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Student Loan Forgiveness Short Essay
What Is the Borrower Defense to Repayment Rule?
• The Borrower Defense to Repayment Rule (BD Rule) offers students relief from federal loans borrowed based on fraudulent,
misleading or illegal acts by their schools. Borrower defense is an established legal right for many forms of consumer credit, and it
has been a part of the Higher Education Act for many years.
• In 2016 the U.S. Department of Education published a regulation creating a process for student loan borrowers to demonstrate
that their loan does not need to be repaid due to their school’s misleading, fraudulent, or otherwise illegal conduct.
• Before 2015, only five borrowers are known to have applied to have their student loans cancelled. The 2016 rule was a response
to widespread deception by multiple large for-profit colleges that are heavily subsidized with taxpayer dollars, where students
took out thousands of dollars in debt for an education loan on the basis of false or misleading information. While the BD Rule is
currently in effect, it has been repeatedly delayed and undermined by the current Administration.
• Organizations working on behalf of students, consumers, civil rights, faculty, staff, and college access, as well as state attorneys
general and organizations representing veterans and servicemembers support the BD Rule and oppose any effort to weaken or
eliminate it.
The Borrower Defense to Repayment Rule Protects Students and Taxpayers:
• The BD Rule creates a process for students to apply for relief from education loans based on school misconduct, and for the
Education Department to fairly evaluate claims, so that students are not required to repay their education loans if they have been
cheated. It also gives the Secretary authority to approve loan relief for groups of students, where appropriate.
• The BD Rule also allows the Education Department to recover cancelled loan amounts from schools found to have engaged in
misconduct and requires risky schools to put money aside to cover potential student loan discharges for misconduct or closure.
By making clear that schools will be held accountable if they break the law, the BD Rule deters these practices.
• The BD Rule limits the ability of schools receiving federal student aid to force students to go through a secretive, individual
arbitration processes. Such processes deny students their day in court and make it harder to bring to light misconduct by schools.
• The BD Rule also protects students at schools that close suddenly by requiring disclosure of student options and by ensuring
automatic loan discharges are available to students who do not continue their studies within three years of the school’s closure.
The Current Administration Is Refusing to Carry Out the Borrower Defense to Repayment Rule:
• The Department of Education is currently refusing to process borrower defense claims despite a court ruling that its delays are
unlawful.1 As of December 31, 2018, over 158,000 borrower defense claims by students were awaiting action including claims by
more than 45,000 former students of Corinthian Colleges and thousands of claims from former students of ITT, Argosy and the
Art Institute.
• The Administration has announced plans to rewrite the regulation for a second time after having failed in a similar effort in 2018.
Its first proposal would have made it much harder for students to have loans cancelled and would have eliminated just 2 percent
of the overall outstanding loan balances. While efforts to rewrite the rule have been unsuccessful to date, a new Administration
rule could still be completed and in effect as soon as July 2020.
1. In December 2018, the Department of Education did grant approximately 15,000 students who attended schools that closed suddenly and who did not re-enroll
for three years relief from their student loans.
WHAT TO KNOW ABOUT THE BORROWER DEFENSE TO REPAYMENT RULE
https://www.federalregister.gov/documents/2016/11/01/2016-25448/student-assistance-general-provisions-federal-perkins-loan-program-federal-family-education-loan
https://www.govinfo.gov/content/pkg/CPRT-112SPRT74931/pdf/CPRT-112SPRT74931
https://ticas.org/sites/default/files/pub_files/coalition_comments_on_borrower_defense_2018
https://oag.ca.gov/news/press-releases/attorney-general-becerra-court-reinstates-borrower-defense-rule
https://oag.ca.gov/news/press-releases/attorney-general-becerra-court-reinstates-borrower-defense-rule
https://static1.squarespace.com/static/556718b2e4b02e470eb1b186/t/5b89280e6d2a73548a44752f/1535715346949/BD+-+VSO+%26+MSO+public+comments.FINAL
https://www.insidehighered.com/quicktakes/2018/12/21/education-department-approved-no-borrower-defense-claims-june
https://predatorystudentlending.org/press-releases/court-clears-way-borrower-defense-rule-take-effect/
https://www.durbin.senate.gov/newsroom/press-releases/durbin-releases-shocking-new-data-on-department-of-educations-borrower-defense-application-backlog
https://www.insidehighered.com/news/2018/10/04/education-department-misses-deadline-its-overhaul-student-loan-rules
https://ticas.org/sites/default/files/pub_files/ticas_comments_on_bd_nprm
INTRODUCTION
Over the last 30 years, the cost of college tuition has more than doubled. Over the same period, inflation-adjusted worker wages in the United States have “barely budged” (Desliver). Additionally,
the number of people attending college has increased by nearly 50%
https://www.statista.com/statistics/183995/us-college-enrollment-and-projections-in-public-and-private-institutions/
That can only mean one thing–student debt has gone way way up. Since 2001, total student debt has risen from
$340 billion
https://www.federalreserve.gov/econres/notes/feds-notes/student-loan-debt-and-aggregate-consumption-growth-20180221.htm
to $1.5 trillion today.
In many ways, the student debt crisis crystallizes a number of contradictions in American society. Income inequality has grown, making a college education seem more like a necessity than a privilege. But it is not treated like a right, as K-12 education ostensibly is. What’s more, if a college education feels like a necessary step to achieve the American Dream, the cost of getting a college education can actually make that dream more difficult to realize. The average college graduate can expect to earn $50,000 in their first year on the job, a decidedly middle-class income. However, the average college student can also expect to graduate with $37,000 in debt and to pay around $400/month, reducing their income by 10%, and edging them closer to the lower-middle class bracket. These pressures are even greater for people of color. Data suggests both income and wealth gains from higher levels of education are lower for non-white families than for whites (Emmons & Ricketts).
But even beyond these numbers, student debt exposes contradictions in what it means to be a citizen and an American. Should college students go to school to be trained as workers? Should they go to learn how to be active democratic citizens? To find themselves? If college is only a training program, it makes sense that institutions should make a business of it, charging whatever the market will bear, whatever the consequences. But if college is something more, then the calculations about what it should cost, and the consequences if it costs too much, are more than economic.
Complicating all of this is the fact that student debt is a unique kind of debt. First, more than 90% of student loans are issued by the United States government, meaning that the U.S. Treasury is the beneficiary of interest on the $1.5 trillion dollars in student debt. Should the U.S. government, which must assure the right to a quality K-12 education, profit from the higher education and the student loan burden that Americans carry? Second, since 1978, federal student debt has not been dischargable in bankruptcy (private debt was excluded in 2005), meaning that a borrower must face extraordinary and persistent hardship, over and above that which would allow debt to be discharged in bankruptcy, to receive relief from student loans. Even when this is the case, many borrowers still have their Social Security Disability benefits garnished to pay student loans, although one group of nine disabled borrowers recently successfully sued the Department of Education to return those benefits (Berman). Should student loans be more difficult to discharge than mortgages, credit cards or car loans?
Finally, student debt is already preventing or delaying life cycle events like marriage, homeownership and parenthood for Millennials. If college is a necessity for the American Dream, should it cost so much that it prevents the realization of that dream? In this module, you will learn about who borrows to get a college education, who is most affected by student debt, and what laws and regulations have been passed to try to address the student loan crisis. You will also learn about the long term consequences for Millennials, also known as “generation debt”, of the high student debt they carry. Lastly, you’ll consider potential solutions to the student loan crisis and, given what you’ve learned in this course, decide which you think is best.
Berman, Jillian. “Student-loan Borrowers With Disabilities Will Be Reimbursed After Their Social Security Checks Were Needlessly Garnished.” MarketWatch, June 17, 2019,
https://www.marketwatch.com/story/disabled-borrowers-whose-incomes-were-needlessly-garnished-to-repay-student-loans-will-get-23000-back-2019-06-17
DeSilver, Drew. “For Most U.S. Workers, Real Wages Have Barely Budged In Decades.” Pew Research Center. 7 August 2018
https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/
Emmons, William R., Ana H. Kent and Lowell R. Ricketts. “Essay 1: The Financial Returns from College across Generations: Large but Unequal” in “The Demographics of Wealth: How Education, Race and Birth Year Shape Financial Outcomes,” The Federal Reserve Bank of St. Louis, February 2018,(HFS_essay_1 2018.PDF)
Learning Objectives
After this module, you will be able to:
Recognize the reasons students borrow for college
Analyze the social impact of generational student debt
Evaluate potential policy solutions to the student debt crisis
Topic 1: Why students borrow
When lending for higher education began in after WWII, it was originally designed much like the post-Depression mortgage market. The Federal Family Education Loan Program or FFELP was originated in 1965 to encourage private financial institutions to lend to families for higher education by subsidizing and guaranteeing their loans. The subsidizing part meant that the government would pay part or all of the interest on the loans, at least while the student was still in school, making the loans attractive to students. The guarantee part meant that banks could be assured the debt would be repaid, making them an attractive to lenders.
However, as higher education grew, both in number of students and cost, student lending changed. To protect against the need to back up their guarantee of paying off student loans even if the student did not, the government made it illegal to discharge federally guaranteed student loans in bankruptcy in 1978. In 1990, the federal government began directly lending to students, initiating the long decline of the FFELP, which would eventually end for good in 2010 due to the financial crisis. Finally, in 2005, even private loans became illegal to discharge in bankruptcy.
However, the biggest influence on the student loan crisis–the ballooning level of debt now held by students–is actually the boom in for-profit colleges. Vocational training has long occurred in the U.S., alongside public and private traditional college. However, as income inequality began to grow in the 1980s, for-profit colleges marketed themselves as a way for struggling workers, particularly minorities and women, to retrain themselves for the changing workforce. Since the mid-1990s, these institutions have enrolled millions of students. For-profit colleges offer degrees and certificates just as non-profit public and private universities do, however they are on average more expensive, less selective and therefore often of less value on the job market. Additionally, since these colleges often draw from low-income and minority demographics while being more expensive, their students end up with proportionally more debt.
As the Brookings Institute video assigned for this topic shows, the majority of the actual “crisis” in student debt is concentrated in for-profit college students. For-profit colleges admit low-income students regardless of their ability to repay student loans, help them fill out student loan paperwork, and then directly collect the loans to fund the student’s tuition and fees, treating federal student loans like an ATM machine, where the student is the card.
In 2015, the Department of Education implemented a number of new rules to address this problem. The gainful employment rule dictated that for-profit college programs had to lead to gainful employment and debt-to-income ratios of less than 20 percent of the student’s discretionary income or 8 percent of his or her total earnings for those colleges’ students to qualify for federal aid and loans. After this rule went into effect, several for profit colleges, including Corinthian College, lost access to federal student loan dollars and subsequently closed. However, many students who attended these colleges still had to pay off their loans for degrees from now defunct colleges. The borrower defense to repayment rule, enacted in 2016, allows students to petition the Department of Education to have their loans forgiven if they can show a school used illegal or deceptive tactics to persuade them to borrow money for college (what_to_know_about_bd_factsheet.PDF) The vast majority of loan forgiveness petitions are filed by for-profit college students.
The student debt from for-profit colleges exposes the worst abuses of the U.S. higher education system. For-profit colleges exist for the same reason payday lenders do: poor workers need resources, and are charged more for them than wealthier people are. However, less than 20% of student debt is held by for-profit college student. The majority of the $1.5 trillion in student debt is held by students of traditional colleges and universities. If politics is broadly about resource distribution, exclusion from participation, and the legitimacy of authority, the student debt crisis should inspire us to think about how student debt transforms the distribution of wealth and status, the ability of Americans to participate in society, the legitimacy of the federal government as lender and of institutions of higher education as recipients of student loans. Seth Frotman helps us begin to answer those questions. He points out that “one recent study projected that a typical household headed by two college-educated adults with average student loan debt balances loses out on more than $200,000 in accumulated wealth over a lifetime” (824). Is that an appropriate penalty for being born into a poor family in the United States? What does that shortfall prevent students from participating in? Internships? Marriage? Children? And should a college education be like K-12 education in the U.S., at least in principle guaranteed as part of the equal opportunity promised to Americans, especially if some of the cost for doing so could be covered by reducing or eliminating federal aid and loans for students attending for-profit colleges?
Read
“Politics” (KACS), Chuh (193-196)
Frotman, Seth. “Broken Promises: How Debt-Financed Higher Education Rewrote America’s Social Contract and Fueled a Quiet Crisis.” Utah Law Review, no. 4, 2018, pp. 811-846, (Broken Promises_ How Debt-financed Higher Education Rewrote Ameri.PDF)
Watch
Watch “The Facts Behind the Student Debt Crisis.” The Brookings Institute,
https://www.brookings.edu/bpea-articles/a-crisis-in-student-loans-how-changes-in-the-characteristics-of-borrowers-and-in-the-institutions-they-attended-contributed-to-rising-loan-defaults/
Topic 2: The future of student debt
As the financial crisis gave way to a recession in 2009, state legislatures responded by reducing the funding to state universities. Colleges and universities increased tuition on students to make up the shortfall.
The Occupy Wall Street protests that began in 2011 raised awareness of the student loan crisis. Participants in those protests also began to propose and experiment with potential remedies. One Occupy activist, professor Andrew Ross, suggested that student debtors needed to come together to form a “debtors’ movement” (23). This movement would advocate for student loan forgiveness and free college tuition. The movement for loan forgiveness, known as Strike Debt, carried out protests, and even bought student debt on the secondary markets–where it is often sold for pennies on the dollar to collections agencies–and instead of collecting on it, just forgave the debtors it belonged to. The free college tuition movement is based on the idea that tuition to public 2 and 4-year institutions isn’t actually that expensive: “On a rough estimate, it would only take $70 billion of the federal budget to cover the tuition costs at every two- and four-year public college. This happens to be the sum that the Pentagon wastes annually in “unaccountable spending,” according to a recent audit” (Ross 26-7).
However, free college has not become a reality. Instead, since 2016, things have actually moved in the other direction. The rules put into place in 2015 and 2016 to protect student borrowers have been weakened and repealed. The gainful employment rule will officially end on July 2020, after
https://www.insidehighered.com/quicktakes/2019/07/02/devos-issues-final-repeal-gainful-employment
Over the next 10 years, the Department of Education will spend over $6 billion on aid to for-profit colleges that would not be able to pass the gainful employment standards if the rule stayed in place.
The department also delayed the implementation of the borrower defense to repayment rule until a court injunction forced it to do so at the end of 2018. At that time, the Department of Education agreed to forgive $150 million in loans. However, it is currently proposing a new weaker rule to replace the former one. In 2019, a judge went so far as to
https://www.npr.org/2019/10/25/773334681/devos-held-in-contempt-of-court-ed-department-fined-100-000-in-student-loan-case
of court for continuing to collect on loans that should have been forgiven under the rule.
Today, 2020 presidential candidates, including incumbent Donald Trump and Democrat challengers, are all proposing changes to federal student loan policy, ranging from reducing opportunities for forgiveness further to making public tuition completely free. Making tuition free for public universities is actually the simpler issue. It would cost $70-80 billion dollars a year. The government already spends more than
$100 billion on higher education grants and loan interest
but currently that aid goes to non-profit, private and for-profit colleges and universities.
The outstanding $1.5 trillion dollar student debt is a much larger and more complex problem. In the reading for this topic, Miller et al. take you through various proposals and their pros and cons. In your short essay assignment, use what you’ve learned in this module to make a judgment about which of these proposals is best, and what challenges it would face if someone tried to implement it.
Ross, Andrew. “Mortgaging the Future: Student Debt in the Age of Austerity.” New Labor Forum, vol. 22, no. 1, 2013, pp. 23-28.
Read
Miller, Ben et al. “Addressing the $1.5 Trillion in Federal Student Loan Debt.” Center for American Progress, June 12, 2019,
https://www.americanprogress.org/issues/education-postsecondary/reports/2019/06/12/470893/addressing-1-5-trillion-federal-student-loan-debt/
Assignment
In a 3-4 page double-spaced essay, select one of the options offered by Miller et al. that you believe is the best proposal for tackling the student debt crisis. Compare and contrast it to the other options and offer evidence from the module to support your choice. Conclude by explaining what challenges your chosen proposal will likely face, using evidence from the module and outside research.
HowEducation, Race and Birth Year
Shape Financial Outcom
es
The Demographics
of Wealth
2018 Series
Essay No. 1
: The Financial Returns from College across
Generations: Large but Unequal | February 2018
2 Federal Reserve Bank of St. Louis
About the Center for Household Financial Stability
The Center for Household Financial Stability at the Federal Reserve Bank of St. Louis focuses on family
balance sheets, especially those of struggling American families. The Center researches the determinants
of healthy family balance sheets, their links to the broader economy and new ideas to improve them.
The Center’s original research, publications and public events aim to impact future research, community
practice and public policy. For more information, see www.stlouisfed.org/hfs.
Staff
Ray Boshara is an assistant vice president at the St. Louis Fed and director of the Center.
He is also a senior fellow in the Financial Security Program at the Aspen Institute.
William R. Emmons is an assistant vice president and economist at the St. Louis Fed and the lead
economist with the Center.
Lowell R. Ricketts is the lead analyst for the Center.
Ana Hernández Kent is a policy analyst for the Center.
Visiting Scholars
Fenaba R. Addo is an assistant professor of consumer science at the University of Wisconsin-Madison.
Barry Z. Cynamon is a research associate at the Weidenbaum Center at Washington University in St. Louis.
Emily Gallagher is an assistant professor of finance and real estate at the University of Colorado at Boulder.
Bradley L. Hardy is an associate professor of public administration and policy at American University in
Washington, D.C., and a nonresident senior fellow in economic studies at the Brookings Institution.
William R. Emmons is the lead economist with the Center for House-
hold Financial Stability at the Federal Reserve Bank of St. Louis, where
he also serves as assistant vice president. His areas of focus at the Center
include household balance sheets and their relationship to the broader
economy. He also speaks and writes frequently on banking, financial
markets, financial regulation, housing, the economy, and other topics.
His work has been highlighted in major publications including The New
York Times, The Wall Street Journal and American Banker, and he has
appeared on PBS NewsHour, Bloomberg News, and other national
programs. Emmons received a Ph.D. in finance from the Kellogg School
of Management at Northwestern University. He received his bachelor’s
and master’s degrees from the University of Illinois at Urbana-Champaign.
Lowell R. Ricketts is the lead analyst for the Center for Household Finan-
cial Stability at the Federal Reserve Bank of St. Louis, where he conducts
primary and secondary research and policy analysis on household bal-
ance sheet issues. His primary research focus has centered on household
liabilities and wealth outcomes. Prior to joining the team, he worked in
the Research division of the Federal Reserve Bank of St. Louis as a senior
research associate. Ricketts received a bachelor’s degree in economics
with a math emphasis from the University of Wisconsin-Madison. He
continues to be involved with the university’s Department of Economics
as a member of the Wisconsin Economics Young Alumni Council.
