

    And now days… it’s largely become a Monkey-see, Monkey-do… “everyone is doing it” phenomena … with real … and lasting damaging consequences… as there is no near as much “forgiveness” as some hope or believe…

    The very last thing in the world the Govt should do – is fund “forgiveness” even if there are a lot of folks clamoring for it .

    On that part – we do need changes – I agree with Bacon… as it applies to everyone – and not just target some demographics.. to “help” them; the problem is far bigger than just low income minorities and I’m flummoxed why Bacon focuses just as this one area … over and over…

    The basic idea of using taxpayer money to “help” people “afford”… when you’re talking about family incomes of 100K and up and assets of half a million and up…. is fundamentally whacky… and the willingness of the higher income folks to do it…sorta says that even the higher income folks who are supposed to be more “sophisticated” on money matters.. maybe not so much.

    The point of “help” is to help the folks who have no resources ..who ARE lower income but many of whom , with help, CAN get a higher education – not withstanding that there will be a higher level of failure – the data cited by Bacon shows that more than 60% actually do get a degree – that in all likelihood would not have been able to afford it.

    That’s a success… but not without some huge collateral damage – not just to the “poor” but higher income – and ultimately taxpayers… if the govt can’t keep itself from committing to “rescue” instead of staying back and letting the lenders and the borrowers confront the reality of irresponsible behaviors – on both sides…

    don’t blame the govt alone in this… people have responsibility also…

    • “This is not , as Bacon seems to surmise, a problem with the “poor” and “less educated”… no.. it’s pretty systemic across the board – way more income levels than just the lower tiers.”

      Actually, I have never insinuated that the problem of student indebtedness is a problem only of the poor and less educated. My family has experienced this issue first hand — one of my children accumulated a massive student debt attending graduate school. Fortunately, that child (1) had a parent able and willing to help refinance that debt to make it more bearable, and (2) found a job that paid well enough to help finance it.

      The problem occurs when poor kids fail to earn the degree, fail to earn a job that allows them to service the debt, and come from a family too poor to help them out.

  5. re: ” Actually, I have never insinuated that the problem of student indebtedness is a problem only of the poor and less educated.”

    Jim – all due respect, but you have.. more than once..

    You’ve posited that helping the poor is “wasted” because they – as a group – are not well prepared and larger numbers of them fail.. and in doing so they take resources away from those that have a better chance of succeeding…

    the statistics don’t lie – larger numbers of the low income and minorities DO fail .. but you can’t have a policy that kills help to those that would have succeeded with that help.. that ends up being overt discrimination against entire classes and groups of people and that’s just plain wrong.

    I’m entirely on board with stricter requirements – for ALL – based on academic record … including tougher entrance like UVA does.

    I’m entirely opposed to whacking an entire class of people because they , as a group, have a higher failure rate.. that starts to get into institutional discrimination..

    • Larry said, “You’ve posited that helping the poor is “wasted” because they – as a group – are not well prepared and larger numbers of them fail.. and in doing so they take resources away from those that have a better chance of succeeding…”

      No, that is not what I said. That’s how you interpreted what I said through your cognitive filter.

      I have said that the poor, as a group, are not well prepared for higher education and that large numbers fail, go into debt, ruin their lives, and waste society’s resources. But I did not say that helping the poor is “wasted.” I am fine with helping the poor achieve levels of education for which they are academically prepared. Typically, that would be trade school or community college.

      To draw an analogy: It would have been a “waste” to allow Jim Bacon to enroll in astrophysics back in 1973. He barely passed algebra and calculus. There was no hope that he would have mastered a discipline requiring competence in advanced mathematics. It would have made no sense for the federal government to have allowed young Bacon to borrow money in order to pursue such an endeavor. Indeed, I would go so far as to say that it would have been a monumental folly — a waste of his time and society’s resources –to allow him to do so.

  6. I disagree Jim.. you have made the point over and over.. questioning loans and tuition assistance for the “poor” if they are ill-prepared – while NOT making the same point about other “ill-prepared”. I’ll go extract the passages if you want but it’s not an interpretation… you’ll cite specific words but those caveats are close to the line in my view.. you DO leave a a strong and definite impression and yes you did say that aid to these lower tier folks takes aid away from the middle class.

    When you say this: ” It would have been a “waste” to allow Jim Bacon to enroll in astrophysics back in 1973.”

    I have THREE QUESTIONS:

    1. what about basic core level academics necessary to pass basic curriculum and stay in college and get a basic degree?

