How is Student Loan Debt Threatening Students? An Interview With Robin Howarth
As the United States inches closer to the 2020 presidential election, the student loan debt problem is among the most talked-about issues, with policy measures promised by many presidential candidates.
Student loan debt is currently held by more than 42.2 million Americans, but the borrowers of color are at a greater disadvantage.
Studies have shown that student loans negatively affect the wealth accumulation of black adults who owed an average of $14,670 when they graduated, compared to $2,946 for students of other races.
Student loans widen the racial income and wealth gaps for borrowers of color making them prone to delinquency and default on debt. More than half of the black graduates are most likely to default on their loans within 12 years of starting college.
With loan repayment on the top of their minds, many graduates are not even able to save a single dollar for personal priorities, including retirement. Loans are also affecting many decisions related to daily expenses like taking a vacation, going out for dinner or putting on some muscles in the gym.
The College Post spoke to Robin Howarth, a Senior Researcher at the Center for Responsible Lending, a nonprofit organization research and policy group based in Durham, North Carolina about the problem of student loan debt and the required system reforms to address the issue.
Q. Currently, 42.2 million Americans are repaying federal student loans for a total sum of nearly $1.5 trillion, the largest volume of debt after home loans. Do you think that the student loan debt problem has become much worse over the years?
Howarth: Yes, nationwide trends in the higher education landscape such as state disinvestment, rising college costs, the increasing necessity of college degrees in the labor market, and the loss of savings and other forms of wealth from the Great Recession have led us to a crossroads where student debt threatens the well-being of an entire generation of students and their families. The sheer amount of outstanding debt and the number of borrowers impacted create a significant drag on the entire economy. Heavy student debt loads depress the purchasing power of millions, preventing people from starting families, investing in their own businesses, going back to school, and buying homes. And because students of color carry larger debt burdens, these consequences exacerbate the racial wealth divide by impacting families of color the most acutely.
Q. What are the biggest issues that student loan borrowers are facing lately?
Howarth: While shocking, the total sum of student debt also masks important trends within the crisis. Specific populations of students are facing more severe consequences due to poorly structured and operated student loan programs, neglect in overseeing abuses of the higher education system by for-profit schools, and inadequate support for affordable, quality higher education. For students of color, and particularly for African American students and families, the current system can be catastrophic, too often turning visions of increased opportunity into lasting financial burdens.
Q. A recent report by the Center for Responsible Lending found that most of those “who took more than $26,500 in debt for an undergraduate degree, 68 percent are women.” What are the reasons for higher debt levels among female students?
Howarth: Women more likely to take on student loan debt, face a wage gap in the workforce, and struggle with repayment. Nationally, women graduate, on average, with $2,700 more in student loan debt than their male counterparts. And because women earn less than their male counterparts in the workforce, paying off their debt takes significantly longer. This is especially true for African American women and Latinas, who have the greatest average amount of student loan debt and are paid only 61 cents and 53 cents to the dollar, respectively, compared to white men. Millions of college-going women are also mothers—an estimated 25% of all college students are parents with dependent children, and over 40% of these parents are single mothers. Mothers, and especially single mothers, face challenges at all types of institutions related to childcare, as the current supply of on-campus childcare centers meets only 5% of demand. Single mothers are also targeted by expensive and predatory for-profit schools. All of these factors combine to make single mothers more likely to drop out of college with higher debt loads.
Q. Earlier this week, the U.S. Department of Education finalized Institutional Accountability regulations that the critics say will practically make canceling debts impossible for students who have been defrauded by higher education programs. What are your views on it?
Howarth: The new Borrower Defense to Repayment rule, recently announced by U.S. Department of Education Secretary Betsy DeVos will severely weaken accountability for for-profit colleges and prevent defrauded students from accessing relief. The new rules arrive more than a year after DeVos’ decision to rescind the Obama Administration’s Borrower Defense to Repayment rule, which provided a viable pathway for students to obtain relief and institutions to be held accountable. Among its many changes, the Department’s new regulations place an extremely high bar in front of borrowers seeking redress, requiring lengthy and extensive documentation of “harm” before a claim can be reviewed. The new regulations also set aside important provisions that provide for group claim relief, automatic discharge after a school closes, and prevent schools from limiting student rights through mandatory forced arbitration clauses.
Q. Who do you hold responsible for the student loan debt crisis in the U.S.?
Howarth: Certainly, there are broad societal and economic trends at play. But, harmful student loan servicing practices and predatory behavior by for-profit colleges add significantly to the debt burden. During the Obama administration, contract negotiators for student loan servicers were instructed to include important consumer protections and incentives in the contracts. Unfortunately, the current administration reversed those guidelines despite recent Consumer Financial Protection Bureau (CFPB) lawsuits against two of the largest servicers. The lawsuits alleged that the servicers routinely undermined borrowers by misapplying payments, reporting incorrect information to credit bureaus, and placing borrowers in plans that caused their debt to balloon.