Authors
Ana Hernández Kent is a policy analyst for the Center for Household
Financial Stability at the Federal Reserve Bank of St. Louis. She conducts
primary and secondary research and data analysis on household balance
sheet issues. Her primary research interests at the Fed include economic
disparities and opportunity, wealth outcomes, class and racial biases, and
the role of psychological factors in making financial decisions.
Kent is pursuing her Ph.D. in experimental psychology with concentra-
tions in social psychology and quantitative methods in behavioral sci-
ences from Saint Louis University. Kent received her Master of Science in
experimental psychology from Saint Louis University and her bachelor’s
degree in psychology from the University of Notre Dame.
The Demographics of Wealth 3
4 Federal Reserve Bank of St. Louis
Income and wealth rebounded for many families between 2013 and 2016, the dates
of the two most recent waves of the Federal
Reserve’s Survey of Consumer Finances
(SCF).1 Groups that had struggled the most
during and after the Great Recession, includ-
ing less-educated, Hispanic and black, and
young families, participated in the recovery.
Nonetheless, long-standing income and
wealth gaps across education levels, races
and ethnicities, and age groups remain large.
This is the first in a series of new essays
that the Center for Household Financial
Stability will publish on how a family’s
demographic characteristics—including
educational attainment, race and ethnicity,
and birth year—are related to the family’s
financial outcomes. Like the previous essay
series published in 2015, the 2018 series will
focus on these three key demographic
dimensions in turn. An important new
feature of the 2018 series is the inclusion of
two generations of educational data for each
family. In addition to the educational attain-
ment of the SCF respondent, the 2016 SCF for
the first time contains detailed information
on the respondents’ parents’ education. This
new information reveals even more clearly
that inherited demographic characteristics—
your race or ethnicity, your age and birth
year, and even your parents’ level of educa-
tion—profoundly shape the economic and
financial opportunities you have and the
outcomes you achieve.
As before, our primary data source is
the triennial SCF, which provides the most
comprehensive picture available of American
families’ balance sheets and financial behav-
ior over time. In some of our analyses, we
use information from 47,776 families, each
of which was surveyed in one of 10 survey
waves between 1989 and 2016. When we
focus on the education of SCF respondents’
parents, we draw upon data collected from
6,248 families in 2016. In every case, the SCF
has been designed to be nationally represen-
tative, so we can safely generalize about the
population as a whole.
As we documented three years ago,
demographic characteristics remain
remarkably powerful in predicting a family’s
income and wealth. By expanding the scope
of inherited demographic characteristics to
include parents’ education, we believe the
2018 Demographics of Wealth series sheds
additional light on the deeply rooted sources
of economic and financial disparities. Fruitful
approaches to policy should be based on the
facts established here.
The Demographics of Wealth
How Education, Race and Birth Year
Shape Financial Outcomes
An Introduction to the Series
By William R. Emmons, Ana H. Kent and Lowell R. Ricketts
The Demographics of Wealth
5
This essay explores the connections between a person’s level of completed education and
measures of his or her family’s financial well-being,
including income and wealth. For simplicity, we
examine two discrete groups—families headed by
someone who has completed a four-year college
degree or higher (“college grads”) and those without a
college graduate head (“nongrads”). This essay shows
that inherited demographic characteristics signifi-
cantly influence the expected income and wealth
outcomes associated with one’s own education.
These characteristics include birth year (and hence
age at the time of the survey), race or ethnicity and
parents’ education level.
Inherited demographic characteristics are key
aspects of one’s identity over which one exerts no
control. The view we take is that any adult outcomes
that are systematically related to these inherited char-
acteristics likewise are inherited or granted, rather
than earned in any meaningful sense.
We document three important ways in which
inherited demographic characteristics influence
family income and wealth:
• The head-start effect. Families headed by some-
one with certain “favorable” inherited demographic
characteristics typically earn much higher incomes
and accumulate much more wealth than families
without these characteristics. Whatever a family
head’s education level, being non-Hispanic white,
being over 40 and/or having college-educated
parents typically boosts income and wealth
compared to families without these demographic
characteristics (singly or in combination). The
median college graduate family with all of the
most advantageous inherited demographics—
white, aged 40-61, college grad parents—had three
times as much income and six times as much
wealth as the median family overall. We estimated
that over half of their advantage over the popula-
tion medians ultimately can be attributed to those
inherited characteristics, not their own effort or
education.
• The upward-mobility (or exceeding-expecta-
tions) effect. For families headed by someone
with less advantageous inherited demographic
characteristics, completion of a four-year degree
typically boosts income and wealth far above the
levels they would have achieved without a degree.
These families move up the income and wealth
rankings (relative to levels predicted by their inher-
ited demographic characteristics) more than do
college grad families with more favorable inherited
characteristics. For middle-aged families, complet-
ing college boosts the median family with non-
grad parents by 23 rungs in the income percentile
ranking and 20 rungs in the wealth ranking, while
college boosts families with college grad parents by
only 11 rungs for both income and wealth.
• The downward-mobility (or falling-short)
effect. Finally, we show that family heads with
college-educated parents who are downwardly
mobile in educational terms suffer notable neg-
ative consequences; these are people who do
not finish college even though their parents did.
Relative to the income and wealth that would be
predicted based on their inherited demographic
characteristics alone, those who fall short of their
parents’ college education are likely to slip deci-
sively downward in the overall rankings—by 16
percentiles in income and 18 percentiles in wealth
rankings for middle-aged families. Nongrad fam-
ily heads whose parents likewise did not obtain
college degrees drop by less than 10 percentiles in
both income and wealth rankings relative to levels
predicted by inherited characteristics alone.
Executive Summary of Essay No. 1
6 Federal Reserve Bank of St. Louis
The Financial Returns from College across
Generations: Large but Unequal
By William R. Emmons, Ana H. Kent and Lowell R. Ricketts
Families headed by someone with a four-year college degree enjoy many advantages.2 College
graduates tend to be healthier and to live longer,3
to smoke less,4 to have fewer and more favorable
contacts with the criminal justice system,5 to marry
more and to divorce less,6 to work in higher status
occupations,7 to demonstrate greater financial
knowledge,8 to have healthier finances,9 and to
avoid financial distress10 more easily than nongrad-
uates. Countries with more educated populations
grow faster11 (after controlling for other important
influences) and enjoy higher standards of living.12
What is less well-known is how strongly the
race or ethnicity and education of one’s parents
influence the earning and wealth-building power of
college for their adult children. For example, among
family heads who were middle-aged (40-61 years
old) in 2016, identified themselves as non-Hispanic
white (hereafter referred to as simply “white”) and
had a four-year college degree or more, median
family income was 37 percent higher if at least one
of the family head’s parents also had a four-year
degree; median wealth was 54 percent higher.13
The boost from college-educated parents was even
larger among nonwhite college grad families in per-
centage terms, although income and wealth levels
were uniformly lower.14 Thus, the financial benefits
of college are large and compound across genera-
tions, boosting the income-earning and wealth-
accumulating power of college from one generation
to the next. However, they are unequal across race
and ethnicity and, as we show in this essay, increase
at a diminishing rate in successive generations of
college graduates.
Why does the education of an adult child’s
parents matter so much? Some of the inherited
advantage plausibly flows through greater mone-
tary transfers and more intensive childhood invest-
ments, particularly in education, provided by
college-educated parents.15
Other likely sources of inherited advantage
are what we term the balance sheet and financial
behavior channels.16 In short, families headed by
someone with a college-educated parent typically
have stronger balance sheets—more liquid, better
diversified, less leveraged—than otherwise similar
families without a college grad parent. Families with
a college grad parent also typically exhibit better
financial knowledge and habits, including better
understanding of basic financial concepts like com-
pound interest; more willingness to take financial
risk to earn a higher return; more intensive searches
for good investment and borrowing options; and a
higher likelihood of regular saving. In fact, simply
having a college-educated parent increases the like-
lihood that the adult child’s family saves regularly by
8 percentage points, from 44 to 52 percent.17
The first section of this essay documents strong
associations over time between a family head’s own
education level and the family’s income and wealth;
this updates our 2015 essay and confirms the con-
ventional wisdom.1
8
The second section uses four demographic
characteristics to partition SCF families in 2016 into
24 distinct groups. The characteristics include three
age ranges; two race and ethnicity groups; two
levels of parental education; and two levels of “own”
(SCF respondent’s) education. We term the first three
characteristics “inherited” and the fourth “acquired”
to emphasize the distinction between factors over
which one has no control and those over which one
exerts at least some control.
The third section compares the demographically
defined groups on family income and wealth mea-
Essay No. 1
The Demographics of Wealth
7
sures in order to separate the contributions of par-
ents’ education (and other inherited characteristics)
from those of the respondent’s own education (and
other acquired characteristics) to income and wealth
outcomes. We document three striking results:
• Inherited demographic characteristics greatly
influence typical income and wealth outcomes
for any given level of own education;19
• The degree of upward income and wealth
mobility associated with a college degree is larger
for someone whose parents did not complete
college; and
• The degree of downward income and wealth
mobility associated with not completing a college
degree is greater if one’s parents themselves had a
college degree.
We term these the “head-start” effect; the
“upward-mobility” or “exceeding-expectations”
effect; and the “downward-mobility” or “falling-short”
effect, respectively.
Section Four illuminates balance sheet and
behavioral channels through which parental educa-
tion appears to influence adult children’s outcomes
above and beyond the children’s own education level.
The final section concludes. Four sidebars provide
additional definitional and methodological details.
I. Links between Own Education and
Own Income and Wealth
Before attributing income and wealth outcomes
either to inherited or to acquired characteristics, this
section documents the strong association between
a family head’s own level of education and standard
economic and financial measures. In other words,
we confirm the conventional wisdom that more
education is associated with more income and
wealth. This approach ignores all differences in
inherited demographic characteristics, which we
later show are, in fact, very important.
We present results for only two groups—families
headed by someone with at least a four-year college
degree (“college grads” in what follows) and fami-
lies headed by someone whose highest education
is less than a four-year college degree (“nongrads”).
Our data source throughout is the Federal Reserve’s
Survey of Consumer Finances (SCF).20
Share of families with college degrees. We
focused on the four-year college degree as the key
line of demarcation along the spectrum of educa-
tional attainment. We used it because, for several
decades, a sizable minority of the population has
achieved a four-year college degree and it has been
Figure 1: U.S. Families Headed by College Graduates and Postgraduates
4
0
35
30
25
20
15
10
5
0
1989 1992 1995 1998 2001 2004 2007 2010 2013 2016
Four-year degree families Postgrad families
P
er
ce
nt
o
f
al
l U
.S
. f
am
ili
es
NOTES: Postgrad families are those headed by someone with both a four-year college degree and a postgraduate degree. The total number of U.S.
families rose from 93 million in 1989 to 126 million in 2016.
The sources for all the tables and figures are the Federal Reserve’s Survey of Consumer Finances and authors’ calculations.
8 Federal Reserve Bank of St. Louis
associated with significant economic and finan-
cial rewards. In 2016, for example, the median (i.e.,
middle-ranking) family headed by someone without
a four-year college degree earned only 44 percent as
much income and owned only 18 percent as much
wealth as the median family headed by someone
who had a four-year degree.
21
The share of U.S. families headed by a college
grad has increased significantly in recent years. (See
Figure 1.) In 1989, about 23 percent of families were
headed by someone with a four-year college degree
To measure income for the SCF, the inter- viewers requested information on the
family’s cash income, before taxes, for the
full calendar year preceding the survey. The
components of income in the SCF are wages,
self-employment and business income, taxable
and tax-exempt interest, dividends, realized
capital gains, food stamps and other related
support programs provided by government,
pensions and withdrawals from retirement
accounts, Social Security, alimony and other
support payments, and miscellaneous sources
of income for all members of the primary
economic unit in the household. All income
figures are adjusted for inflation to be com-
parable to values recorded in 2016.
Wealth is a family’s net worth, consisting of
the excess of its assets over its debts at a point
in time. Total assets include both financial assets,
such as bank accounts, mutual funds and secu-
rities, and tangible assets, including real estate,
vehicles and durable goods. Total debt includes
home-secured borrowing, or mortgages, other
secured borrowing, such as vehicle loans, and
unsecured debts, such as credit cards and
student loans. Debt incurred in association
with a privately owned business or to finance
investment real estate is subtracted from the
asset’s value, rather than being included in the
family’s debt. All wealth figures are adjusted
for inflation.
Sidebar 1: Family Income and Wealth
or more; by 2016, the share had reached 34 percent.
Families headed by someone with a postgraduate (as
well as a four-year college) degree increased from
almost 9 percent of all families in 1989 to about 13
percent in 2016. Among white families alone (not
shown), the share of families with a four-year degree
or more increased from 26 to 38 percent between
1989 and 2016, while among families of all other
races and ethnicities, the share increased from
13 to 25 percent.
Family income. Income and especially wealth
gaps between college grad and nongrad families
have grown over the last few decades. (See Sidebar 1.)
At the same time, the number of families headed by
college grads has increased notably. Together, these
trends have resulted in a large shift of aggregate
income and wealth toward college-educated families.
The income received by the median college
grad family increased from almost $88,000 in 1989
to about $92,000 in 2016, an average annualized
increase of only 0.18 percent.22 (See Figure 2.)
Among nongrad families, the average percent-
age increase was about the same (0.15 percent)
Figure 2: Median Family Income
by Education of Family Head
NOTE: Median family income is the value of cash income, before taxes,
for the full calendar year preceding the survey for the family that ranks
exactly in the middle of a ranking by income. See Sidebar 1 for more
details.
120
100
80
60
40
20
0
Th
o
us
an
d
s
o
f
20
16
$
Four-year College Graduates
Less than a Four-year College Degree
All Families
1989 1992 1995 1998 2001 2004 2007 2010 2013 2016
The Demographics of Wealth 9
but amounted to an increase of only $1,557. The
share of all income earned by college grad families
increased from 45 to 63 percent between 1989 and
2016, as both the number of college grad families
and their average income increased faster than
those of nongrads.
Family wealth (net worth). Nongrad fami-
lies’ wealth fell further behind that of college grads
than their income did. Figure 3 shows that median
college grad family net worth rose from around
$238,000 to $291,000 between 1989 and 2016, an
annualized increase of 0.8 percent. Meanwhile,
nongrad median family wealth declined from about
$66,000 to $54,000, an annualized decrease of 0.7
percent. This large cumulative decline left median
nongrad family wealth at just 18 percent of median
college grad family wealth, down from a peak of 37
percent in 1995. The share of all wealth owned by
college grad families increased even more than was
the case for income—from 50 to 74 percent between
1989 and 2016.
The declining fortunes of nongrad families.
The overall conclusion from these statistics is that
Figure 3: Median Family Net Worth
by Education of Family Head
NOTE: Median family net worth is the value of total assets minus total
debts for the family that ranks exactly in the middle of a ranking by net
worth. See Sidebar 1 for more details.
400
3
50
300
250
200
150
100
50
0
Th
o
us
an
d
s
o
f
20
16
$
Four-year College Graduates
Less than a Four-year College Degree
All Families
1989 1992 1995 1998 2001 2004 2007 2010 2013 2016
Figure 4: Nongrad Families’ Income and
Net Worth Relative to College Grad Families’
NOTE: Median family net worth is the value of total assets minus total
debts for the family that ranks exactly in the middle of a ranking by net
worth. Median family income is the value of cash income, before taxes, for
the full calendar year preceding the survey for the family that ranks ex-
actly in the middle of a ranking by income. See Sidebar 1 for more details.
60
50
40
30
20
10
0
P
er
ce
nt
Median Income
Mean Income
Median Net Worth
Mean Net Worth
1989 1992 1995 1998 2001 2004 2007 2010 2013 2016
nongrad families’ economic and financial status
is slipping—faster for wealth than for income but
undeniably downward on most measures. (See
Figure 4.) What is it about college that produces the
dramatic divide evident in these data? The following
sections show that only some of the observed differ-
ences in income and wealth are due to college ed-
ucation itself. Some of the association is spurious—
that is, due to other factors that may help determine
both who completes college and how much income
or wealth they have as adults. These important “third
factors” include inherited demographic characteris-
tics, as we discuss below.
II. Breaking Out Demographic
Characteristics
To what extent do large and growing income
and wealth differences between families with and
without four-year college degrees reflect individ-
ual efforts undertaken to complete a degree and
the benefits of college learning itself? On the other
hand, how important are inherited demographic
characteristics both in predisposing someone to
10 Federal Reserve Bank of St. Louis
complete a degree and in boosting later financial
achievement?
There is, of course, no way to know for sure in
any individual case how much responsibility for a
particular income or wealth outcome to assign to
effort versus endowment. We proceed instead by
examining differences across demographically
defined groups. If there are economically and
statistically significant differences between the
median income and wealth of two groups that
differ only on one inherited demographic charac-
teristic, such as parents’ education, then we attribute
those group income or wealth differences to forces
related to the inherited characteristic rather than to
individuals’ own efforts or education.23
A demographic approach to income and
wealth: Why age, race and (parents’) education?
The logic behind our demographic framework for
analyzing income and wealth includes both prac-
tical and theoretical arguments. Demographically
defined groups show significant differences on
key outcome measures like income and wealth;
demographic classifications make predictions more
accurate. At the same time, demographic charac-
teristics of an individual that are determined before
birth are natural candidates to which one might
attribute a causal interpretation.
The practical case for demographics: They
are strong predictors. It is important to take age
into account because a powerful “life-cycle
effect” characterizes many aspects of a person’s
life course, not least income and wealth trajecto-
ries.24 Race and ethnicity matter in profound and
complex ways, supporting this variable’s inclu-
sion in our set of explanatory factors, as well.25 It is
uncontroversial to assert that one’s own education
is related to one’s income and wealth; what is less
well-known (but which will be shown later in the
essay) is that one’s parents’ education also seems
to matter. Knowing any of these demographic
details—a family head’s age, race or ethnicity, own
education or parents’ education—helps predict the
family’s income and wealth. For this reason alone,
demographic information is a valuable input to any
model seeking to explain or predict economic or
financial outcomes.
See Sidebar 2 for a discussion of why we believe
a demographic approach to income and wealth
determination is theoretically compelling; in short,
One of the most difficult tasks in empirical analysis is credibly separating correlation (that
is, association) from true causation (inexorable
consequences). Identifying the effects of educa-
tion on adult outcomes is often confounded by a
methodological challenge called the third variable
problem: Two variables that are correlated may be
jointly influenced by a third variable. Ignoring the
existence of the third variable can obscure the true
causal effect (if any) between the variables.
Take, for example, the positive correlation be-
tween education and wealth. Education may help
someone accumulate wealth; i.e., education causes
wealth. But having more wealth may facilitate
more education; i.e., wealth causes education. How
important, then, is education for wealth accumu-
lation? It also is possible that something else (i.e.,
a third variable), like parents’ education, supports
both. These nuances are often overlooked.
We replace the context-free approach that sim-
ply identifies a correlation between education and
wealth as evidence of causation with the assump-
tion that a person’s education and wealth do not
exist in isolation. Education is the result, in part, of
outside forces, such as parents and community, as
well as social and political environments.
