Here's a Diploma, With Ball and Chain Attached

Michael Morgenstern for The Chronicle

June 18, 2012

Frogs, as everyone has heard, will sit quietly in a pot of steadily warming water until they are boiled alive. This is not actually true. In reality, frogs will jump out of the pot as soon as it gets too hot, because scalding water hurts like hell. Similarly, anxiety about student-loan debt has reached a boiling point over the past year, and the American public seems increasingly inclined to bail out of the higher-education system.

The first signs appeared last fall, held above the heads of Occupy protesters who saw their indenture to banks as an intergenerational betrayal. "I went to college like I was told I should, and now I owe $45,000, $80,000, $125,000, in a ruined economy with no jobs to be found," they said. The numbers were designed to shock, and they did, appearing on newscasts and Web petitions nationwide.

Last year also saw the emergence of one of those sticky shorthand statistics that defy conventional wisdom: $1-trillion in accumulated student-loan debt, more even than credit cards. Credit cards! Anyone who lives in this country has a gut sense of how much stuff charge-happy Americans buy with their Visa and American Express cards. Whole mountains and oceans of consumer goods. And somehow college costs even more than that?

One trillion is the last big number in modern life, the only sum that can still impress us with incomprehensible size. Why, people wondered, are our colleges hanging a weight that big around our necks? Sending your kids to college used to be an occasion for pride and a little sorrow, a passage to adulthood and the next phase of life. It has become a looming financial chasm for middle-class families, a source of constant, growing dread.

Who's to blame? In Washington, much of the chatter has been about for-profit colleges that load students with debt in exchange for worthless degrees. And some for-profits, although not all, deserve blame and tighter regulation. But the entire for-profit industry enrolls only 10 percent of students. Most of that $1-trillion was borrowed at traditional nonprofit colleges.

Public colleges and universities have been hammered by state budget cuts, causing some to raise tuition and thus their students' borrowing. But that doesn't explain rising debt among students attending private nonprofit institutions. The New York Times recently profiled a young woman who borrowed $120,000 to attend Ohio Northern University, a small private university where tuition, fees, and room and board total nearly $50,000 per year. Students there get some financial aid, but even then, the lowest-income undergraduates still pay nearly $75,000 out of pocket over four years.

The student in the news article borrowed all that money as an adult of free will. But a higher-education system that depends on hundreds of thousands of 18-year-olds making wise choices about money is a system designed to produce widespread financial catastrophe. Borrowing $120,000 for a garden-variety bachelor's degree is folly, and colleges that allow or encourage students to make such choices are morally culpable for the consequences.

They should also be financially culpable. Ohio Northern, on its Web site, encourages prospective students to "Get Over the Sticker Shock" by learning the "Return on Investment" for their degrees. Colleges that market to students this way should be subject to exactly the same "gainful employment" regulations recently imposed on for-profit colleges. They should also have to pay back the American taxpayers a portion of any loans they facilitate that go bad.

Higher-education leaders respond that $120,000 is atypical, as are some of the alarming Occupy numbers. The average loan burden for undergraduates who borrow, they note, is substantially lower. This is like General Motors protesting that most purchasers of top-heavy SUV's don't roll their vehicles over at 70 miles an hour on the interstate and die a fiery death. It ignores the question of whether too many students are going far too deeply into debt, and the fact that every student-debt statistic one can find is moving in the wrong direction: more borrowers, higher debt levels, lower repayment rates, more defaults. Borrowing still may be a good deal—a positive "return on investment"—for the average student. But what about the millions of students who are, by definition, below that average? Should we wait until the average borrower's return turns negative before we act?

Student debt has helped fuel three decades of fast-rising college prices. Higher-education institutions have become adept at pretending they're doing students a favor by allowing them to borrow, lumping loans into confusingly described financial-aid "packages." Let's be clear: Student loans are not financial "aid." Interest payments are a cost, not a benefit. The only loan benefits students receive come from lower, subsidized interest rates that are, under any scenario, pennies on the many dollars they will still have to repay.

Anxiety over college debt is so acute that those subsidized rates have become one of the few education-related issues to rise to prominence in the current presidential campaign. It says something that Republicans in Congress who are deeply committed to reducing federal spending have nonetheless felt compelled to entertain the notion of keeping federal student-loan interest rates at 3.4 percent instead of 6.8 percent, at a cost of some $6-billion. Mitt Romney, another avowed federal-budget cutter, has also endorsed subsidizing the 3.4-percent rate. (Romney also wants to restore an expensive system of paying private banks to make student loans guaranteed by the federal government, one that President Obama and Congress abolished in 2010. This is a terrible idea.)

Sometime in the past 12 months, a realization has crystallized in the collective consciousness. The old bargain, in which parents could pay for their children's education out of pocket or students could "work their way through college," is gone, over and done with. That path to opportunity, which helped tens of millions of Americans make the transition to the knowledge economy in the late decades of the 20th century, has been shut down and replaced by a much different and much worse proposition: Go to college because you have to, and maybe you'll graduate and maybe you'll learn something or maybe you won't. But what's increasingly certain is that you'll start moving forward through life attached to a financial ball and chain.

People are angry about this. They feel confused and betrayed. The Occupy signs and breathless news coverage of student debt aren't causing these feelings. They are a manifestation of these feelings. And in the end, colleges and universities can point all they like to stingy legislatures and the pressure of the U.S. News & World Report rankings and economic theories about the cost of doing business in labor-intensive industries. It won't matter. People will blame—people are blaming now—the higher-education institutions that cash the loan checks.

When people start jumping out of the pot of water, and they will at some point, it's not clear where they will land. Perhaps at new institutions, built with different cost structures. Maybe at some form of hybrid college, combining in-person and online educations. Or at something altogether new that hasn't been invented yet. It will be a perilous time for higher learning, unless the tide of student debt can be brought under some manner of control.

Kevin Carey is director of the education-policy program at the New America Foundation.