For-profit colleges continue to be major drivers of student loan debt and defaults, particularly for students of color. One of the major contributors to high rates of default for African American borrowers is their over-representation at for-profit colleges. Over 52% of borrowers who first entered higher education in the 2003–2004 undergraduate cohort at for-profit institutions defaulted by 2016 compared to just over 17% for borrowers of the same cohort that first enrolled in four-year public colleges. Despite years of failing to serve students, many for-profit colleges are now seeing improved financial gains under the current administration—just recently, the current administration withdrew a rule that cut federal funding for programs at colleges that regularly resulted in graduates having debt that far outweighed their incomes. And those financial gains come at the expense of borrowers and taxpayers.
Q. Do you think that forgiving student loan debt is a good idea to solve the problem once for all?
Howarth: We believe that providing dollar-limited across-the-board loan cancellation to all students currently in repayment, as well as those in school who will subsequently enter repayment, has the potential to alter the financial life courses of millions of Americans. Reducing or eliminating student loan balances could expand access to important financial products such as mortgages and could jump-start consumer spending and family formation for student loan borrowers who are relieved of a significant monthly expense. Loan cancellation as low as $10,000 would particularly serve low-income students and those in default, many of whom tend to have relatively low balances and would experience complete student debt elimination.
However, additional reforms are necessary to ensure that future student do not find themselves similarly burdened.
Q. How can student borrowers protect themselves from falling into the debt trap?
Howarth: Unfortunately, our system needs reforms to protect student borrowers from carrying debilitating debt loads for decades and sometimes lifetimes. Servicing reforms are essential and for-profit colleges must be held accountable. In the meantime, student borrowers should demand their servicers adopt fair practices, including putting those who are eligible for income-based repayment into the appropriate plan and otherwise working in their interests rather than the interest of investors. Student borrowers should also lodge complaints with the Consumer Financial Protection Bureau if they are treated unfairly by student loan servicers or scammed by for-profit colleges.
Q. Recent reports find income share agreement as a better substitute for student loan debt? Do you endorse this view?
Howarth: No, CRL and many other student loan consumer advocacy organizations feel that Income Share Agreements (ISAs) put students’ future at risk. Despite their touted benefits and innovation, ISAs lead to a number of concerns largely because they essentially allow private investors to take a super lien on a borrower’s future income without sufficient guardrails against unfair practices. ISAs could open the doors to lending discrimination and fair lending violations. Their pricing is based upon what the investor believes will be the future value of a student’s major. Inherent in the models of ISAs is the need to predict the future success of the student which opens the door to Equal Credit Opportunity Act (ECOA) violations specifically with regard to the treatment of protected classes. College majors are highly stratified by race and gender. This could lead to discriminatory impact within ISAs, with women entering into ISA contracts with worse terms and paying off higher levels of debt than men, and students of color burdened with more debt from ISAs than white students. ISA companies have made the assertion that federal consumer protection laws, such as ECOA, the Truth in Lending Act (TILA) and state usury caps, should not, or do not, apply to ISA loans. However, despite investors claims, these laws are in fact necessary to protect students.
Q. What immediate measures should federal and state governments take to address the student loan debt problem?
Howarth: Here are our recommendations for system reform;
- Improve repayment options and provide debt relief: Make it easier for students who currently carry debt loads to pay off their loans and move on with their financial lives so that they can participate in a growing economy through improvements to income-driven repayment, reduced interest rates, the availability of hardship bankruptcy relief, and broad debt cancellation;
- Strengthen servicing standards and oversight: Reform student loan servicing by setting clear standards and supporting students navigating student loan debt so that they can enroll in affordable repayment options quickly. Borrowers deserve clear and timely information about their options and basic consumer protections. Additionally, servicers should not pursue past-due debts through Social Security offsets and garnishments that are more aggressive than income-driven repayment options. Further, hold the Department of Education accountable for basic oversight and management of servicing and collection standards;
- Prevent abuses by for-profit institutions: Stop funding ineffective and abusive for-profit schools and hold schools accountable for student performance by establishing standards around the use of federal dollars, closing the 90/10 loophole, protecting students who attended closed schools, and reinstating meaningful Gainful Employment and Borrower Defense to Repayment rules; and
- Make college accessible for ordinary Americans: Reinvest in higher education as a public good by providing debt-free college options for students at two- and four-year HBCUs and public institutions, boosting funding to HBCUs and other minority-serving institutions, and protecting and expanding Pell Grants to prevent this crisis for the next generation of students.