An economic argument for building an ana-
lytical framework on age or birth year, race, and
parents’ education—collectively, inherited demo-
graphic characteristics—is that these observable,
unchosen, unchangeable aspects of every per-
son’s identity are valid instruments, or proxies, for
powerful external forces. Their predetermined and
unchanging nature allows us to more confidently
identify cause and effect, pointing the arrow of
causation from these factors to outcomes of inter-
est like educational attainment, income and wealth.
Understanding exactly why any of these factors
exerts the influence it does is, of course, a difficult
challenge in its own right. But possible reverse
causation—for example, that your adult income
somehow caused your parents to achieve a certain
level of education—can be confidently ruled out.
Sidebar 2: The Theoretical Case for
Inherited Demographics
The Demographics of Wealth 11
Characteristics of family respondent Percent of respondents
Young (under 40) 28.3
Middle-aged (40 to 61) 40.9
Old (62-plus) 30.8
Non-Hispanic white 68.0
Other races and ethnicities 32.0
Four-year college degree held by
one or both parents
28.1
Four-year college degree holders 34.0
NOTES: Other races and ethnicities include all respondents who
self-identify as anything other than non-Hispanic white, including
Hispanics of any race, African-Americans or blacks, Asians, Native
Americans, Pacific Islanders, Alaska Natives and people of more than
one race or ethnicity.
To code the education of an SCF respondent’s parents, the 2016 SCF
contains an indicator variable for each parent on a four-point scale, with a
four-year college degree or higher being the highest level. For simplic-
ity, we classified parents’ education either as four-year college degree
holders if at least one parent achieved a college degree or higher, or as
nongraduate if neither did. Missing values were imputed by SCF staff.
Instances in which survey responses were imputed include: The survey
respondent didn’t know a parent’s educational attainment, refused to
provide an answer, or the response was determined to be inadequate. For
more information on the SCF imputation process, see Kennickell (1998).
Table 1. Families by Demographic Characteristics
in the 2016 SCF
it helps isolate the true causal effect of education.
Separating endowment from effort. To isolate
the effects of inherited versus acquired character-
istics on income and wealth outcomes, we divided
SCF families into successively smaller groups in
four steps. The resulting set of groups at each step is
called a partition of the sample families. The simplest
partition—before any demographic criteria are ap-
plied—contains all 6,248 families; the final and most
detailed partition is composed of 24 groups with
different numbers of families in each group.
The first partition resulted from dividing all
families into three age groups. We subdivided each
of these into two racial and ethnic groups, resulting
in six groups; then we subdivided each according
to the college-attainment status of the respondent’s
parents to create 12 groups. Finally, we subdivided
each of those groups according to the college-
degree status of the respondent, resulting in 24
groups. We used the following demographic criteria:
• Age groups: young (family head under 40);
middle-aged (40-61); or old (62 or older);
• Racial and ethnic groups: non-Hispanic white or
all other races and ethnicities;
• Parental educational attainment: at least one col-
lege graduate or none; and
• Respondent’s own education: four-year college
degree or none.
We termed the first three characteristics inherited;
the last is acquired. Table 1 provides details on the
distribution of these characteristics in the 2016 SCF.
How inherited and acquired characteristics
play out for one group. Table 2 illustrates our de-
composition method for a single group out of the
24 for both median income and median net worth.
The median income and wealth among all families
in 2016 are in Partition 0. By definition, the median
family in the sample ranks at the 50th percentile,
meaning 50 percent of families made more than
$52,657 a year, while 50 percent made less, and half
of families had more than $97,326 in wealth, while
half had less.26 These are the benchmarks to which
subsequent income and wealth outcomes will
be compared.
Note that Partitions 1 through 3 are defined by
demographic characteristics that were established
before the respondent’s birth;27 that is, they are
inherited demographics. For the group of families
shown in Partition 3, median income was at the
12 Federal Reserve Bank of St. Louis
62nd percentile and median wealth was at the
49th percentile within the entire population.
The final step (Partition 4) differentiated between
respondents who have completed a four-year degree
and those who have not. The median family in this
element of Partition 4 had an income larger than
76 percent of the population, while the median fam-
ily’s wealth was larger than that of 74 percent of the
population.28 This group of families represented 1.7
percent of all families in the appropriately weighted
2016 SCF sample. Sidebar 3 discusses issues related
to the sample size of the 2016 SCF, which is relatively
small for our purposes.
Assessing the effects of achievements. In the
next section, we will assign responsibility for a
family’s achievement either to acquired or inherited
characteristics. To do this, we first compare per-
centile ranks of group median income and wealth
when only the education of the SCF respondents
differs (the acquired characteristic); next, we com-
pare percentile ranks when background or inherited
factors differ.
Moving from right to left in Table 2, the dif-
ference between the median income (net worth
levels) in Partitions 4 and 3 can be attributed to the
education, efforts and achievements of respon-
dents—an increase of about $31,000 in median
income and about $251,000 in median net worth.
As discussed below, these are very large changes;
NOTES: The groups represented are sample groups from the subdivision
of respondents into partitions by age, race or ethnicity, and the educa-
tion of the respondents and respondents’ parents. Each numerical entry
is the median family income or net worth in 2016 among included
families in the element of the partition defined at the top of each
column. By definition, the median family in the sample ranks at the 50th
percentile. All subsequent percentile ranks refer to the position within
the entire population of the median family in the subgroup defined at
the top of each column.
Table 2. Median Family Income and Net Worth for One Group
Reflects the effects of inherited characteristics only
Reflects the effects of inherited
and acquired characteristics
Partition 0 Partition 1 Partition 2 Partition 3 Partition 4
All families
Middle-aged
(40-61)
Middle-aged; Other
race or ethnicity
Middle-aged; Other race or
ethnicity; College grad parents
Middle-aged; Other race or ethnicity;
College grad parents; SCF respondent
is a four-year college grad
Median income:
$52,657
$67,239 $47,594 $71,695 $102,681
Percentile rank: 50 59 45 62 76
Median net worth:
$97,326
$131,262 $37,970 $96,944 $347,586
Percentile rank: 50 55 36 49 74
hence, own education is of major significance for
this group.
The differences between median income and
wealth in Partitions 3 and 0 represent the contribu-
tions of inherited characteristics alone. For income,
those characteristics boost the median 12 percentile
ranks higher. For net worth, the contribution moves
the median 1 percentile rank lower. That is, simply
being middle-aged, of a race or ethnicity other
than white and having a college graduate parent
increases the income we predict for this family by
$19,000, but decreases predicted wealth by $382
relative to all families.
This framework allows us to identify the sources
of this group’s income and wealth advantages over
those of the median family in the sample—either
inherited or acquired characteristics. After taking
into account inherited characteristics, obtaining a
college degree boosted the income rank of the
median family in this group by 14 rungs above the
percentile predicted from inherited demographics
alone and lifted the median wealth rank 25 rungs.
In other words, the typical family in this group can
attribute more than half of its advantage over the
population median income to its own educational
accomplishments and all of its superior wealth posi-
tion—and then some—to having a college degree.
The Demographics of Wealth 13
Limited sample size is an important consideration in our analysis. For example, we examine a catch-all
group defined as all races and ethnicities other than
white because the number of respondents in the
sample who identify as Hispanic, African-American,
Asian or any other nonwhite group is too small to
allow reliable inference using it alone. The immense
heterogeneity of this “other” group obviously limits the
generalizability of our results for this group.
Even after combining many disparate racial and
ethnic groups into a single category, we still must pay
attention to the statistical significance of differences
we observe between groups. The 2016 SCF contains
6,248 families, but due to oversampling of high-income
families (to obtain sharper estimates at the top end of
the income and wealth scales), some low-income and
low-wealth groups are very thinly represented. More-
over, some configurations of the demographic criteria
are more common in the population than others, lead-
ing to large differences in cell sizes.
The largest group (13.6 percent of families after
weighting to ensure representativeness in the overall
population) contains families headed by someone who
is white, at least 62 years old and has neither a college
degree of his or her own nor a parent with a college de-
gree. The smallest group (0.3 percent of families after
weighting) contains families headed by someone of
another race or ethnicity who is 62 years or older, has a
four-year college degree and is the son or daughter of
a college graduate. Obviously, we have less confidence
drawing conclusions about groups with very few mem-
bers than about those that have better representation.
Sidebar 3: Sample-Size Issues in Using the 2016 SCF
III. The Role of Inherited Characteristics
Figure 5 portrays a slice of the median income
data for middle-aged families; Figure 6 shows the
same for median net worth. Tables 3 and 4 display
the remainder of the data for old and young families’
median incomes and median net worth, respectively.
The last column in the figures and tables shows the
change in income and wealth ranks associated
with own education (over and above inherited
characteristics). In other words, it shows how the
contribution of one’s own education increases (or
decreases) the middle-ranking family’s income and
wealth position in the overall population.
Perhaps the most striking aspect of the data
is the wide range of median income and wealth
levels and rankings on display in Partition 3. Figure
6 shows that, based simply on different inherited
demographic characteristics, the median net worth
of middle-aged families ranges from $26,718 (33rd
percentile) among families in the other races group
without a college grad parent to $374,640 (75th
percentile) among white families with a college grad
parent. In principle, these differences could have
been predicted at birth. Of course, the latter group
contains many more college graduates than the for-
mer; this illustrates our earlier point that one’s own
education is affected by external forces such as one’s
parents’ education as well as one’s race or ethnicity
and even birth year. See Sidebar 4 on links between
parents’ and children’s education levels.
A fact laid bare by our demographic framework
is that inherited demographic characteristics are
very important determinants of adult outcomes like
education, income and wealth. The typical member
of the most favored group in Figure 6 had 14 times
as much wealth as the typical member of the least
favored group, even before one’s own educational
attainment is taken into account.29 This wealth
disparity is completely arbitrary in the sense that
no one in either group chose his or her own
parents. Similarly, Figure 5 shows that the typical
member of the demographically favored group
received an income of $113,618 (the 80th percen-
tile), compared to $41,518 (the 40th percentile)
among the least favored group. This income
multiple of 2.7 times for the typical member of the
favored group could be described as a payout from
“winning the birth lottery.”
College clearly is important, but contrary to
conventional wisdom, your own college education
does not completely level the playing field. The
birth advantage (or disadvantage) remains. For
example, compare rows 2 and 7 in the second-to-
14 Federal Reserve Bank of St. Louis
last column in Figures 5 and 6. The income and
wealth of a nongrad with the most advantaged
inherited demographics are 9 percent and 58
percent higher, respectively, than the income and
wealth of a college grad with the least advantaged
inherited demographics.30 In this comparison,
inherited demographics—including the college
education of the parents’ generation—outweighed
the benefits of obtaining a college education.
The returns on one’s own college education.
We highlight three key results related to the
income and wealth implications of completing or
not completing college in light of one’s inherited
demographic characteristics. Each of the results is
visible to some extent in all age groups and in both
median income and median net worth measures.
For ease of exposition, we highlight results only for
middle-aged families.
The head-start effect. Certain inherited demo-
graphic characteristics are associated with consis-
tently higher median income and median wealth.
As closer examination of Figures 5 and 6 and Tables
3 and 4 reveals, simply having at least one college-
educated parent greatly boosts median income
and wealth. (To see this, compare income or wealth
differences in Partition 4 between row 1 and row 3;
between rows 2 and 4; etc. Where it is present, this
effect is highlighted in yellow.) In Figure 6, for
example, among middle-aged white families headed
by someone with a four-year degree, simply having
a college-educated parent boosts median wealth to
$629,900 (the 83rd percentile), from $409,110 (the
76th percentile) among otherwise similar families
without a college-educated parent. Among middle-
aged families of other races and ethnicities, the
boost to median net worth associated with having a
college-educated parent is from $100,354 (the 50th
percentile) to $347,586 (the 74th percentile).
The upward-mobility (or exceeding-expecta-
tions31) effect. The second important result is that
completion of a four-year college degree pays off
proportionately more among groups with less-
Figure 5. Median Middle-Aged Family Income by Inherited Characteristics and Own
Education
Parents’
Education
Expected Income
Based on Inherited
Demographics
Own
Education
Expected Income
Based on Inherited
Demographics
and Own Education
Percentile Increase
or Decrease from
Addition of Own
Education
All Families
$52,657
(50th percentile)
Middle-aged
$67,239
(59th percentile)
Whites
$79,593
(66th percentile)
Other Races
and Ethnicities
$47,594
(45th percentile)
7
–15
22
–8
14
–15
21
–7
$71,695
(62nd percentile)
$65,659
(58th percentile)
$41,518
(40th percentile)
$113,618
(80th percentile)
$76,758
(65th percentile)
$156,756
(87th percentile)
$52,657
(50th percentile)
$114,225
(80th percentile)
$49,4
17
(47th percentile)
$102,681
(76th percentile)
$35,240
(33rd percentile)
$70,479
(61st percentile)
Partition 0 Partition 1 Partition 2 Partition 3 Partition 4
NOTES: Percentile rank is determined by the position of the median
family in a particular partition element relative to the overall distribution
of all families. Numbers highlighted in yellow in the next to last column
represent the “head-start” effect. The last column shows the difference in
overall percentile ranks between the relevant elements in Partitions 3 and
4. Numbers highlighted in green represent the “upward-mobility” effect.
Numbers highlighted in red represent the “downward-mobility” effect.
The Demographics of Wealth 15
Figure 6. Median Middle-Aged Family Net Worth by Inherited Characteristics and Own Education
See notes to Figure 5.
All Families
$97,326
(50th percentile)
Middle-aged
$131,262
(59th percentile)
Whites
$203,578
(63rd percentile)
Other Races
and Ethnicities
$37,970
(36th percentile)
8
–17
17
–9
25
–13
17
–4
$96,944
(49th percentile)
$162,094
(59th percentile)
$26,718
(33rd percentile)
$374,640
(75th percentile)
$158,656
(58th percentile)
$629,900
(83rd percentile)
$97,572
(50th percentile)
$409,110
(76th percentile)
$37,768
(36th percentile)
$347,586
(74th percentile)
$18,500
(29th percentile)
$100,354
(50th percentile)
Parents’
Education
Expected Net Worth
Based on Inherited
Demographics
Own
Education
Expected Net Worth
Based on Inherited
Demographics
and Own Education
Percentile Increase
or Decrease from
Addition of Own
Education
Partition 0 Partition 1 Partition 2 Partition 3 Partition 4
advantageous inherited demographic characteristics.
(To see this, look in the last column of Figures 5 or 6
or Tables 3 or 4, contrasting rows 1 and 3 and rows
5 and 7. Where it is present, this effect is highlighted
in green.) For example, middle-aged, white family
heads whose parents were highly educated get an
8 percentile rank boost in median net worth above
the level predicted purely by inherited characteristics
when those family heads earn a college degree. That
increase is large but much less than the 17 percentile
rank boost for the group that was similar in all re-
spects except that its parents were not well-educated.
With a few exceptions, this pattern recurs throughout
the figures and tables.
The downward-mobility (or falling-short)
effect. The third clear result is that failure to complete
a four-year college degree is more costly in terms of
falling short of the demographically predicted level
of income and wealth when one’s parents included a
college graduate. (To see this, look in the last column
of Figures 5 or 6 or Tables 3 or 4, contrasting rows 2
and 4 and rows 6 and 8. This effect, which occurs in
every comparison shown in the figures and tables, is
highlighted in red.) The wealth and income shortfall
was 15 to 17 percentile ranks for a nongrad family
head who was white and was the child of well-
educated parents. This exceeded the 8 to 9 percentile
rank decline of the otherwise similar families whose
parents were not well-educated. (See rows 2 and 4
in the last column in Figures 5 and 6.) Nonetheless,
the presence of college-educated parents provides a
buffer of sorts, preventing the median member of the
downwardly mobile groups from falling to the level
of their nongrad counterparts without college-
educated parents.
The importance of inherited demographics for
the income and wealth payoffs of college. As we
showed in the case illustrated in Table 2, it is possi-
ble to estimate how much of each demographically
defined group’s median income and median wealth
deviations from overall median income or median
wealth should be assigned to inherited demographics
and how much to acquired characteristics—namely,
a college degree. Table 6 summarizes our estimates
for college graduates.
The college grad groups with the most-favorable
inherited demographics—families headed by some-
one over 40 who identifies as white and has at least
16 Federal Reserve Bank of St. Louis
one college-educated parent—benefit from strong
“tailwinds.” The first and fifth rows in the second-to-
last column of Panels A and B in Table 6 indicate that
the median members of the two groups that fit this
description climb between 14 and 31 percentile ranks
in income and wealth distributions simply by virtue
of their inherited demographics. No other group of
college graduates comes close to receiving a boost
of this magnitude to their starting positions on both
measures.
Nonetheless, some other college grad groups
receive benefits from inherited characteristics. For
example, families headed by someone who is middle-
aged, identifies as another race or ethnicity and is
part of a two-generation college-educated family
(row 7 in the second-to-last column of Panels A
and B in Table 6; also highlighted in Table 2 and the
accompanying discussion) received a 12 percentile
boost in income distribution. There was no boost to
the group’s wealth ranking, however. Other groups
receiving modest boosts from inherited characteris-
tics typically were 40 and older, or white, or both.
Inherited demographic characteristics also can
reduce typical income and wealth, of course. Young
families, those of other races or ethnicities and those
without a college grad parent generally receive
negative contributions from their inherited
demographic characteristics. This means that,
rather than enjoying a head start when they
approach college and adult life, they actually
are behind most other families.
Some of the income-earning and wealth-
accumulating power of college therefore must be
used to dig out from the disadvantage they face.
For example, families headed by someone who
is middle-aged, of a race or ethnicity other than
white and whose parents were not college grads
begin with a predicted income rank 10 rungs below
the population median and a wealth rank 17 rungs
below the median before their own education is
Table 3. Median Family Income by Inherited Characteristics and Own Education
Partition 3: Percentile rank of median income
based on inherited characteristics alone
Partition 4: Percentile rank of median income based
on inherited characteristics and own
education
Percentile rank difference
associated with own
education
Family income: old families
White, college parents 64
College grad 77 13
Nongrad 40 –24
White, noncollege parents 45
College grad 71 26
Nongrad 36 –9
Other race, college parents 53
College grad 70 17
Nongrad 34 –19
Other race, noncollege parents 27
College grad 61 34
Nongrad 20 –7
Family income: young families
White, college parents 54
College grad 66 12
Nongrad 42 –12
White, noncollege parents 46
College grad 59 13
Nongrad 41 –5
Other race, college parents 40
College grad 56 16
Nongrad 34 –6
Other race, noncollege parents 34
College grad 57 23
Nongrad 31 –3
See notes to Figure 5.
The Demographics of Wealth 17
See notes to Figure 5.
