Posters went up across the country for a new horror movie this April, featuring a billowing red mist drifting through an air vent. The film was The Red, with the tagline, "It will consume you." Obviously this was a film in the tradition of The Ooze or John Carpenter's The Thing, where a faceless, inescapable force devoured everything in its path. But the film's main attraction was nothing as tame as a ghost, alien, or a biological weapon run rampant. Instead, The Red ups the ante by giving us the ultimate monster: the student debt crisis.
The eight-minute movie is about a recent college graduate, Kate. Everywhere she goes, her debt follows her, symbolized by a creeping red mist. The movie uses scare tactics to promote SALT, a new debt "solution" program. But The Red is more than a high-budget commercial and clever marketing campaign. The Red is American zeitgeist. One of the film's strongest themes is isolation, but Kate is anything but alone: she shares her fate with 37 million others with outstanding student loans.
Like any good horror movie monster, the student debt crisis started slow and subtle. Many public colleges suffered cuts in their state funding, which drove up tuition rates to cover their costs. In the past three decades the cost of higher education shot up well past what could be accounted for by inflation costs, even dwarfing the costs of health care. The increased costs of tuition made federal student loans necessary (and sometimes even private loans) to even afford higher education.
This is especially true among the poor and middle class: More than half of student loans were taken by households making a less than $50,000 a year. College students have an average a debt of $27,000 upon graduation (at the interest rate of 3.4 percent for federal student loans, with higher rates for private loans). The total student debt in the U.S as of 2013 has reached a titanic $1.1 trillion: that is more than the total national credit card debt and car debt.
The student debt crisis could then be seen as part alien invasion and part Faustian bargain. Students take on great debt to get the education and skills they need for the American dream of upward mobility. They are told by their parents and others that the high-paying jobs their education gives them access to will easily offset the cost. But these students were thrust from school into an unstable job market in the midst of a global depression and no time to wait for a job suited to their education.
According to the Federal Reserve of New York, the number of student loan borrowers who are delinquent (one stage short of defaulting) is 17.8 percent. Out of that percentage of delinquent borrowers, those who have entered repayment are 31 percent. That tallies up to 6.2 billion on the verge of defaulting. With these statistics it's clear that it's not easy for borrowers to keep up with loans at a 3.4 percent interest rate. And then Congress has just passed a measure to double the interest rate to 6.8 percent on July 1, which adds an average of $1,000 in debt per year of schooling.
Senators Elizabeth Warren and Kirsten Gillibrand proposed stop gaps to solve the problem. Warren wanted to drop new borrowers interest rates down to 0.75 for one year. That's the same interest rate that federal banks get on short-term loans. (It's curious how we treat our businesses better than our individuals.) Gillibrand proposed freezing the 3.4 interest rate for a few years. But neither as proposed unravels the juggernaut of student debt and the crisis rumbles on.
The student debt crisis is a tenacious beast. That's especially true since the federal government is presently trying to fix a problem that (spoilers!) the federal government benefits from. A recent report by the Congressional Budget Office states that out of every dollar in federal loans, the federal government earns an average of 36 cents. While graduates across the states struggle with colossal debt, the federal government reaps roughly $34 billion in benefits.
We cannot as a country solve a problem, to paraphrase Einstein, at the level of thinking that created the problem. Trying to stem or redirect the debt will not help in the long term. We should take a cue from Finland and start supporting our students for going to college instead of punishing them with crippling debt. If free or low-cost higher education seems too extreme, think about how extreme it is that students must spend $1.1 trillion (and counting) collectively just for the opportunity to get a better career.
Photo: The Red Facebook page