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We Owe, We Owe 

Student loan debt has now surpassed credit card debt in the U.S., with job prospects bleak even for graduates with degrees. As defaults increase, can anything be done?

click to enlarge MIKE FUNKHOUSER

As a single mother working toward a master's degree and a teaching credential at Sonoma State University, Tegan Henry, like many students, paid her tuition fees and living expenses with federal student loans. Last year, she graduated with $75,000 in debt. Excited to start a career, Henry interviewed for nine teaching jobs, but in a tough job market, she was offered only one position—as a part-time teacher–reading specialist at a Santa Rosa elementary school with no health benefits or job security.

Henry, 35 and raising a child, brings home $2,100 a month after taxes, almost half of which is spent on an $800 a month student loan payment. She and her husband were able to "buy" a house last summer, but only because it was purchased under her father-in-law's name; the bank wouldn't approve the newlywed couple for a loan.

Henry's story is one of millions in the United States. The numbers are astounding; as of May 2012, total student loan debt has reached $1 trillion, far surpassing credit card and auto loan debt. The average undergrad leaves school owing about $24,000. As a result, graduates are putting off buying cars, houses and even starting families to afford monthly loan payments that for many surpass the amount of the average mortgage. In an interview on the "Bloomberg Surveillance," Neil Soss, chief economist at Credit Suisse in New York, confirmed that rising student loan debt is preventing potential buyers from entering the housing market.

Henry hopes to eventually qualify for the Public Service Loan Forgiveness program, which forgives student debt for public service professionals who work for 10 years, full-time, in underserved communities. "I have it figured out with the loan people that if I pay this $800 a month for 10 years, then, at that point, if I'm still a teacher, I would be finished with my payments," says Henry, chuckling ironically at the long time frame. But Henry isn't working full-time. "And," she adds, "I would have to have continuous employment."

If someone in Henry's situation hit on hard times, they could forget about applying to have the student loans discharged. Unlike gambling and credit card debt, education debt is virtually impossible to cancel through bankruptcy.

"We live in a country that values consumerism over education, which is why I could discharge my considerable debt in bankruptcy if I had spent the money on shoes, travel and restaurant meals," writes Ann Nichols on her Forest Street Kitchen blog, after confessing that she'd gone into default for law school debt. "Because I spent the money on an education, it is not dischargeable."

Robert Applebaum, founder of the website and movement Forgive Student Loan Debt (newly rebranded as, says that hearing stories like these—and not to mention worse stories, since "student loan suicides" are tragically becoming more common—are the norm in his work.

"Those stories have been my education into the injustices that exist with student loans," he says. "As time has gone by, I've pretty much heard every story you can imagine. I get frustrated by the number of people who are suffering."

Applebaum's activism began soon after he wrote an essay titled "Forgive Student Loan Debt to Stimulate the Economy" and posted it to a Facebook group that he formed in 2009. After the essay was written up on the Huffington Post and recieved mention in the New York Times and The Economist, the group reached 300,000 members. Subsequently, Applebaum became the leader of a movement to forgive student loan debt as a way to resuscitate the economy.

"This is a problem that we can address proactively, for a change, or reactively, like we did with the housing market crash," he says.

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In July of 2011, Applebaum reposted a video of Rep. Hansen Clarke, D-Mich., calling for student loan forgiveness as a means of economic stimulus. By the end of the day, the two men were on the phone, talking about how they could "work together to address this crisis."

The result, HR 4170, the Student Loan Forgiveness Act of 2012, currently has 1.1 million petition signatures. The act calls for federal student loan debt to be forgiven after 10 years of income-based payments. It would ensure that interest rates on federal loans are capped at 3.4 percent. Future borrowers would be subject to a maximum forgiven amount of $45,520. According to the authors, student loan forgiveness would "free many of these Americans to invest, buy homes and start businesses."

Applebaum says that the plan would also benefit people without student loan debt. "If it worked to stimulate economic growth, then everybody benefits," he says. "If they do nothing, in five years or so we're going to be talking about $2 trillion in student loan debt. We're on this unsustainable path, and the taxpayers are footing the bill because of federal guarantees on these loans."