Table 4. Median Family Net Worth by Inherited Characteristics and Own Education
Partition 3: Percentile rank of median net worth
based on inherited characteristics alone
Partition 4: Percentile rank of median net worth based
on inherited characteristics and own education
Percentile rank difference
associated with own
education
Family net worth: old families
White, college parents 81
College grad 87 6
Nongrad 62 –19
White, noncollege parents 69
College grad 85 16
Nongrad 62 –7
Other race, college parents 58
College grad 72 14
Nongrad 44 –14
Other race, noncollege parents 42
College grad 72 30
Nongrad 38 –4
Family net worth: young families
White, college parents 35
College grad 42 7
Nongrad 28 –7
White, noncollege parents 30
College grad 39 9
Nongrad 28 –2
Other race, college parents 22
College grad 29 7
Nongrad 18 –4
Other race, noncollege parents 24
College grad 31 7
Nongrad 22 –2
Table 5 displays the share of 2016 SCF two- generational families in each of four possible cate-
gories—both generations are college graduates; neither
generation has a college graduate; only the parent
generation has a college degree; and only the child
generation has a college degree. The first panel shows
all families, while the second and third panels show
data for white families and families of other races and
ethnicities,
respectively.
The most important fact shown in all panels of
Table 5 is that adults’ and children’s education levels
tend to be the same, even when we use only a crude
two-point scale. Fully 54 percent of all families have
no college graduate in either generation; an additional
16 percent of families have college graduates in both
generations. The remaining 30 percent of families
have different college-degree statuses across genera-
tions, with 12 percent having a college grad only in the
older generation and 18 percent only in the younger
generation. We termed the younger generation in the
former group downwardly mobile and, in the latter
group, upwardly mobile.
The remaining panels of Table 5 show that, while
the basic patterns are similar among whites and other
races separately, important differences also exist.
Two-generational white families are somewhat less
likely to have no college graduates in either generation
and somewhat more likely to have at least two genera-
tions of college graduates. Families of other races with
college degrees in both generations are uncommon—
only about one in eight, compared to about one in five
among whites.
Sidebar 4: Links between Parents’ and Adult Children’s Education Levels
18 Federal Reserve Bank of St. Louis
taken into account. (See row 8 in the fourth column
in both panels of Table 6.)
Comparing the last two columns in Table 6, only
two groups out of 12 college grad groups—namely,
middle-aged and old whites with college grad par-
ents—receive more than half of their total advantage
over population median income and wealth levels
by dint of their inherited demographic characteris-
tics alone.32 The tailwinds these families enjoy are
particularly strong for wealth accumulation, with the
vast majority of their advantage due to winning the
birth lottery rather than to their own education.
IV. The Effect of Parents’ Education on How
Their Adult Children Handle Money
Why does the education of an adult child’s par-
ents matter so much to their income and wealth?
Some of the inherited advantage plausibly flows
through greater monetary transfers (in gifts and
bequests) and more-intensive childhood invest-
ments, particularly in education, provided by
college-educated parents who also are, in general,
wealthier than nongrad parents.
Another likely source of inherited advantage for
accumulating wealth is what we term balance sheet
and financial behavior channels. Panel A in Table 7
shows that families headed by someone who is middle-
aged and has at least one college graduate parent
typically have a greater amount of safe and liquid
assets at their disposal than families without a college
grad parent. Strong balance sheet liquidity predicts
higher wealth and greater resilience.33 While families
with a college grad parent typically hold a somewhat
higher share of assets in residential real estate than
other families, balance sheet leverage is no higher.
This suggests that their real-estate holdings are less
exposed to default risk.
Panel B of Table 7 shows that families with a
college grad parent are more willing to take some
risks to earn a higher return on investments.
Respondents with a college grad parent score higher
on a test of financial literacy. These families search
more intensively when borrowing and investing.
Families headed by someone with a college grad
parent have a 10-percentage-point greater likelihood
of saving regularly than other families. Finally, as
explained in Sidebar 4, children tend to mirror their
parents’ educational attainment—respondents with a
See notes to Table 1 for definitions of race and ethnicity, and college attainment. Numbers are rounded.
Table 5. Parents’ and Own Education: Percentage of All Families
All families
Parents’ education Own education
Nongraduate Four-year college degree All
Nongraduate 54 18 72
Four-year college degree 12 16 28
All 66 34 100
Non-Hispanic white families
Parents’ education Own education
Nongraduate Four-year college degree All
Nongraduate 34 13 47
Four-year college degree 8 13 21
All 42 26 68
Other races and ethnicities
Parents’ education Own education
Nongraduate Four-year college degree All
Nongraduate 20 5 25
Four-year college degree 4 4 7
All 24 8 32
The Demographics of Wealth 19
college grad parent are more likely to become college
grads themselves. All of these facts point to tangible
ways in which families with a college grad parent
may accumulate more wealth than other families.
V. Conclusions
We documented a strong relationship between
SCF respondents’ own education and their adult
outcomes such as income and wealth. We also
showed that inherited demographic characteristics
modify the relationship in important ways. We con-
cluded that inherited demographic characteristics
are important predictors of income and wealth.
Our main focus was on the education level of a
respondent’s parents. This matters both because
children tend to achieve educational outcomes sim-
ilar to their parents’ and because the effects of higher
education appear to compound across generations.
That is, having a college-educated parent enhances
the income-earning and wealth-accumulating
power of an adult child’s college education.
We document three key results connecting
education and wealth in a two-generation con-
text. First, families headed by someone with favor-
able inherited demographic characteristics—being
white, being over 40 and having parents who were
Table 6. College Graduates: Effects on Overall Median Levels Due to Inherited and Acquired Characteristics
Inherited characteristics Differences between Partitions 3 and 4
Age of family head
Race or ethnicity
of family head
College education of
respondent’s parents
Change from 50th
percentile rank due to
inherited characteristics
Change in rank due
to own education
(acquired characteristic)
Panel A: Income
Old
White
College 14 13
None –5 26
Other
College 3 17
None –23 34
Middle
White
College 30 7
None 8 22
Other
College 12 14
None –10 21
Young
White
College 4 12
None –4 13
Other
College –10 16
None –16 23
Panel B: Net worth
Old
White
College 31 6
None 19 16
Other
College 8 14
None –8 30
Middle
White
College 25 8
None 9 17
Other
College –1 25
None –17 17
Young
White
College –15 7
None –20 9
Other
College –28 7
None –26 7
See notes to Table 1 for definitions of age group, race and ethnicity, and college attainment.
20 Federal Reserve Bank of St. Louis
well-educated—on average earn significantly higher
incomes and accumulate much more wealth than
families without these
characteristics.
Second, among college graduate families with
the least-advantageous demographic characteristics,
such as no college-educated parents, completion
of a four-year degree typically boosts income and
wealth far above the levels predicted solely from
inherited characteristics.
Finally, we show that families with the most-
advantageous inherited characteristics whose heads
do not complete a four-year college degree suffer
greater proportionate shortfalls of income and wealth
than their predicted levels, compared to families
whose heads also do not complete four-year degrees
but who have less favorable inherited demographic
characteristics.
To be fruitful, policy should build on the fact base
established here. The return on college is large, on
average, but it is unequal across the population and,
while positive, diminishes across successive gen-
erations of college graduates. Income and wealth
disparities are deeply rooted because inherited
demographic characteristics exert significant effects.
In addition to race and ethnicity, as well as birth year
and age, we have shown that parental education
is another key background factor influencing the
earning and wealth-accumulating power of a college
education.
Table 7. Balance Sheet and Financial Behavior Channels of Wealth Accumulation
A. Balance Sheets by Parents’ Education Level: Middle-aged Families
Balance sheet measures College grad parents Nongrad parents
Median liquid assets $11,750 $3,032
Median primary RRE/total assets 37.8% 33.5%
Median debt/assets 25.7% 25.9 %
B. Financial Behavior by Parents’ Education Level: Middle-Aged Families
Financial behavior measures College grad parents Nongrad parents
Financial Risk-Taking (Scale of 0 to 10) 5.0 4.3
Mean Test Score (Maximum score is 3) 2.4 2.1
Credit Search Intensity (Scale of 0 to 10) 7.2 6.7
Investment Search Intensity (Scale of 0 to 10) 6.5 6.0
Saving Rate (Percentage of households) 53.3 43.3
Definitions
Liquid assets: Safe and liquid assets include holdings of checking, savings, money market, and call accounts, certificates of deposit, savings bonds, and
prepaid debit cards.
Primary RRE/total assets: Ratio of market value of primary residential real estate to total assets.
Debt/assets: Ratio of total liabilities to total assets.
Definitions
Financial Risk-Taking: Self-assessed willingness to take financial risks when saving or making investments.
Mean Test Score: Sum of correct questions in assessment of financial literacy. For more information regarding specific questions asked, see variables
X7558, X7559 and X7560 in the 2016 SCF codebook.
Credit Search Intensity: Self-assessed search intensity for best terms when borrowing money or obtaining credit.
Investment Search Intensity: Self-assessed search intensity for best terms when making saving and investment decisions.
Saving Rate: Share of households whose spending was less than income.
Endnotes
1 The previous edition of The Demographics of
Wealth appeared in 2015 and was based on data
through 2013 (https://www.stlouisfed.org/house-
hold-financial-stability/the-demographics-
of-wealth).
2 For expositional convenience, we use the term
“head of household” interchangeably with “sur-
vey respondent.” In a small number of Survey of
Consumer Finances (SCF) families, the identities
of these individuals differ. The definitions and
figures reported here always reflect the survey
respondent.
3 Mirowsky and Ross (2017).
4 Zhu et al. (1996).
5 Reiman and Leighton (2017).
6 Isen and Stevenson (2010).
7 Cheng and Furnham (2012).
8 Emmons and Noeth (May 2015).
9 Friedline, Nam and Loke (2014).
10 McCarthy (2011).
11 Hanushek and Kimko (2000).
12 Bérenger and Verdier-Chouchane (2007).
13 The median income in 2016 among college-
grad-headed, middle-aged white families with
at least one college grad parent was $156,756,
compared with $114,225 for otherwise compara-
ble families without a college grad parent. Median
wealth was $629,900 among college grad families
with at least one parent who also had a college
degree, versus $409,110 among similar college
grad families without a college grad parent. All
data are from the Federal Reserve’s (SCF).
14 Median income and wealth boosts from college-
educated parents among nonwhite college fami-
lies were 46 and 246 percent, respectively. Median
income and wealth for nonwhite college grad
children of college grad parents were $102,681 and
$347,586, respectively. These levels were only 66
and 55 percent, respectively, of the levels enjoyed
by their similarly educated white counterparts.
15 Pfeffer and Killewald (2017) and Pfeffer (Forthcom-
ing) document strong intergenerational wealth
and education links. They find that parental
investments in children’s education may be even
more consequential than monetary transfers.
16 Emmons and Ricketts (2017) found that balance
sheet and financial behavior variables were
strong predictors of family wealth in a multiple-
regression framework.
17 This comparison includes families of all education
levels, races and ages. The effect of a college grad
parent on saving behavior is even more pro-
nounced among families headed by someone of
a race or ethnicity other than white or who is
young or middle-aged. Among all nonwhite
middle-aged (40- to 61-year-old) families, those
headed by someone with at least one college grad
parent were 17 percentage points more likely to
save than otherwise similar families without a
college-grad parent.
18 See Emmons and Noeth (May 2015).
19 This essay highlights just one inherited character-
istic: parents’ education. The other two inherited
demographic characteristics—race or ethnicity,
and age and birth year—are the main focus of
the forthcoming Essays No. 2 and 3 in the series,
respectively.
20 See Bricker et al. (2017) for a description of the
methodology and some results from recent waves
of the SCF. See Emmons and Noeth (May 2015) for
income and wealth trends through 2013 using
four levels of educational attainment: less than
high school; high school or GED; a two- or four-
year college degree; and a postgraduate degree.
21 Comparing means (i.e., averages) rather than
medians, the ratios were 31 and 18 percent,
respectively.
22 All dollar amounts in this essay are expressed in
2016 dollars, deflated by the Consumer Price Index
for All Urban Consumers, Research Series
(CPI-U-RS).
23 A key implicit assumption in our approach is that
the distribution of effort—that is, the range of how
hard people work, from very little to very hard—
is basically the same across groups. In particular,
we assume that the typical or median amount of
effort exerted is about the same across groups.
Indeed, if we believed there were a systematic dif-
ference in the amount of effort the members of a
particular demographically defined group exerted,
we would attribute the effort difference itself to the
demographic factor that defines the comparison
groups. This assumption is important in ruling out
The Demographics of Wealth 21
a potential explanation of differences in out-
comes along the lines of “People with/without
Characteristic X earn less income because they
simply don’t work as hard.”
24 Figure 4 in Emmons and Noeth (July 2015)
shows that income typically increases from a low
level at the beginning of one’s working life to a
peak near the end of the working life before
declining in retirement. Figure 7 shows that
wealth usually also rises into middle age but
typically does not decline as much as income
in old age.
25 See Emmons and Noeth (February 2015).
26 We divided the overall income and wealth distri-
butions into 100 equal parts, or percentiles. Each
median income and net worth statistic discussed
here that falls between percentiles was assigned
to the lower of the two.
27 We assumed that parental education, which is
outside of the respondent’s control, was com-
pleted prior to birth or very early during develop-
ment in the vast majority of cases.
28 Income and wealth rankings were determined
separately, so the median families mentioned
here are not necessarily the same ones.
29 Compare the values shown in the highest and
the lowest elements of Partition 3.
30 The median income and wealth of a white,
middle-aged nongrad with at least one college-
educated parent were $76,758 and $158,656,
respectively, while the median income and
wealth of a middle-aged college grad of another
race or ethnicity without college-educated
parents were $70,479 and $100,354, respectively.
31 We term this the “exceeding-expectations” effect
because only a quarter of children without
college-educated parents complete college
themselves. (See Sidebar 4 and Table 5.)
32 See rows 1 and 5 in both panels of Table 6.
Old white college grads without college grad par-
ents (row 2) receive more than half of their total
wealth, but not income, advantage from inherited
characteristics.
33 Emmons and Ricketts (2017).
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Volume 2018 | Number 4 Article 1
7-2018
Broken Promises: How Debt-financed Higher
Education Rewrote America’s Social Contract and
Fueled a Quiet Crisis
Seth Frotman
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Part of the Consumer Protection Law Commons
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Quiet Crisis,” Utah Law Review: Vol. 2018 : No. 4 , Article 1.
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811
BROKEN PROMISES: HOW DEBT-FINANCED HIGHER EDUCATION
REWROTE AMERICA’S SOCIAL CONTRACT
AND FUELED A QUIET CRISIS
Seth Frotman*
Abstract
The U.S. student loan market stands at $1.5 trillion—the second
largest consumer debt market in the country. Despite the vast size of this
market and the far-reaching spillover effects of student loan debt on
individuals and communities, the American higher education system
increasingly relies on debt financing as the predominant mechanism by
which American families pay for college. Furthermore, student loans still
lack a comprehensive twenty-first century consumer protection
infrastructure. Researchers and policymakers are only now beginning to
acknowledge the threat runaway student debt poses to the American social
contract—even as millions of borrowers across the country struggle with
the consequences of this quiet crisis.
I. INTRODUCTION
Student loan debt has fundamentally changed the lives and livelihoods of tens
of millions of people. This notion is both obvious and intuitive to the forty-four
million Americans who currently owe more than $1.5 trillion in student loan debt,
yet remains surprisingly controversial in Washington.1 America’s embrace of a debt-
* © 2018 Seth Frotman. Assistant Director and Student Loan Ombudsman of the
Consumer Financial Protection Bureau. The views as expressed are the author’s alone and
do not necessarily represent those of the Consumer Financial Protection Bureau. This Article
was adapted from keynote remarks by Seth Frotman at the Utah Law Review Symposium:
Financing the Future: The Law and Politics of Student Debt in American Higher Education
on October 20, 2017, with special thanks to Bonnie Latreille and Chris Peterson.
1 See Consumer Credit–G.19 in March 2018, FED. RES. BOARD OF GOVERNORS (May
07, 2018), https://www.federalreserve.gov/releases/g19/current/default.htm [https://perma.
cc/K3LR-4CRT] (as of March 2018, outstanding student loan debt totaled $1.521 trillion).
Commentators have argued that for the majority of student loan borrowers, student loan debt
is not a burden. See, e.g., Editorial Board, Democrats’ Loose Talk on Student Loans, WASH.
POST (July 31, 2016), https://www.washingtonpost.com/opinions/democrats-loose-talk-on-
student-loans/2016/07/31/fe93430e-5417-11e6-88eb-7dda4e2f2aec_story.html?utm_term=
.f08fc3070e44 [https://perma.cc/A85K-NECC] (“[T]he benefits from such investment in
human capital accrue to individuals who possess it. So it is not unreasonable to ask them to
share the cost.”); Debra Liese, Beth Akers & Matthew Chingos: Does the Public Narrative
About Student Debt Reflect Reality?, PRINCETON UNIV. PRESS (Oct. 27, 2016),
http://blog.press.princeton.edu/2016/10/27/beth-akers-matthew-chingos-does-the-public-
narrative-about-student-debt-reflect-reality/ [https://perma.cc/P2FG-5B5N] (“The crisis that
812 UTAH LAW REVIEW [NO. 4
financed higher education model has broken the basic tenets of the social contract
between the U.S. government and its citizens—the contract that relies on the
supposed notion that higher education is the nation’s great equalizer; and that
attending college always provides a clear pathway to the middle class.2 An honest
assessment of the situation shows this to no longer be true.
This student debt crisis did not happen by accident. A $1.5 trillion market is
never an accident.3 This quiet crisis is the consequence of incremental policy
decisions that drove up college costs and shifted the burden for shouldering these
costs to individual students—a shift financed by consumer debt.
It is imperative to understand the array of decisions that led to this place for
two reasons. First, because the people whose lives have been so severely impacted
by student debt deserve an accurate accounting of why they have been uniquely
asked to bear this burden. And second, so that policymakers and the higher education
community—from universities, to researchers, to foundations—can shape a
response that recognizes and effectively addresses the real problems that student
loan borrowers face across their financial lives.
In 2008, the worst economic recession since the Great Depression crippled the
nation and destroyed trillions of dollars in household wealth.4 Millions of Americans
stood by, powerless to intervene in their own financial lives.5 The financial crisis
exposed deep rooted systemic problems underlying the most basic functions of
permeates public discussion is a manufactured narrative based largely on anecdotes,
speculation, shoddy research, and inappropriate framing of the issue.”).
2 See In America, Education Is Still the Great Equalizer, HOMEROOM (last visited Apr.
10, 2018), https://blog.ed.gov/2011/12/in-america-education-is-still-the-great-equalizer/
[https://perma.cc/TY5B-YPNN] (“‘In America, education is still the great equalizer,’
Secretary Duncan told a group of graduates at Fayetteville State University’s Winter
Commencement on Saturday. Duncan described the importance of education in today’s
economy, and that education is, in the long run, one of the best investments one can make
for the future.”).