    2. – would you apply such criteria and remediation to everyone or exclude the poor and minorities?

    3. – how would you implement it such that it does not end up “targeting” classes of people to kick out and still give remediation to higher income non-minorities? what’s your plan?

    If you make this argument and don’t say how it will be implemented.. what exactly are you saying?

  7. Jim – this is a good example of what I am talking about:

    Running in Neutral: a K-12 and Higher Ed Scandal

    the entire article focuses on low income minorities in the narrative itself:

    You reference an article in The Atlantic by Nick Ehrmann:

    “He tells the story of an intelligent African-American lad who was groomed to attend college — and ended up dropping out after the first semester. The article goes to the heart of one of the most pressing issues in American higher education today: the high rate of college drop-outs”

    Then you focus on this: ” Literally millions of young Americans, disproportionately minorities, borrow money, attend a few semesters, and then drop out, never acquiring the college credential that will allow them to pay off their debt.”

    Which is true – but it is ALSO TRUE that millions of them who could not have afforded college – succeeded – in fact more succeed than not

    There are widespread studies and reports that more that half of ALL students of ALL races and income levels show up lacking basic academic skills for college… in fact..

    yet your focus.. over and over is on the low income minorities.. getting loans and then ending up in debt…

    You conclude in the above blog this way:

    ” This is the hardest evidence yet that one of America’s most ideologically liberal institutional complexes, higher education, is also one of the most exploitative. Colleges and universities talk a good game about social justice, but in the end, they put their institutional prerogatives first. In the end, higher education has become a powerful engine of social injustice.”

    to me you are using the phrase “social injustice”, you are, in effect, saying in particular , that trying to help low income minorities with loans and tuition assistance who are unprepared for college is a “social injustice”.

    I ask you – what is it if you do the same for kids who are not low income minorities who are also ill-prepared? Is it not “social injustice” for them also? Why do you focus the “social injustice” argument only on SOME of those who are “ill prepared”?

    It seems to me you are conflating …. if the loan and tuition programs are for all students.. as opposed ONLY for the low-income minorities.

    you seem to make the point that such programs to help ALL .. are misdirected if they help low-income minorities who are “ill-prepared”. Why not ALL ill-prepared students? apples to apples? why select one group as suffering “social injustice” when these programs are for all?

    If you WANT to make the argument that ALL students that are ill-prepared with some standard criteria be denied loans or grants – then I might be with you… but when the higher group gets remediation to help them stay in college and the cure for the lower group is to deny them remediation and boot them… that does not so good.

    so which is it?

    why should we continue to focus on low income minorities as if they are the only ones with this problem when most studies show half or more of students fall into this category?

  8. I focus on low-income minorities (a) because they are the ones being harmed by the system, and (b) to fight the false narrative that more government intervention is the solution.

    Yes, many low-income minorities do benefit from financial aid to attend college, and many graduate. That’s a good thing. But a look at the data will show that the successful ones are more academically prepared. Their success can be predicted. The problem is encouraging people who are unprepared academically to attend college and rack up debt.

  9. you argue that – but the program applies equally to all … and the question is – do we offer remediation to all who end up not ready?

    the “false narrative” is simply not true… it’ an ideological belief but the facts clearly show that the “market” is NOT going to help the kids who are not prepared academically.. how would you fix this ?

    you say: ” The problem is encouraging people who are unprepared academically to attend college and rack up debt.” which is totally true but it affects all races and income levels… and yet you focus on one group and tend to argue that the “help” is not “helping”.. because they are too far behind… in effect…. the govt should no longer help… because there is a “false narrative” that’s it’s the solution. If not the govt, then what?

    don’t get me wrong, I’m NOT arguing that the govt should try to equalize OUTCOMES… but I DO QUESTION when you say that some kids should be helped .. and others not.. because some are more likely to succeed. That’s not a good argument at all.. even if you could actually specify how you’d go about deciding how you would determine “likely to succeed” .. as a cut-line.

    I also am NOT arguing that you should change your narrative.. it’s what you believe – but it is very much subject to challenge – and dialogue…..

    …. and I think – a solution/response other than deciding who will likely fail and then in effect, walking away from them… that’s not equal treatment unless it is applied to ALL races and income levels – AND enforced the same way no matter race or income level. Don’t target classes of people because, as a class they have higher percentages of under-educated.. or under-performing that may in fact be due to k-12 discrimination.

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