Mitt Romney introduced his own solution to the crisis during a campaign speech before the Latino Coalition. The extremely wealthy Republican presidential candidate proposed the reintroduction of private competition as a way to solve the debt crisis. Since 2010, private companies have been eliminated as intermediaries in the federal loan process; they can still offer student loans, but without government backing. Romney's plan would "welcome" private-sector participation in providing "information, financing and education itself."

If you look at Romney's support base and where he makes his money, this is no surprise. The student-lending industry has donated almost $30,000 to Romney's campaign, according to the Center for Responsive Politics. And when Romney was chief executive, Bain Capital invested in EduServ Technologies, which processed student loans for repayment.

But it was the private lenders that helped students get into this mess in the first place. As with the subprime mortgage fiasco, these lenders handed out loans left and right, especially in the for-profit college industry, without enough attention to whether borrowers would have the ability to make loan payments after graduation. According to the Department of Education, 25 percent of borrowers who went to for-profit colleges default within three years. Compare this to 10.8 percent at public institutions.

"Subprime-style lending went to college, and now students are paying the price," said Education Secretary Arne Duncan after the July 20 release of a scathing report on the private lending industry.

A joint effort between the Department of Education and the Consumer Financial Protection Bureau—a one-year-old agency that's been tasked with the responsibility of educating consumers on credit, mortgage and student debt—the report paints an unsettling picture in which private lenders practiced risky lending at the expense of students' well being. Since 2008, lenders have tightened up underwriting practices, but that still leaves borrowers from 2005 to 2008 with unresolved debt issues.

Rising debt, skyrocketing tuition, decreased job prospects and increased default will lead the United States into even more financial disarray, asserts Glenn Reynolds, a law professor at the University of Tennessee, in his new book The Higher Education Bubble.

"College is getting more expensive, a lot more expensive," writes Reynolds. "At an annual growth rate of 7.4 percent a year, tuition has vastly outstripped the consumer price index of 3.8 percent. It's skyrocketed past spiraling health care increases of 5.8 percent. Even the housing bubble at its runaway peak pales in comparison."

Applebaum says there's probably a "zero" chance of the Student Loan Forgiveness Act of 2012 actually being passed by Congress, given current Republican congressional leanings. But it could make all the difference for someone like Angelina Rodrigues, a 31-year-old SSU undergrad. Rodrigues' story is typical for many suffering under the weight of student loan debt. Born in Lake County to a lower-middle-class family and raised by a single mother, Rodrigues saw college as a way to move up in the world.

After attending community college, she transferred to San Francisco State University for one semester before being accepted to Mills College in Oakland. With an average yearly tuition of $38,000 per year (not counting room and board), the school may have presented a financial challenge, but Rodrigues saw it as a smart move for her future career. She took out a private loan for $20,000 from Bank of America to pay for living expenses.

"If you're going to learn something and get a proper education, than it's really hard to work," says Rodrigues. But the financial strain proved too much, and she left Mills after one year, deciding that she was done with school. The private loan originated at $21,000; a few years later, she owes more on the loan than before, even after making payments. This can be partially attributed to interest rates that fluctuate at the will of the private lender.

Currently, Rodrigues owes about $40,000 total in student loans and interest. She decided to return to school last year and is working toward her bachelor's degree. With an ultimate goal of getting a master's degree or a teaching credential, Rodrigues is looking at many thousands more tacked on to her original debt.

"It's scary. The feeling of that kind of debt cripples you," says Rodrigues, who lives in Santa Rosa with her partner and their four-year-old son. She says her once "amazing" credit has been affected by late payments on her student loan debt, which has made it hard to rent a decent living space.

In the end, Rodrigues worries her degree will end up as more of a ball-and-chain than a liberator, and that, like so many others, she won't be able to find a job in her field.

"I'm just thinking of survival," she says. "It's like you get into this game and know you have to play it their way. OK, I have to take out loans to do this. I stopped playing it after I realized how ridiculous it was for a minute, and then I got stuck. I got trapped in it."

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