3 See generally SETH FROTMAN, CFPB, PREPARED REMARKS BEFORE THE CALIFORNIA
STATE SENATE BANKING AND FINANCIAL INSTITUTIONS COMMITTEE (Mar. 22, 2017),
http://files.consumerfinance.gov/f/documents/201703_cfpb_Frotman-Testimony-CA-
Senate-Banking-Committee [https://perma.cc/TR42-DN79] [hereinafter FROTMAN,
CFPB, PREPARED REMARKS] (detailing the policy decisions that led to the rise in student
debt across the country); see also Mark Huelsman, Reflecting on $1 Trillion in Student Debt,
and Why We’re Headed for $2 Trillion, DEMOS (Apr. 24, 2014), http://www.demos.org/blog
/4/24/14/reflecting-1-trillion-student-debt-and-why-were-headed-2-trillion [https://perma.cc
/AMT3-9FPF] (finding that the United States’ student loan market will likely reach $2
trillion in 2022).
4 FED. RES. BD. OF GOVERNORS, FLOW OF FUNDS ACCOUNTS OF THE UNITED STATES:
FLOWS AND OUTSTANDINGS FOURTH QUARTER 2008 (2009), https://www.federalreserve.
gov/releases/z1/20090312/z1 [https://perma.cc/JC62-RSKR] (“For 2008 as a whole,
household net worth fell $11.2 trillion.”).
5 See generally Problems in Mortgage Servicing from Modification to Foreclosure:
Hearing before the Comm. on Banking, Hous., & Urban Affairs, 111th Cong. (2010),
https://www.gpo.gov/fdsys/pkg/CHRG-111shrg65258/html/CHRG-111shrg65258.htm
[https://perma.cc/Z9LW-LLXS].
2018] BROKEN PROMISES 813
consumer credit markets.6 The economy failed consumers at every turn. Millions of
people needlessly lost their homes.7 The most vulnerable people in the country were
hit the hardest.8 Nearly a decade later, many families and communities have yet to
recover.9
As is often the case, researchers and policymakers engaged in a familiar cycle
of study and reaction—diagnosing the causes, learning the lessons, and enacting the
“right” reforms.10 In response, America’s leaders made three promises. First, they
6 See Press Release, U.S. Dep’t of the Treasury, Remarks by Deputy Secretary Sarah
Bloom Raskin at the National Foundation for Credit Counseling 50th Annual Leaders’
Conference (Sept. 28, 2015), https://www.treasury.gov/press-center/press-releases/Pages/
jl0186.aspx [https://perma.cc/9B2T-GTE6] (“The financial crisis exposed the real dangers
from having a system with misaligned incentives and shoddy oversight of complex markets.
Those fundamental flaws took a toll on a crucial wealth-building asset—the home—and in
their wake we were left with households with damaged balance sheets and a slow, uneven
recovery—indicative of a slow rebuilding of household wealth. We need to ensure that we
design a credit system that can be navigated and that functions efficiently for all participants
in all economic environments.”); see also Adam J. Levitin, Hydraulic Regulation:
Regulating Credit Markets Upstream, 26 YALE J. ON REG. 143, 151 (2009) (“The events of
the past year have laid bare the shortcomings of our current system of financial-institution
regulation. These shortcomings have played out on two levels: consumer protection and
systemic risk. . . .”).
7 See Patricia A. McCoy, Barriers to Foreclosure Prevention During the Financial
Crisis, 55 ARIZ. L. REV. 723, 726 (2013) (finding that artificial barriers to foreclosure
prevention programs inflicted “enormous, needless losses on borrowers, investors, and
society at large”).
8 See ANN OWENS & ROBERT J. SAMPSON, THE RUSSELL SAGE FOUNDATION AND THE
STANFORD CENTER ON POVERTY AND INEQUALITY, COMMUNITY WELL-BEING AND THE
GREAT RECESSION 6 (2013), https://www.stanford.edu/group/recessiontrends/cgi-
bin/web/sites/all/themes/barron/pdf/Communities_fact_sheet [https://perma.cc/P8EK-
9G7N] (“Many of the nation’s most vulnerable communities have borne the brunt of the
economic crisis, as poverty, vacancy rates, and particularly unemployment rates increased
more in disadvantaged and minority neighborhoods.”); Why Did the Housing Bust Hit Black
and Latino Families Harder?, FED. RES. BANK OF ST. LOUIS: ON THE ECON. (Aug. 10, 2017),
https://www.stlouisfed.org/on-the-economy/2017/august/why-housing-bust-hit-black-latino
-families-harder [https://perma.cc/ZZ2U-QRMR].
9 See EMILIA ISTRATE & TADAS PACK, COUNTY ECONOMIES 2016: WIDESPREAD
RECOVERY, SLOWER GROWTH (2017), http://www.naco.org/sites/default/files/documents/
County-Economies-2016 [https://perma.cc/78ZX-ZUT6]; Rakesh Kochhar & Richard
Fry, Wealth Inequality Has Widened Along Racial, Ethnic Lines Since End of Great
Recession, PEW RES. CTR. (Dec. 12, 2014), http://www.pewresearch.org/fact-
tank/2014/12/12/racial-wealth-gaps-great-recession [https://perma.cc/XJT5-SLGM]; Ten
Years After Financial Crisis, Nearly One-in-Three Americans Still Feeling the Sting,
COUNTRY FIN. (July 13, 2017), https://www.countryfinancial.com/en/about-
us/newsroom/year2017/Americans-still-feeling-sting-of-financial-crisis.html [https://perma
.cc/5AQE-AQMB].
10 See, e.g., Dodd Statement on Implementation of Dodd-Frank Act, U.S. S. COMM. ON
BANKING, HOUSING, & URBAN AFFAIRS (Sept. 30, 2010), https://www.banking.senate.gov/
public/index.cfm/democratic-press-releases?ID=6312FD47-F649-1CF7-E53D-C4D3C313
814 UTAH LAW REVIEW [NO. 4
promised that the public and private spheres would install a framework to stop many
of the practices that led to the financial crisis.11 Second, they promised that this
framework would protect individual consumers accessing and repaying the financial
products that underpin a twenty-first century economy.12 And finally, they promised
that by learning from the practices that ignited the last crisis, America’s financial
system could prevent the next one.13 In effect, leaders promised the country that they
would never let something like this happen again.14 The current student loan market
is the first real test of this proposition.
For nearly a decade, the federal government has attempted to get a handle on
the country’s growing student debt problem.15 And yet, as policymakers across the
1292 [https://perma.cc/W596-8WNG] (“I believe we can say that, thanks to the hard work
of Democrats and Republicans on this committee—and with the sage counsel of our
witnesses and many others whose perspectives we have considered carefully—we have
delivered the reform our financial system needs and provided the American people with the
economic stability they deserve.”).
11 See, e.g., Press Release, U.S. Dep’t of Treasury, Treasury Deputy Secretary Neal
Wolin Written Testimony before the Senate Banking Committee on “Implementing the
Dodd-Frank Wall Street Reform and Consumer Protection Act” (Sept. 30, 2010),
https://www.treasury.gov/press-center/press-releases/Pages/tg881.aspx [https://perma.cc/2J
Q3-LANY] (“The Act builds a stronger financial system by addressing major gaps and
weaknesses in regulation that helped cause the financial crisis that led to the recession. It
puts in place buffers and safeguards to reduce the chance that another generation will have
to go through a crisis of similar magnitude.”).
12 See, e.g., Arthur E. Wilmarth, Jr., The Financial Services Industry’s Misguided Quest
to Undermine the Consumer Financial Protection Bureau, 31 REV. BANKING & FIN. L. 881,
881 (2011–2012), https://www.bu.edu/rbfl/files/2013/09/UnderminingTheConsumerFinan
cialProtectionBureau [https://perma.cc/UP7Y-REY6] (“The preamble to the Dodd-
Frank Wall Street Reform and Consumer Protection Act . . . affirms that one of the statute’s
primary purposes is ‘to protect consumers from abusive financial services practices.’ When
President Obama signed Dodd-Frank into law, he declared that the statute would create ‘the
strongest consumer financial protections in history.’”).
13 See Rep. Maxine Waters, How to Prevent Another Financial Crisis, U.S. H. COMM.
ON FIN. SERV. (Sept. 19, 2014), https://democrats-financialservices.house.gov/news/docu
mentsingle.aspx?DocumentID=398641 [https://perma.cc/7CYE-6MGH].
14 See, e.g., President Barack Obama, Remarks in Reno, Nevada, AM. PRESIDENCY
PROJECT (Sept. 30, 2008), http://www.presidency.ucsb.edu/ws/index.php?pid=84462
[https://perma.cc/E37K-JA8M] (“These are the changes and reforms that we
need. . . . Common-sense regulations for our financial system that will prevent a crisis like
this from ever happening again.”); Wall Street Reform: The Dodd-Frank Act, WHITE HOUSE
(last visited Apr. 10, 2018) https://obamawhitehouse.archives.gov/economy/middle-
class/dodd-frank-wall-street-reform [https://perma.cc/MXM5-TBSB] (“To make sure that a
crisis like this never happens again, President Obama signed the Dodd-Frank Wall Street
Reform and Consumer Protection Act into law.”).
15 See, e.g., SEC’Y JOHN B. KING, JR., GIVING EVERY STUDENT A FAIR SHOT: PROGRESS
UNDER THE OBAMA ADMINISTRATION’S EDUCATION AGENDA (2017),
https://www2.ed.gov/documents/press-releases/cabinet-exit-memo [https://perma.cc/2J
9E-NBWQ] (reflecting on the administration’s achievements in improving student loan
affordability); Fact Sheet: Taking Action to Help More Americans Manage Student Debt,
2018] BROKEN PROMISES 815
government have supposedly worked to prevent another crisis, it remains clear—it
is too late. Those promises were broken and, yet again, America finds itself facing
a crisis.
Today, more than eight million federal student loan borrowers are in default.16
Another three million borrowers are at least two payments behind.17 In 2017 alone,
1.1 million federal student loan borrowers defaulted—that is one default every
twenty-eight seconds.18
WHITE HOUSE (Apr. 28, 2016), https://obamawhitehouse.archives.gov/the-press-
office/2016/04/28/fact-sheet-taking-action-help-more-americans-manage-student-debt
[https://perma.cc/8A53-Y3EF] (outlining the administration’s efforts to increase flexibility
and affordability during student loan repayment). Additionally, in 2010, Congress passed the
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), calling for
increased measures to protect student loan borrowers. 12 U.S.C. § 5535 (2010). See also
Matthew B. Fuller, A History of Financial Aid to Students, 44 J. STUDENT FIN. AID 42, 58
(2014) (“The Higher Education Act was reauthorized in 2008, under the name The Higher
Education Opportunity Act of 2008, and reinforced the government’s and society’s
discontent with increasing college costs.”).
16 See Federal Student Loan Portfolio, U.S. DEP’T EDUC., https://studentaid.ed.gov/sa/
about/data-center/student/portfolio [https://perma.cc/YUF6-SX2] (last visited Apr. 10,
2018); Federal Perkins Loan Program Status of Default as of June 30, 2016, U.S. DEP’T
EDUC. (June 12, 2017), https://ifap.ed.gov/perkinscdrguide/1516PerkinsCDR.html
[https://perma.cc/DU4Q-BAC9].
17 Portfolio by Delinquency Status, U.S. DEP’T EDUC., https://studentaid.ed.gov/sa/
sites/default/files/fsawg/datacenter/library/DLPortfoliobyDelinquencyStatus.xls
[https://perma.cc/4392-JVQS] (last visited May 8, 2018).
18 See Direct Loans Entering Default, U.S. DEP’T EDUC. 2017 Q2–2018 Q1,
https://studentaid.ed.gov/sa/sites/default/files/fsawg/datacenter/library/DLEnteringDefaults
.xls [https://perma.cc/NY8L-5CTP] (last visited May 8, 2018); see also CFPB Concerned
About Widespread Servicing Failures Reported by Student Loan Borrowers, CFPB (Sept.
29, 2015), https://www.consumerfinance.gov/about-us/newsroom/cfpb-concerned-about-
widespread-servicing-failures-reported-by-student-loan-borrowers/ [https://perma.cc/F8LK
-SDLC] (“One in four student loan borrowers are currently in default or struggling to stay
current on their loans, despite the availability of income-driven repayment options for the
vast majority of borrowers.”); see also Paul Fain, Growing Number of Borrowers Are in
Default, INSIDE HIGHER ED (Dec. 14, 2017), https://www.insidehighered.com/quicktakes/
2017/12/14/growing-number-borrowers-are-default [https://perma.cc/W53L-FKZ2]
(“Roughly 298,000 borrowers entered into default during the quarter that ended in
September . . . with 274,000 defaulting for the first time.”); Shahien Nasiripour, The
Government Can’t Agree with Itself on Policing Student Loan Companies, BLOOMBERG
(Aug. 24, 2016, 8:24 AM), https://www.bloomberg.com/news/articles/2016-08-24/the-
government-can-t-agree-with-itself-on-policing-student-loan-companies [https://perma.cc/
J4LA-HSNR] (“An American defaulted on a student loan direct from the U.S. Department
of Education every 28 seconds over the past year. Nearly all of those more than 1.1 million
defaults were avoidable, because almost every borrower is eligible for a repayment plan
based on affordability.”).
816 UTAH LAW REVIEW [NO. 4
To put these numbers into context, in 2016, three times as many people
defaulted on a student loan than lost their home due to foreclosure.19 In fact, the rate
of student loan defaults in 2016 is comparable to the foreclosure rate following the
mortgage meltdown.20 However, this is only one part of the crisis. Ballooning,
unaffordable student loan debt does not end with the millions of borrowers who are
behind or in default on a student loan.
Some people have tried to explain away the student loan crisis by relying on an
overly narrow definition of what it means for a borrower to be “struggling.”21
However, by limiting the definition of the student debt problem to those borrowers
19 Household Debt and Credit Report (Q4 2017), FED. RES. BANK N.Y.,
https://www.newyorkfed.org/microeconomics/hhdc.html [https://perma.cc/8AXT-5WFF]
(last visited Apr. 10, 2018) (reporting 339,000 foreclosures in 2016 calendar year).
20 See Michelle Conlin, Student Loan Borrowers, Herded into Default, Face a
Relentless Collector: The U.S., REUTERS: INVESTIGATES (July 25, 2017, 1:00 PM),
https://www.reuters.com/investigates/special-report/usa-studentloans [https://perma.cc/Z8
73-BGWK] (“Today, 11 percent of the $1.325 trillion of federal student loans outstanding is
severely delinquent or in default, higher than the mortgage default rate at the peak of the
foreclosure crisis in 2010 . . . .”).
21 See, e.g., SANDY BAUM, STUDENT DEBT: RHETORIC AND REALITIES OF HIGHER
EDUCATION FINANCING 7 (2016) (“The misperception that bachelor’s degree recipients with
very high levels of debt are typical coexists with the misperception that individuals who have
borrowed for college are among the groups in society struggling most.”); Joel A. Elvery, Is
There a Student Loan Crisis? Not in Payments, FED. RES. BANK OF CLEV.,
https://clevelandfed.org/~/media/content/newsroom%20and%20events/publications/forefro
nt/ff%20v7n02/ff%20v7n0204%20is%20there%20a%20student%20loan%20crisis%20pdf.
pdf?la=en [https://perma.cc/J4DV-JNEL] (last visited Apr. 10, 2018) (arguing that the
college wage premium and the option to make student loan payments based on income
negates the harm of increased student debt); Liese, supra note 1 (“The typical borrower we
hear about in news stories about student loan debt tends to have an enormous balance, is
unemployed or working a low-paying job, and lives with his or her parents to save money
on living expenses. These struggling borrowers are real, and their problems are troubling,
but they are outliers in the broader picture of student borrowing in the United States.”); Lizzie
O’Leary, Why Student Debt Is ‘A Crisis’ for Some Borrowers, PBS: NEWS HOUR (Oct. 21,
2016, 7:36 PM), https://www.pbs.org/newshour/show/student-debt-crisis-borrowers
[https://perma.cc/CFQ5-3NC5] (in which Sandy Baum states, “Student debt is a crisis for
some people, but student debt is not the generalized crisis that the common discourse would
make it appear. Yes, people are paying more of their incomes for a college education, but
still it’s worth it for most people.”).
2018] BROKEN PROMISES 817
who are behind or in default, the literature assumes that the remaining thirty-three
million borrowers are doing just fine.22 This perspective is deeply flawed.23
First, it is certainly not acceptable to write off the financial futures of eleven
million people. Second, by defining down what it means to “struggle” to include
only those in immediate, documented financial distress, these commentators are
ignoring the broader reality of debt-financed higher education. For every borrower
who misses a student loan payment or defaults on a debt, there is another borrower
who is struggling to buy a home, start a business, or save for retirement due to the
burden of their student loans.24
22 See, e.g., Claudio Sanchez, Is the Student Loan Crisis Fact or Fiction?, NPR: ED
(July 28, 2016, 6:00 AM), https://www.npr.org/sections/ed/2016/07/28/487032643/is-the-
student-loan-crisis-fact-or-fiction [https://perma.cc/DWB8-ENQP] (interviewing Sandy
Baum, who states that “[p]eople have an image of a recent bachelor’s degree recipient who
went to college for four years and is now 22–23 years old and is working at Starbucks. Those
people are very rare. People who earn bachelor’s degrees, by and large, do fine.”).
23 See Marshall Steinbaum, Who’s Afraid of the Student Debt Crisis?, BOS. REV. (Dec.
20, 2016), http://bostonreview.net/education-opportunity/marshall-steinbaum-whos-afraid-
student-debt-crisis [https://perma.cc/TY6M-CJ67] (“Baum, Akers, and Chingos—as well as
Adam Looney and Constantine Yannelis, authors of a Brookings Institution study both books
rely on—are all correct that crisis is felt most acutely by the worst-off borrowers with low
incomes, who also tend to have small loan balances. But that pattern does not imply that the
policy is a success for everyone else.”); see also Rajashri Chakrabarti et al., At the N.Y. Fed:
Press Briefing on Household Borrowing with Close-Up on Student Debt, FED. RES. BANK
OF NY: LIBERTY STREET ECON. (Apr. 3, 2017), http://libertystreeteconomics.newyorkfed.org
/2017/04/at-the-ny-fed-press-briefing-on-household-borrowing-with-close-up-on-student-
debt.html [https://perma.cc/E9N3-ADSP] (“We have noted in the past that delinquency and
default rates are lower among higher-balance borrowers; however, the default rates among
higher-balance borrowers have worsened notably in recent years. Further, payment progress
is slower among those who borrowed more.”).
24 See, e.g., Meta Brown & Sydnee Caldwell, Young Student Loan Borrowers Retreat
from Housing and Auto Markets, FED. RES. BANK OF NY: LIBERTY STREET ECON. (Apr. 17,
2013), http://libertystreeteconomics.newyorkfed.org/2013/04/young-student-loan-
borrowers-retreat-from-housing-and-auto-markets.html [https://perma.cc/T5UA-NUQJ]
(illustrating the potential for lost asset accumulation opportunities, homeownership rates of
30-year-old student loan borrowers decreased by more than 5 percent compared with
homeownership rates of 30-year-old non-borrowers); FED. RES. BANK OF NY, PRESS
BRIEFING ON HOUSEHOLD DEBT, WITH FOCUS ON STUDENT DEBT 36–47 (Apr. 3, 2017),
https://www.newyorkfed.org/medialibrary/media/press/PressBriefing-Household-Student-
Debt-April32017 #page=39 [https://perma.cc/3AF8-BJYU] (finding that college
attendees with student debt have lower homeownership rates than college attendees without
student debt and that higher debt balances are associated with lower home ownership rates);
Brent W. Ambrose et al., The Impact of Student Loan Debt on Small Business Formation
(Mar. 31, 2014), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2417676
[https://perma.cc/ST5Z-F44X]; Brandon Busteed, Student Loan Debt: Major Barrier to
Entrepreneurship, GALLUP (Oct. 14, 2015), http://www.gallup.com/businessjournal/186179
/student-loan-debt-major-barrier-entrepreneurship.aspx [https://perma.cc/KM63-NLWP];
CONSUMER FIN. PROTECTION BUREAU, SNAPSHOT OF OLDER CONSUMERS AND STUDENT
LOAN DEBT 14 (2017), http://files.consumerfinance.gov/f/documents/201701_cfpb_OA-
818 UTAH LAW REVIEW [NO. 4
Student debt has imperiled access to these key pillars of the middle class for
far too many Americans. The Great Recession devastated an entire generation of
people, and by breaking the promises made in the aftermath, America has
condemned the next.
As this Article will show, the country is doomed to repeat history again and
again until policymakers rebuild the foundation on which these promises were made.
Part II of this Article reflects on the series of discrete and intentional policy decisions
by state and federal lawmakers that led to unprecedented levels of student loan
borrowing. Part III discusses the student loan servicing market structure and how
lapses in oversight lead to consumer harm. Part IV evaluates how action across all
levels of government can relieve student debt burdens and mitigate consumer harm.
Finally, Part V analyzes areas in need of further study as researchers and
policymakers seek to fix the student debt crisis.
II. A $1.5 TRILLION PROBLEM
In order to address the student debt crisis, one must first understand how the
crisis came to be. In all instances, public policy reflects a series of choices. The
student debt crisis is no exception. History can trace the rapid rise of student debt to
a series of choices made in state houses across the country, stretching back more
than a decade.25 These choices were laid on a foundation built at the federal level
that not only tolerated, but promoted, debt-financed higher education.26
Student-Loan-Snapshot [https://perma.cc/284M-RNY5] (reporting that borrowers
nearing retirement “had a lower median amount in their employer-based retirement account
or an Individual Retirement Account (IRA) than consumers without student loan debt”);
Joseph Egoian, 73 Will Be the Retirement Norm for Millennials, NERDWALLET (Oct. 23,
2013), https://www.nerdwallet.com/blog/investing/73-retirement-norm-millennials/
[https://perma.cc/QF9V-RN5C] (finding that a 4 year college graduate with median student
loan debt of $23,000 has about $115,000 less in retirement savings than a 4 year college
graduate with no student loans by the time they reach age 73); Jeffrey P. Thompson & Jesse
Bricker, Does Education Loan Debt Influence Household Financial Distress? An Assessment
Using the 2007–09 SCF Panel 2 (Fin. & Econ. Discussion Series, Working Paper No. 2014-
90, 2014), https://www.federalreserve.gov/econresdata/feds/2014/files/201490pap
[https://perma.cc/8GFF-9VJG] (finding “that student loans are correlated with financial
distress in the 2007–09 SCF panel and families that hold student loans are more likely to
transition to financial distress between 2007 and 2009. Families with student loans in 2007
were about 4 percentage points more likely to be 60 days late paying bills and about 5
percentage points more likely to be denied credit in 2009.”).
25 See Michael Mitchell et al., CTR. ON BUDGET AND POL’Y PRIORITIES, A LOST
DECADE IN HIGHER EDUCATION FUNDING: STATE CUTS HAVE DRIVEN UP TUITION AND
REDUCED QUALITY (Aug. 23, 2017), https://www.cbpp.org/sites/default/files/atoms/files/
2017_higher_ed_8-22-17_final [https://perma.cc/2RDW-MRTH].
26 See, e.g., COUNCIL OF ECON. ADVISERS, EXEC. OFFICE OF THE PRESIDENT, INVESTING
IN HIGHER EDUCATION: BENEFITS, CHALLENGES, AND THE STATE OF STUDENT DEBT 10
(2016), https://obamawhitehouse.archives.gov/sites/default/files/page/files/20160718_cea_
2018] BROKEN PROMISES 819
A. State Disinvestment in Higher Education
At the height of the Great Recession, state lawmakers grappled with declines
in tax revenue and sought ways to plug holes in their battered budgets.27 In nearly
every state, lawmakers chose to cut public investment in higher education as a way
to fill these gaps.28 This choice directly affected the public colleges and universities
that educate nearly three-quarters of all college students in this country.29
student_debt [https://perma.cc/5R2B-QFM3] (“[M]any individuals who cannot pay for
college upfront may find it worthwhile to borrow to finance their education. . . . A major
function of the federal student loan system is to ease the credit constraints caused by
imperfections in the private loan market and ensure that all citizens have access to affordable
loans.”); see also Press Release, Office of the Press Sec’y, The White House, Fact Sheet:
Taking Action to Help More Americans Manage Student Debt (Apr. 28, 2016),
https://obamawhitehouse.archives.gov/the-press-office/2016/04/28/fact-sheet-taking-action
-help-more-americans-manage-student-debt [https://perma.cc/2KJB-UAJS]; Morgan
Adamson, The Financialization of Student Life: Five Propositions on Student Debt, 21
POLYGRAPH 97, 97 (2009) (“Of all the transformations that have taken place in the American
university, . . . perhaps the most radical is the shift toward financing higher education
through borrowed money.”).
27 See Dennis Jones & Jane Wellman, Breaking Bad Habits: Navigating the Financial
Crisis, CHANGE, May–June 2010, at 6, 8 http://archive.sheeo.org/annualmeeting/Change%
20Jones%20and%20Wellman%20Breaking%20Bad%20Habits [https://perma.cc/69Y8
-9Q47] (“Although states are reluctant to raise taxes, they evidently have less of a problem
letting tuitions go up. And up they are going—California, Oregon, Washington, New York,
Wisconsin, and Florida announced increases ranging from 10 to 33 percent. The normally
tuition-resistant Florida legislature has authorized annual increases in undergraduate tuitions
of 15 percent per year until they reach national averages for public four-year institutions.”);
Tracy Gordon, State and Local Budgets and the Great Recession, BROOKINGS (Dec. 31,
2012), https://www.brookings.edu/articles/state-and-local-budgets-and-the-great-recession
[https://perma.cc/E6V4-LMEW] (finding that in the second quarter of calendar year 2009,
state and local revenue has reached a 20 year low, and then between 2009 and 2012, states
faced more than $500 billion in cumulative budget shortfalls); Phil Oliff et al., States
Continue to Feel Recession’s Impact, CTR ON BUDGET AND POL’Y PRIORITIES (June 27,
2012), https://www.cbpp.org/research/states-continue-to-feel-recessions-impact?fa=view&
id=711 [https://perma.cc/H6H4-5TVQ] (“The Great Recession that started in 2007 caused
the largest collapse in state revenues on record.”).
28 See Michael Mitchell et al., Funding Down, Tuition Up: State Cuts to Higher
Education Threaten Quality and Affordability at Public Colleges, CTR ON BUDGET AND
POL’Y PRIORITIES (Aug. 15, 2016), https://www.cbpp.org/research/state-budget-and-
tax/funding-down-tuition-up [https://perma.cc/X3AE-V9VY] (finding that 43 states cut
funding for higher education in response to declining state revenue during the recession, and
that by 2016, only four states had increased per-student funding back to pre-recession levels);
see Gordon, supra note 27.
29 See U.S. Department of Education, National Center for Education Statistics, Higher
Education General Information Survey (HEGIS), “Fall Enrollment in Colleges and
Universities” surveys, 1970 through 1985; Integrated Postsecondary Education Data System
(IPEDS), “Fall Enrollment Survey” (IPEDS-EF:86-99); IPEDS Spring 2001 through Spring
820 UTAH LAW REVIEW [NO. 4
These state policymakers predicted that, of the tough choices they faced on
spending cuts, cuts to higher education would have the least ramifications.30
Legislators rightly assumed that if states chose to provide less financial support for
public colleges and universities, then these schools could simply raise the cost of
college in order to make up any shortfall.31
Unfortunately, this same rationale also assumed that individual students and
their families could handle a tuition bill of seemingly any size, without any real
downside for the state.32 When the financial consequences of these policies were
passed on to families, but not reflected on state balance sheets, state lawmakers could
act as if their choices came at no cost to their state or their citizens. In a budgetary
sense, this was undoubtedly true.33 But in a broader social and economic sense, it
could not be further from the truth. In fact, the costs would prove to be enormous.
2016, Fall Enrollment component; and Enrollment in Degree-Granting Institutions
Projection Model, 2000 through 2026.
30 See HAROLD HOVEY, NAT’L CTR. FOR PUB. POLICY AND HIGHER EDUC., STATE
SPENDING FOR HIGHER EDUCATION IN THE NEXT DECADE: THE BATTLE TO SUSTAIN
CURRENT SUPPORT 19–20 (1999), http://www.higheredinfo.org/analyses/State_Spending_
Hovey [https://perma.cc/3NTD-5FKR] (arguing that states treat higher education
spending as a “balance wheel” for state budgets because higher education institutions have
“perceived fiscal flexibility to absorb temporary fiscal adversity” and “the ability to maintain
and increase spending levels by shifting larger proportions of costs to users by tuition and
fee increases,” among other factors).
31 See id.; Douglas A. Webber, State Divestment and Tuition at Public Institutions,
ECON. OF EDUC. REV. 1, 3 (Oct. 2017), https://doi.org/10.1016/j.econedurev.2017.07.007
[https://perma.cc/XN9H-VGBT] (finding that post-2000, for every $1,000 per student state
budget cut to higher education funding, costs increased by $318 per student); Jennifer A.
Delaney & William R. Doyle, The Role of Higher Education in State Budgets, in STATE
POSTSECONDARY EDUCATION RESEARCH: NEW METHODS TO INFORM POLICY AND PRACTICE
55, 55 (Kathleen M. Shaw & Donald E. Heller eds., 2007) (“When states’ revenues are low,
higher education is an attractive option for heavy cuts because it has the ability to collect
fees for its services (an ability lacking in most other state spending categories).”).
32 See Delaney & Doyle, supra note 31.
33 See generally HANS JOHNSON, PUB. POLICY INST. OF CAL., DEFUNDING HIGHER
EDUCATION: WHAT ARE THE EFFECTS ON COLLEGE ENROLLMENT 4 (2012),
http://www.ppic.org/content/pubs/report/R_512HJR [https://perma.cc/S36L-5CX9]
(“[H]igher education is seen as a budget area that, unlike other government services, has the
ability to compensate for cuts in state expenditures. A common and not incorrect assumption
is that public colleges and universities have sources of funds, particularly students and the
tuitions they pay, that are not available to other government services.”); Roger Fillion,
Tackling Tuition, NCSL: STATE LEGISLATURES MAGAZINE (Mar. 1, 2016),
http://www.ncsl.org/bookstore/state-legislatures-magazine/tackling-tuition.aspx
[https://perma.cc/9UU7-3JD4] (“Since colleges can offset reductions in state spending with
tuition hikes, cutting higher education spending is often one of a few options states have
when balancing budgets.”); see, e.g., Governor Christie Signs Final Balanced Budget,
Delivering 2 Full Terms of Unprecedented Pension Stability, Fiscal Responsibility, & Tax
Relief, INSIDER NJ (Jul. 5, 2017, 1:48 AM), https://www.insidernj.com/press-
release/governor-christie-signs-final-balanced-budget-delivering-2-full-terms-unprecedent
2018] BROKEN PROMISES 821
A decade later, research shows that this rationale was rooted in a pyramid of
flawed assumptions. First, policymakers incorrectly assumed that families and
households would be able to absorb rising college costs without experiencing any
long term financial consequences. Second, policymakers relied on the belief that
college was always a sound investment. In other words, they believed that as long
as they could point to the college wage premium—narrowly defined as the wage gap
between college educated workers and workers without a degree—the long term
economic benefits to families and to society would eventually offset any immediate
increase in costs. Years of evidence has now exposed the flaws in both of these
assumptions and paint a deeply disturbing picture of the individual and societal costs
of student debt.
In the face of this mounting evidence, policymakers and higher education
leaders are finally starting to recognize that their choices over the preceding decade
set up millions to fail. As Gordon Gee, the former President of The Ohio State
University said in 2012, “I readily admit it. . . . I didn’t think a lot about costs. I do
not think we have given significant thought to the impact of college costs on
families.”34 In order to confront the consequences of these faulty assumptions and
to, in Gee’s words, “give significant thought” to the drivers of and solutions to the
student loan crisis, one must take an honest assessment of the myriad of ways that
student debt is impacting individual borrowers, families, and their communities.
B. The Domino Effect of Student Debt
Over the last decade, the total volume of outstanding student loan debt more
than tripled, adding $1 trillion on the backs of borrowers.35 Student loan debt now
makes up 11% of all household debt, up from only 5% in less than ten years.36 The
average student loan balance has nearly tripled since 2005.37 These increases
ed-pension-stability-fiscal-responsibility-tax-relief [https://perma.cc/7TB8-7PVM]. But see
Gordon Macinnes, New Jersey Must Make Higher Education a Priority Again, N. J. POL’Y
PERSP. (Oct. 16, 2017), https://www.njpp.org/budget/new-jersey-must-make-higher-
education-a-priority-again [https://perma.cc/T83S-75W8] (“New Jersey’s 21-percent cut in
inflation-adjusted state spending on public college operating costs since the Great
Recession—the equivalent of a $2,113 drop per full-time student—is the 13th largest
reduction in the nation.”).
34 Andrew Martin & Andrew W. Lehren, A Generation Hobbled by the Soaring Cost
of College, N.Y. TIMES: BUSINESS DAY (May 12, 2012), http://www.nytimes.com/2012/05/
13/business/student-loans-weighing-down-a-generation-with-heavy-debt.html?pagewanted
=all [https://perma.cc/55TV-EWAH].
35 See Historical Data: Consumer Credit Outstanding (Levels), FED. RES. BOARD OF
GOVERNORS (Feb. 07, 2018), https://www.federalreserve.gov/releases/g19/HIST/cc_hist_
memo_levels.html [https://perma.cc/7PJ2-A32J].
36 See Household Debt and Credit Report (Q1, 2017), FED. RES. BANK N.Y.: CTR.
MICROECON. DATA, https://www.newyorkfed.org/microeconomics/hhdc.html [https://perma
.cc/4JRX-NNXG].
37 See Joel Elvery, Is There a Student Loan Crisis? Not in Payments, FED. RES. BANK
CLEV. (May 16, 2016), https://clevelandfed.org/newsroom-and-events/publications/fore
822 UTAH LAW REVIEW [NO. 4
translate into very real financial consequences for student loan borrowers. For a
typical borrower, this increase results in higher amounts coming out of monthly
paychecks. According to one recent study, in 2015, the average student loan payment
for a millennial borrower was $351 per month—a payment amount more than 50%
higher than it was a decade prior.38
New evidence shows that declines in household formation and homeownership
are being driven by student debt—creating barriers to economic mobility for
borrowers across the country.39 Another study found that rising levels of student debt
resulted in 360,000 fewer homes purchased by twenty-eight to thirty-year-olds over
the previous fifteen years.40 For individual families, this struggle is real and
immediate. But for policymakers and researchers, the most alarming consequences
of the student debt crisis may happen not at the individual level, but rather where
student debt begins to shape the economy and society.41
front/ff-v7n02/ff-20160516-v7n0204-is-there-a-student-loan-crisis.aspx [https://perma.cc/
J4DV-JNEL] (“[O]utstanding balances have risen 280 percent since 2005 . . . .”).
38 Id.
39 See, e.g., Daniel Cooper & J. Christina Wang, Student Loan Debt and Economic
Outcomes, FED. RES. BANK BOS.: CURRENT POL’Y PERSP. (Oct. 2014),
https://www.bostonfed.org/-/media/Documents/Workingpapers/PDF/economic/cpp1407
[https://perma.cc/7YZL-5HRP] (“In addition, the distribution of total wealth excluding
student debt liabilities is lower for homeowners with student debt than for homeowners
without student loan debt (again conditional on at least some college attendance). This wealth
disparity remains even after controlling for a wide range of demographic and other factors.”).
40 Zachary Bleemer et al., Echoes of Rising Tuition in Students’ Borrowing,
Educational Attainment, and Homeownership in Post-Recession America, FED. RES. BANK
OF N.Y. (July 2017), https://www.newyorkfed.org/research/staff_reports/sr820
[https://perma.cc/HB5S-H6DG]; see also Shahien Nasiripour, Student Debt Is a Major
Reason Millennials Aren’t Buying Homes, BLOOMBERG (July 17, 2017, 10:25 AM),
https://www.bloomberg.com/news/articles/2017-07-17/student-debt-is-hurting-millennial-
homeownership [https://perma.cc/6NDJ-59TU] (“There’s a good chance the number of
millennials kept from buying homes because of their student loans has only grown since the
period the economists studied. As tuition has risen, total student debt has increased 13
percent, and every new class graduates with more student debt than the preceding one.”);
Rajashari Chakrabarti et al., Diplomas to Doorsteps: Education, Student Debt, and
Homeownership, FED. RES. BANK N.Y.: LIBERTY STREET ECON. (Apr. 3, 2017),
http://libertystreeteconomics.newyorkfed.org/2017/04/diplomas-to-doorsteps-education-
student-debt-and-homeownership.html [https://perma.cc/PXA3-7LLE].
41 See, e.g., Press Release, Remarks of Secretary Lew before the Financial Literacy
Education Commission (FLEC) (Oct. 23, 2013), http://www.treasury.gov/press-
center/press-releases/Pages/jl2191.aspx [https://perma.cc/PXA3-7LLE] (Secretary of the
Treasury Jacob Lew remarking that student debt is “hampering our economy” across
multiple sectors of society); Minutes of the Federal Open Market Committee, (Mar. 19–20,
2013), http://www.federalreserve.gov/monetarypolicy/fomcminutes20130320.htm
[https://perma.cc/394U-7S98] (noting that the Federal Reserve’s Federal Open Market
Committee, the central bank’s monetary policy rate setting board, identified student debt as
a risk to aggregate household spending in coming years); FIN. STABILITY OVERSIGHT
COUNCIL, 2014 ANNUAL REPORT (2014) 22, http://www.treasury.gov/initiatives/fsoc/
2018] BROKEN PROMISES 823
Mounting evidence shows that the ripple effects of student debt on society are
substantial. Researchers are beginning to show how this debt fuels economic,
gender, and racial inequality, inhibits asset accumulation, accelerates wealth gaps,
and carves out a generational divide that, even in the best of circumstances, will take
decades to erase.42 The evidence shows that the burden of student debt is not shared
equally, and the impact of this burden is far more severe for certain populations:43
• Women make up half of all college students, and yet owe two-thirds of
outstanding student loan debt. And the gender pay gap only serves to keep
women in debt longer.44
• Over 90% of African American and 72% of Latino students leave school
with debt, compared to 66% of white students.45 This debt hangs over their
financial lives for longer and at a greater rate than their white peers. Data
shows that twelve years into repayment, white borrowers have paid down
65% of their loan balance, while African American borrowers owe 113%
of what they originally borrowed.46 Disturbingly, at four-year, nonprofit
Documents/FSOC%202014%20Annual%20Report [https://perma.cc/HS75-2XJ3]
(noting that “high student-debt burdens may dampen consumption and could impact
household demand for housing purchases”). See also Sophia Caronello, Why Jerome Powell
Is Worried About Growing Student Debt, BLOOMBERG (Mar. 1, 2018),
https://www.bloomberg.com/news/articles/2018-03-01/why-jerome-powell-is-worried-
about-growing-student-debt-chart.
42 See generally William Elliot & Melinda Lewis, Student Debt Effects on Financial
Well-Being: Research and Policy Implications, 29 J. ECON. SURVEYS 614 (2015),
http://onlinelibrary.wiley.com/doi/10.1111/joes.12124/full [https://perma.cc/84B8-X8J8]
(finding that student loan debt can delay asset accumulation for years and can decrease a
family’s net worth by 63 percent); see also infra Part II.C.
43 See Daniela Kraiem, The Cost of Opportunity: Student Debt and Social Mobility, 48
SUFFOLK U. L. REV. 689, 699 (2015) (“Students with unmanageable debt are more likely to
be low-income, female, black, and have dependent members such as children or elderly
parents.”).
44 See Kevin Miller, Women’s Student Debt Crisis in the United States, AM. ASS’N U.
WOMEN (May 2017), https://www.aauw.org/research/deeper-in-debt/ [https://perma.cc/VH
P2-363S].
45 See Table 331.95, NAT’L CTR. FOR EDUC. STAT.: DIG. EDUC. STAT.,
https://nces.ed.gov/programs/digest/d15/tables/dt15_331.95.asp [https://perma.cc/6QT2-
BKBS] (last visited Apr. 10, 2018).
46 See Ben Miller, New Federal Data Show a Student Loan Crisis for African American
Borrowers, CTR. FOR AM. PROGRESS (Oct. 16, 2017, 9:00 AM),
https://www.americanprogress.org/issues/education-postsecondary/news/2017/10/16/4407
11/new-federal-data-show-student-loan-crisis-african-american-borrowers [https://perma.cc
/WSV7-ATVY]; see also Judith Scott-Clayton, The Looming Student Loan Default Crisis Is
Worse than We Thought, BROOKINGS (Jan. 11, 2018), https://www.brookings.edu/research/
the-looming-student-loan-default-crisis-is-worse-than-we-thought/ [https://perma.cc/RAL9-
J3XL] (“Debt and default among black college students is at crisis levels, and even a
bachelor’s degree is no guarantee of security: black BA graduates default at five times the
rate of white BA graduates (21 versus 4 percent), and are more likely to default than white
dropouts.”).
824 UTAH LAW REVIEW [NO. 4
schools, African Americans defaulted at four times the rate of their white
peers.47
• One of the most telling factors in whether residents of a zip code will
struggle with paying their student debt is not income, but rather the racial
composition—zip codes with predominantly African American and Latino
populations have higher rates of delinquency and default than
predominantly white zip codes with comparable income levels.48
• But the student debt struggle is not limited by race and gender. Data also
shows that rural areas such as Appalachia and other communities
seemingly long forgotten by policymakers have some of the highest
incidences of delinquency and default.49
This research shows that where pursuing a college degree was once marketed
as the “great equalizer,” it now perpetuates the divide between the “haves” and the
“have-nots.”50 One recent study projected that a typical household headed by two
college-educated adults with average student loan debt balances loses out on more
than $200,000 in accumulated wealth over a lifetime.51
47 Robert Kelchen, Institutional Accountability: A Comparison of the Predictors of
Student Loan Repayment and Default Rates, 671 ANNALS AM. ACAD. POL. SOC. SCI. 202,
212–217 (2017), http://journals.sagepub.com/doi/full/10.1177/0002716217701681.
48 See Marshall Steinbaum & Kavya Vaghul, How the Student Debt Crisis Affects
African Americans and Latinos, WASH. CTR. FOR EQUITABLE GROWTH (Feb. 17, 2016),
http://equitablegrowth.org/how-the-student-debt-crisis-affects-african-americans-and-
latinos/ [https://perma.cc/BQ2X-KP5P].
49 See MAPPING STUDENT DEBT, www.mappingstudentdebt.org [https://perma.cc/LM
T8-PF5N] (last visited Apr. 10, 2018) (showing student loan delinquency rates by zip code);
see also STATE COUNCIL OF HIGHER EDUC. FOR VA., POLICY CONSIDERATIONS FOR
STUDENT-LOAN REFINANCING AUTHORITY 5 (2016), http://www.schev.edu/docs/default-
source/Reports-and-Studies/2016-reports/student-loan-refinance-review-11-1-2016
[https://perma.cc/8WYN-V37N] (finding that student loan delinquency rates in Appalachia
are among the highest in Virginia).
50 See, e.g., WILLIAM ELLIOT & MELINDA LEWIS, ASSETS & EDUC. INITIATIVE, UNIV.
OF KAN., STUDENT LOANS ARE WIDENING THE WEALTH GAP: TIME TO FOCUS ON EQUITY 7
(2013), http://aedi.ssw.umich.edu/sites/default/files/publications/publication-cd-reports-
r1 [https://perma.cc/VUR5-CKUT] (“However, despite our collective belief in an
American dream of equitable opportunities for all, higher education today increasingly
reinforces patterns of relative privilege, particularly as students rely more and more on
student loans to finance college access.”).
51 ROBERT HILTONSMITH, DEMOS, AT WHAT COST? HOW STUDENT DEBT REDUCES
LIFETIME WEALTH 9 (2013), http://www.demos.org/sites/default/files/imce/AtWhatCost
Final [https://perma.cc/E8NR-GAA2]; see also Richard Fry, Young Adults, Student
Debt, and Economic Well Being, PEW RES. CTR. (May 14, 2014),
http://www.pewsocialtrends.org/2014/05/14/young-adults-student-debt-and-economic-
well-being/ [https://perma.cc/9LMJ-VMTK] (“[S]howing that millennials who incur debt
after graduation have an average net worth of seven times less than that of their non-indebted
counterparts. Millennials with no debt when graduating have an average net worth of
$64,700, while millennials graduating with student debt have only $8,700 on average.”);
Cooper & Wang, supra note 39. See generally Emily Rauscher & William Elliott, The
2018] BROKEN PROMISES 825
It is increasingly clear that the student debt crisis is much broader than a series
of individual student loan defaults. As more Americans pursue higher education,
only to be weighed down by unaffordable student debt, this supposed equalizer is
quickly turning into one of the greatest forces cementing economic inequality in this
nation.52
With a more honest assessment of the full impact of the crisis, one can now
look back to the pyramid of assumptions used to justify the public policies that led
us here and ask how well they hold up.
C. The Myth of the College Wage Premium
First, one should reconsider the assumption that families could continue to
absorb the financial effects of rising college costs without passing these costs on to
students.53 For much of the country’s recent past, families have shared the economic
burden of paying for college by drawing on a combination of income, savings, home
Relationship Between Income and Net Worth: A Virtuous Cycle for High but Not Low Income
Households, 20 J. POVERTY 380 (2016) (finding that a college graduate with an extra $10,000
in student loans will achieve the nation’s median net worth 26 percent slower than a college
graduate without that debt, concluding that financing higher education through student loans
can put college graduates who begin school with few assets even further behind their
wealthier peers).
52 See, e.g., Thomas Piketty, Transcript of Student Loan Debt Is the Enemy of
Meritocracy in the U.S., BIG THINK, http://bigthink.com/videos/thomas-piketty-on-the-rise-
of-us-student-debt [https://perma.cc/LV68-ZDQT] (“And I think if we really want to
promote more equal opportunity and redistribute chances in access to education, we should
do something about student debt. And it’s not possible to have such a large group of the
population entering the labor force with such a big debt behind them.”); William C. Dudley,
Opening Remarks at the Convening on Student Loan Data Conference, FED. RES. BANK OF
N.Y. (Mar. 4, 2015), https://www.newyorkfed.org/newsevents/speeches/2015/dud150304.
html [https://perma.cc/SSL5-M4CL] (“We have gained an increasing understanding that
how we finance post-secondary education has significant effects on a variety of critical
economic outcomes, including economic growth and inequality. For example, our research
suggests that higher student debt and delinquencies reduce household formation and depress
homeownership.”); WILLIAM GALE ET AL., BROOKINGS INST., STUDENT LOANS RISING: AN
OVERVIEW OF CAUSES, CONSEQUENCES, AND POLICY OPTIONS 3–4 (2014),
https://www.brookings.edu/wp-content/uploads/2016/06/student_loans_rising_gale_harris_
09052014 [https://perma.cc/5G97-DCSX] (showing that student debt “is associated with
students pursuing jobs that pay higher wages initially, perhaps at the expense of wages in the
future,” “that student loan borrowers are roughly 60 to 70 percent less likely to apply to
graduate school—after controlling for other factors—than non-borrowers,” that “[h]igh
student loan burdens may disqualify students from taking on mortgage debt, and debt
aversion may dissuade student loan holders from purchasing a home even if qualified to do
so,” and that “[s]tudent debt may also discourage retirement saving, by delaying the initiation
of contributions to retirement plans, by reducing the level of contributions, or by increasing
the demand for early withdrawals.”); ELLIOT & LEWIS, supra note 50.
53 See supra Part II.A.
826 UTAH LAW REVIEW [NO. 4
equity, and retirement savings in order to contribute.54 These family contributions,
when combined with a student’s income from part-time work, and paired with a
combination of student loans and grants, were sufficient to leave a typical borrower
with a modest debt load at graduation. As tuition rose in the years preceding the
Great Recession, this equilibrium was tenuous, but it held. Then the recession hit.
Rising student debt levels are not just a byproduct of rising college costs, but
rather the shift from the state to the household and then the household to the
individual. During the recession, millions of families suffered a series of continuing
economic shocks. Widespread unemployment, combined with drops in home equity,
investments, and retirement savings, battered household balance sheets.55 As wealth
declined, particularly for working families, many households could no longer make
a major financial contribution to higher education.56 Students were left with the
54 See V. Joseph Hotz et al., The Role of Parental Wealth & Income in Financing
Children’s College Attendance & Its Consequences, Fed. Res. Bank of NY, presented at the
Southern Economics Association Annual Meeting 2 (Dec. 6, 2017) (unpublished
manuscript), available at https://www.newyorkfed.org/medialibrary/media/research/
conference/2017/higher_education/Hotz_Wealth_Paper_12-05-17 [https://perma.cc/9CBS-
SG6D] (“The recent trends in household income and a [sic] housing wealth are likely to have
important consequences for the educational attainment and college financing decisions of the
next generation, as parents have long been a primary source of financial support for their
children’s post-secondary education”).
55 See M. William Sermons, America’s Household Balance Sheet: The State of Lending
in America & Its Impact on U.S. Households, CTR. FOR RESPONSIBLE LENDING 12 (Dec.
2012), http://www.responsiblelending.org/sites/default/files/uploads/2-americas-household-
balance-sheet [https://perma.cc/9CBS-SG6D] (“Data show that the recession depleted
household assets. University of Michigan researchers found that households lost value in
their homes and other financial assets and also used financial assets to deal with income
loss . . . .”); BRIDGET TERRY LONG, The Financial Crisis and College Enrollment: How
Have Students and Their Families Responded?, in HOW THE FINANCIAL CRISIS AND GREAT
RECESSION AFFECTED HIGHER EDUCATION 214 (Jeffrey R. Brown & Caroline M. Hoxby
eds., 2012) (“This period of economic turmoil has also strongly affected the housing market
by reducing the value of many families’ homes, while others have lost their homes altogether.
[Researchers] conclude that ‘the average household experienced a decline in net worth of
$177,000 between the middle of 2007 and the trough of the asset price decline in the first
quarter of 2009.’”); Megan Kowalski & Hadley Malcolm, Fewer Parents Can Pay College
Tuition, USA TODAY (July 23, 2013, 8:22 AM),
https://www.usatoday.com/story/money/personalfinance/2013/07/22/recession-college-
tuition-savings-plans/2569809/ [https://perma.cc/WD6B-56YM] (“‘The post-recession
reality is (parents) don’t have the income and savings,’ says Sarah Ducich, senior vice
president of public policy at Sallie Mae. ‘It’s not that they’re not willing to stretch. It’s that
they don’t think they have the money to do that.’”).
56 See, e.g., Gene Amromin et al., The Housing Crisis and Rise in Student Loans, Fed.
Deposit Insurance Corp. 1 (Oct. 20, 2016) (unpublished manuscript), available at
https://www.fdic.gov/news/conferences/consumersymposium/2016/documents/mondragon
_paper [https://perma.cc/E2SZ-CEEE] (“Our results show that the decline in house
prices reduced households’ ability to finance college enrollment with home equity credit, but
that constrained households mostly responded by continuing to enroll in college and relying
2018] BROKEN PROMISES 827
choice to not go to college or to take on debt.57 When faced with this choice, millions
of people chose debt.58
While conventional wisdom often points to the rapid rise in college tuition as
the sole driver of increased student indebtedness, that is only part of the story.59 The
other part is the willingness of policymakers to pile college costs onto families at the
exact moment these families were trying to stay afloat during the financial fallout of
the recession.60
Having exposed this first assumption as flawed, one should then consider the
great catchall in the higher education funding debate—the proposition that the boost
in wages earned by college graduates justifies the explosion of student debt because,
over time, college is still “worth it.”61
on student loans. Our estimates suggests the 30% fall in house prices from the 2006 peak
resulted in the average college student borrowing an additional $1,300 in student loans, with
some evidence of larger effects on liquidity-constrained and less-educated households.”);
LONG, supra note 55, at 214 (“Previous research suggests that changes in home values can
affect educational attainment, and other research has found that families rely on home equity
as a way to finance college. Therefore, with reductions in home values and the ease of getting
a home equity loan, there is some concern that the Great Recession may have reduced the
likelihood of college attendance.”); Hotz et al., supra note 54, at 2.
57 See Kowalski & Malcolm, supra note 55; NATE JOHNSON, LUMINA FOUND.,
COLLEGE COSTS, PRICES AND THE GREAT RECESSION 7 (Apr. 2014),
https://files.eric.ed.gov/fulltext/ED555862 [https://perma.cc/HQ86-KG89].
58 Between Fall 2005 and Fall 2010, the number of full time, first time degree seeking
undergraduate students receiving federal student loans increased 50 percent (1.2 million to
1.8 million). LAURA G. KNAPP ET AL., U.S. DEPT. OF EDUC., ENROLLMENT IN
POSTSECONDARY INSTITUTIONS, FALL 2005; GRADUATION RATES, 1999 AND 2002
COHORTS; AND FINANCIAL STATISTICS, FISCAL YEAR 2005 (Apr. 2007),
https://nces.ed.gov/pubs2007/2007154 [https://perma.cc/3JHA-CEGS]; LAURA G.
KNAPP ET AL., U.S. DEPT. OF EDUC., ENROLLMENT IN POSTSECONDARY INSTITUTIONS, FALL
2010; FINANCIAL STATISTICS, FISCAL YEAR 2010; AND GRADUATION RATES, SELECTED
COHORTS, 2002–07 (Mar. 2012), https://nces.ed.gov/pubs2012/2012280
[https://perma.cc/QJQ3-6VU2].
59 See Michael Greenstone & Adam Looney, Rising Student Debt Burdens: Factors
Behind the Phenomenon, BROOKINGS (Aug. 12, 2013),
https://www.brookings.edu/blog/jobs/2013/07/05/rising-student-debt-burdens-factors-
behind-the-phenomenon [https://perma.cc/4FTV-SDNW] (finding that “neither college
enrollment nor net college tuition has risen enough over the past decade to explain the rapid
upsurge in student debt. Instead, this phenomenon seems to be driven by an increase in the
share of student-loan borrowing used to finance each dollar of college tuition”).
60 See JOHNSON, supra note 57, at 7 (“States that were hardest hit by the recession and
that cut appropriations to higher education the most also had the highest tuition
increases. . . . While not surprising, the correlation between recession impact and tuition
hikes illustrates one of the policy problems associated with state higher education finance.
Prices go up exactly where and when citizens are least able to afford the increases.”).
61 See also Colleen Curtis, President Obama: College Is the Best Investment You Can
Make, WHITE HOUSE (Apr. 25, 2012, 10:55 AM), https://obamawhitehouse.archives.gov/
blog/2012/04/25/president-obama-college-best-investment-you-can-make [https://perma.cc/
828 UTAH LAW REVIEW [NO. 4
For more than half a century, part of the American dream was built on the
implicit understanding, right or wrong, that college is always a sound investment
and that taking on debt to get a degree is just a necessary step on a well-worn path
to the middle class.62 Conventional wisdom suggested that the burden on individuals
should not be a focus for policymakers because these increased costs were always
offset by the broader economic gains that come from getting a higher education.63 It
is easy to see how this led a generation of policymakers and higher education
officials to embrace the myth that a student loan was “good debt.”64
But for borrowers—and for the policymakers and researchers that led them
there—conventional wisdom around the merits of “good debt” is just as dangerous
as the widely held but misguided belief that home values would always rise in
perpetuity and an investment in one’s house always paid off.65
ZDU4-X74M].
62 See generally Raj Chetty et al., Mobility Report Cards: The Role of Colleges in
Intergenerational Mobility (July 2017) (unpublished manuscript), available at
http://www.equality-of-opportunity.org/papers/coll_mrc_paper [https://perma.cc/3XKE
-RSVY] (analyzing students’ earnings outcomes and parents’ incomes for American colleges
and universities); Lawrence E. Gladieux, Federal Student Aid Policy: A History and an
Assessment (Oct. 1995), https://www2.ed.gov/offices/OPE/PPI/FinPostSecEd/gladieux.html
[https://perma.cc/JC4Z-5QKE] (detailing the history of federal student loans as a mechanism
to assist middle class students and families afford college); see also Matthew B. Fuller, A
History of Financial Aid to Students, 44 J. OF STUDENT FIN. AID 1, 25 (2014).
63 See, e.g., Beth Akers, Higher Education Debt Is Worth It, but Isn’t Risk Free,
BROOKINGS (Jan. 12, 2016), https://www.brookings.edu/opinions/higher-education-debt-is-
worth-it-but-isnt-risk-free/ [https://perma.cc/2BA6-8423] (“But the rapidly rising cost of
college education is not as troubling as it first appears. While the price of higher education
has increased, so has its value. Over the last 30 years the lifetime earnings associated with
having a college degree has grown by 75 percent. Today’s students are paying more to go to
college, but they are also getting more out of it. In this sense they’re getting a better
deal. . . . Research indicates that the financial rate of return on a college degree is about 15
percent—a rate that far exceeds the yield on most other investments available to the
individual consumers, especially young ones.”); see also Jaison Abel & Richard Deitz, Do
the Benefits of College Still Outweigh the Costs?, 20 CURRENT ISSUES IN ECON. AND FIN. 1,
8 (2014); Anthony P. Carnevale, College Is Still Worth It, INSIDE HIGHER ED (Jan. 14, 2011),
https://www.insidehighered.com/views/2011/01/14/carnevale_college_is_still_worth_it_for
_americans [https://perma.cc/W7EH-XZKK].
64 See, e.g., Stephen J. Rose, Good Debt: Why Student Loans Are Better for You than
You Think, THE ATLANTIC (Sep. 4, 2012),
https://www.theatlantic.com/business/archive/2012/09/good-debt-why-student-loans-are-
better-for-you-than-you-think/261918/ [https://perma.cc/VG7P-JVBC]; Christopher Shea,
Don’t Listen to Those Scary Tales of Student-Loan Woe, WASH. POST (Mar. 21, 2013),
https://www.washingtonpost.com/opinions/dont-listen-to-those-scary-tales-of-student-loan-
woe/2013/03/21/0a94b134-90a2-11e2-bdea-e32ad90da239_story.html?utm_term=.174e64
d10da9 [https://perma.cc/DN3L-EHPZ].
65 See Shahien Nasiripour, Recent Federal Student Loans Look A Lot Like Subprime
Mortgages, HUFFINGTON POST (Sep. 10, 2015, 09:29 PM), https://www.huffingtonpost.com/
entry/recent-federal-student-loans-look-a-lot-like-subprime-mortgages_us_55f1cca6e4b093
2018] BROKEN PROMISES 829
To start, wages of those without a degree are dropping rapidly.66 In effect, the
bottom has fallen out of the labor market for non-college-educated American
workers. This creates a deeply misleading contrast. In other words, the college wage
premium does not persist across generations because things are getting better for
college educated workers—it persists because things are worse for those without a
degree.67 In fact, when accounting for inflation, wages for college graduates have
be51be0ad9 [https://perma.cc/2G8F-AJ58] (“Rather than paying down their balances after
leaving school, borrowers with recent federal student loans are experiencing an increase in
debt as they fail to make enough payments to offset the accumulating interest on their loans.
The situation parallels subprime mortgages before the financial crisis, when lenders gave
borrowers loans they couldn’t afford by allowing them to make payments that didn’t actually
reduce their balances.”); see generally Press Release, U.S. Dept. of the Treasury, Remarks
by Deputy Secretary Sarah Bloom Raskin at the Rappaport Center for Law and Public Policy
Conference on the Student Debt Crisis (Mar. 18, 2016), https://www.treasury.gov/press-
center/press-releases/Pages/jl0389.aspx [https://perma.cc/CUY9-535C] (“More generally,
the experience of the last decade provides a painful reminder that debt burdens can worsen
economic downturns and slow economic recoveries. . . . While student loan debt is much
smaller than mortgage debt and does not pose the same systemic risk, a burden of student
debt could, in principle, have analogous effects down the line.”).
66 See Jillian Berman, A High-School Diploma Is Pretty Much Useless These Days,
HUFFINGTON POST (Dec. 6, 2017), https://www.huffingtonpost.com/2014/05/27/value-
college-degree_n_5399573.html [https://perma.cc/MUG7-TYWG] (quoting economist
Elise Gould in stating, “The only reason that the [college] premium has gone up at all is
because wages for high-school graduates have actually fallen”); Abel & Deitz, supra note
63, at 8 (“[A]lthough the wages of college-educated workers have stagnated since the early
2000s—and even declined in the years since the Great Recession—the wages of high school
graduates have also been falling. As a result, the college wage premium has remained near
its all-time high.”); Patricia Cohen, It’s a Tough Job Market for the Young Without College
Degrees, N.Y. TIMES (May 10, 2016), https://www.nytimes.com/2016/05/11/business/
economy/its-a-tough-job-market-for-the-young-without-college-degrees.html?_r=0
[https://perma.cc/8J2H-VMYV].
67 See Shaila Dewan, Wage Premium from College Is Said to Be Up, N.Y. TIMES:
ECONOMIX (Feb. 11, 2014, 8:23 PM), https://economix.blogs.nytimes.com/2014/02/11/
wage-premium-from-college-is-said-to-be-up/ [https://perma.cc/2LHF-BCFV] (quoting one
researcher as saying that “[f]or today’s young adults, the only thing more expensive than
going to college is not going to college”); Abel & Deitz, supra note 63, at 8; Paul Taylor et
al., The Rising Cost of Not Going to College, PEW RES. CTR. 3 (Feb. 11, 2014),
http://assets.pewresearch.org/wp-content/uploads/sites/3/2014/02/SDT-higher-ed-FINAL-
02-11-2014 [https://perma.cc/4WL4-JV8Z]; see also Rohit Chopra, Prepared Remarks
of Rohit Chopra Before the Federal Reserve Bank of St. Louis, CFPB (Nov. 18, 2013),
https://www.consumerfinance.gov/about-us/newsroom/student-loan-ombudsman-rohit-
chopra-before-the-federal-reserve-bank-of-st-louis/ [https://perma.cc/4GKY-VJV3] (“Much
has been made of the college wage premium, that is, the difference between incomes of
college graduates versus non-college graduates. . . . But behind that headline number is a
more troubling trend. The growing gap between college graduates and others isn’t really due
to rising starting wages for the average college graduate—it’s that the wages of those without
a degree are falling rapidly.”).
830 UTAH LAW REVIEW [NO. 4
remained nearly stagnant for more than a decade.68 At the same time, cost of living
for all Americans has steadily climbed. The cost of health care and housing has
outpaced inflation for the last decade.69 For all but the highest earning households,
these expenses have consumed a steadily rising share of incomes.70
Therefore, it should come as no surprise to researchers or policymakers when
a college graduate is not satisfied with her lot in life or when she questions the value
of her degree. Yet these researchers and policymakers continue to tout a tired
statistic describing how bachelor’s degree recipients earn an additional million
dollars over their lifetimes when compared to non-college-educated workers.71 This
tired statistic does not account for a paycheck already stretched too thin; it does not
explain why a college graduate now struggles to accumulate the same assets her
68 See Dylan Matthews, Between 2000 and 2012 American Wages Grew . . . Not at All,
WASH. POST (Aug. 21, 2013) https://www.washingtonpost.com/news/wonk/wp/2013/08/
21/between-2000-and-2012-american-wages-grewnot-at-all/?utm_term=.5bfac97678ad
[https://perma.cc/H32A-MB86]; Elise Gould, The State of American Wages 2016, ECON.
POL’Y INST. (Mar. 9, 2017), http://www.epi.org/publication/the-state-of-american-wages-
2016-lower-unemployment-finally-helps-working-people-make-up-some-lost-ground-on-
wages/ [https://perma.cc/HKR7-LJV8] (“[F]rom 2000 to 2016, educational attainment has
not been sufficient to return many workers to where they were before the recessions of the
2000s: the bottom 50 percent of workers with a college degree still have lower wages than
they did in 2000 or 2007.”).
69 See Jiachuan Wu & Stephen Culp, U.S. Inflation, REUTERS, http://fingfx.thomson
reuters.com/gfx/rngs/1/1262/1901/index.html [https://perma.cc/9YBY-5VMP] (last visited
Dec. 24, 2017); Chopra, supra note 67 (“While conventional wisdom has focused heavily on
rising tuition as the primary driver of debt, this may be too simplistic. . . . The deterioration
of household balance sheets seems to be a major culprit.”).
70 See Bureau of Labor Statistics, Table 45. Quintiles of income before taxes: Shares of
average annual expenditures and sources of income, Consumer Expenditure Survey, 2005,
https://www.bls.gov/cex/2005/share/quintile [https://perma.cc/C2C6-S5ZV]; Bureau of
Labor Statistics, Table 1101. Quintiles of income before taxes: Annual expenditure means,
shares, standard errors, and coefficients of variation, Consumer Expenditure Survey, 2016,
https://www.bls.gov/cex/2016/combined/quintile [https://perma.cc/4WGV-7DMN]; see
also Erin Currier et al., The Precarious State of Family Balance Sheets, PEW CHARITABLE
TRUSTS (Jan. 2015), http://www.pewtrusts.org/~/media/assets/2015/01/fsm_balance_sheet
_report [https://perma.cc/YZX4-UF4D]; Sermons, supra note 55, at 12.
71 See, e.g., Anthony P. Carnevale et al., The Economic Values of College Majors,
GEORGETOWN U. CTR. ON EDUC. AND THE WORKFORCE 5 (2015), https://cew.georgetown.
edu/wp-content/uploads/Exec-Summary-web-B [https://perma.cc/N2BF-2C8X];
MARGARET SPELLINGS ET AL., U.S. DEPT. OF EDUC., A TEST OF LEADERSHIP: CHARTING THE
FUTURE OF U.S. HIGHER EDUCATION: A REPORT OF THE COMMISSION APPOINTED BY
SECRETARY OF EDUCATION MARGARET SPELLINGS 6 (Sept. 2006), https://www2.ed.gov/
about/bdscomm/list/hiedfuture/reports/pre-pub-report [https://perma.cc/3QPB-7JQF].
But see Doug Lederman, College Isn’t Worth a Million Dollars, INSIDE HIGHER ED (Apr. 7,
2008), https://www.insidehighered.com/news/2008/04/07/miller [https://perma.cc/J5XD-
E9WT].
2018] BROKEN PROMISES 831
parents did after leaving school; nor does it explain the role that debt-financed higher
education plays in the widening wealth gap.72
The college wage premium may seem pronounced and persuasive to an
economist, but it is meaningless to millions of today’s college graduates. The notion
that “other people have it worse” offers little solace when far too many of the
borrowers who have done everything asked of them still struggle to afford a down
payment, start a business, or save for retirement. When “other people have it worse”
becomes the new foundation for the American Dream, America has failed an entire
generation.
III. ADDING INSULT TO INJURY
It did not have to be this bad. In 2007, Congress created what is, in effect, an
insurance policy for borrowers that assume the risk of an unaffordable higher
education.73 Through income-driven repayment (“IDR”) borrowers could make
payments based on their incomes, not their debt load.74 With IDR, Congress
promised that students need not worry about persistent economic distress after
college as monthly payments would always be affordable because they would be
based on how much a borrower earns.75 Having put in place this insurance policy for
borrowers who are unemployed or have very low incomes (in some cases, as low as
72 See supra Part II.B. and C.
73 See 20 U.S.C. § 1098e(b) (2018). Note that an Income-Contingent Repayment
(“ICR”) plan was introduced in 1993 as part of the Student Loan Reform Act, but was limited
to a small set of Direct Loan borrowers and therefore was not widely utilized. As of March
31, 1997, 56,298 Direct Loan borrowers were enrolled in ICR. U.S. GOV’T ACCT. OFF.,
DIRECT STUDENT LOANS: ANALYSES OF BORROWERS’ USE OF INCOME CONTINGENT
REPAYMENT OPTION 2 (Aug. 1997), https://www.gao.gov/assets/230/224560
[https://perma.cc/PX8Y-V2S6].
74 See 20 U.S.C. § 1098e(b) (2018). Income-Based Repayment, Pay As You Earn
Repayment, Revised Pay As You Earn Repayment, and Income-Contingent Repayment are
collectively referred to as income-driven repayment plans. See Income-Driven Plans, U.S.
DEP’T. EDUC., https://studentaid.ed.gov/sa/repay-loans/understand/plans/income-driven
[https://perma.cc/Q6Z2-MH35] (last visited Apr. 10, 2018).
75 In 2007, income-based repayment was introduced as part of the College Cost
Reduction and Access Act. H.R. 2669, 110th Cong. (2007). See generally Higher Education,
Higher Cost and Higher Debt: Paying For College in the Future: Hearing on Examining
College Affordability, Focusing on Higher Education, Higher Costs and Higher Student
Debt, and the Higher Education Act and Its Amendments Before the S. Comm. on Health,
Education, Labor, and Pensions, 110th Cong. 1 (2007), available at
https://www.gpo.gov/fdsys/pkg/CHRG-110shrg33516/html/CHRG-110shrg33516.htm
[https://perma.cc/96LC-298Z] (discussing how efforts to reduce the burden of student loan
payments supports higher education policy goals). See also Thompson & Bricker, supra note
24 (finding “that student loans are correlated with financial distress in the 2007–09 SCF
panel and families that hold student loans are more likely to transition to financial distress
between 2007 and 2009. Families with student loans in 2007 were about 4 percentage points
more likely to be 60 days late paying bills and about 5 percentage points more likely to be
denied credit in 2009.”).
832 UTAH LAW REVIEW [NO. 4
$0 per month), the IDR framework should also translate to, in the words of former
Department of Education Under Secretary Ted Mitchell, a “zero default rate.”76
Of course, IDR is not the perfect solution to the most alarming spillover effects
of student debt, including effects on wealth inequality, retirement security, and
homeownership; but it does have the potential to serve as a powerful protection
against both short term and long term financial shocks, acting as a critical bulwark
against rising student loan defaults.77
This is a great idea—in theory. But as the Consumer Financial Protection
Bureau (CFPB) has frequently highlighted, the nation’s outdated and dysfunctional
student loan system was never up to the task of delivering on this promise.78 When
76 TED MITCHELL, U.S. DEP’T EDUC., OPENING ADDRESS AT THE CFPB FIELD HEARING
ON STUDENT DEBT (May 14, 2015), https://www.consumerfinance.gov/about-us/blog/live-
from-milwaukee/ [https://perma.cc/4YFT-RB6N].
77 Student loan borrowers enrolled in the most generous IDR plan have delinquency
rates seven times lower than borrowers enrolled in standard repayment. See CFPB, STUDENT
LOAN SERVICING: ANALYSIS OF PUBLIC INPUT AND RECOMMENDATIONS FOR REFORM 22–23
(2015), http://files.consumerfinance.gov/f/201509_cfpb_student-loan-servicing-report
[https://perma.cc/KT6P-YE2B]; see also Holger M. Mueller & Constantine Yannelis, The
Rise in Student Loan Defaults in the Great Recession 1 (Nov. 2017) (unpublished
manuscript) (“The Income Based Repayment (IBR) program introduced by the federal
government in the wake of the Great Recession reduced both student loan defaults and their
sensitivity to home price fluctuations, thus providing student loan borrowers with valuable
insurance against negative shocks.”); Daniel Herbst, Liquidity and Insurance in Student Loan
Contracts: Estimating the Effects of Income-Driven Repayment on Default and Consumption
1 (Jan. 31, 2018) (unpublished manuscript), available at https://drive.google.com/file/d/1A-
gq_LIqffY6r2gDTcUK9-Y3ZV8Go6SU/view [https://perma.cc/2ALA-BK9H]; Mark
Huelsman, When It Comes to Student Debt, It’s Really a Matter of Wealth, WASH. POST
(May 16, 2018), https://www.washingtonpost.com/news/grade-point/wp/2018/05/16/when-
it-comes-to-student-debt-its-really-a-matter-of-wealth/?utm_term=.664d34569a94.
78 See CFPB, STUDENT LOAN SERVICING, supra note 77, at 11–12 (“The ability to
assess the overall quality of student loan servicing is limited by lack of data, particularly for
loans not held by the federal government; however, existing evidence . . . suggests that
current servicing practices may not meet the needs of borrowers or loan holders, including,
in the case of federal loans held by the Department of Education, the needs of taxpayers.”);
SETH FROTMAN, CFPB, REMARKS AT THE JUDGE ADVOCATE GENERAL’S LEGAL CENTER
AND SCHOOL 4 (Oct. 17, 2017), available at https://s3.amazonaws.com/files.consumer
finance.gov/f/documents/201710_cfpb_Frotman-Remarks-JAG-School [https://perma.
cc/JM4L-S4EE] (“Servicemembers with student loans continue to suffer from outdated
policies and servicing lapses that can prevent them from accessing the benefits and
protections they are promised under federal law.”); CFPB, ANNUAL REPORT OF THE CFPB
STUDENT LOAN OMBUDSMAN 4 (2016), available at https://s3.amazonaws.com/files.consum
erfinance.gov/f/documents/102016_cfpb_Transmittal_DFA_1035_Student_Loan_Ombuds
man_Report [https://perma.cc/2PTN-T9HK] (observing “that legacy requirements in the
rehabilitation program place increased burden on borrowers, increase costs for taxpayers,
create unnecessary barriers to repayment success, and fail to consider the significant changes
that have occurred in higher education finance market in the past decade”); see also CFPB,
ANNUAL REPORT OF THE CFPB STUDENT LOAN OMBUDSMAN 21–22 (2015), available at
https://www.consumerfinance.gov/data-research/research-reports/annual-report-of-the-
2018] BROKEN PROMISES 833
there are still eight million defaults a decade after laying out the supposed zero-
default-rate framework, this is simply another broken promise.79 And when another
three million people are approaching default and there has been no real action to
prevent it, these borrowers know they were right.80 And for every borrower who is
struggling to keep up, there are others trying to get ahead but who are knocked off
track due to roadblocks and obstacles that can add thousands of dollars in additional
debt and years of needless student loan payments.81
When policymakers made the choice to drive tens of millions of new students
into debt, they should have seen this coming. Compared to other major classes of
consumer debt, student loans are subject to less government oversight, offer fewer
affirmative consumer protections, and government rarely holds market participants
cfpb-student-loan-ombudsman-2015/ [https://perma.cc/5TYT-X6H3] (“The identity of the
student loan servicer assigned to service a borrower’s loan may impact future loan
performance. A study released by the Association of Community Colleges Trustees (ACCT)
examined the performance of a cohort of federal loan borrowers attending community
colleges in Iowa using administrative loan performance data provided by school financial
aid offices. This analysis revealed that default rates for seemingly-similar borrowers varied
substantially depending on the identity of a borrower’s student loan servicer. In one case,
nearly three quarters (73.1 percent) of all borrowers assigned to one specific servicer ended
up in default. ACCT also observed that, of the six other servicers who handled loans for
1,500 borrowers or more, the share of borrowers who defaulted ranged from approximately
5 percent to more than 20 percent.”).
79 See CITI GPS: GLOBAL PERSPECTIVES & SOLUTIONS, EDUCATION: BACK TO BASICS
81 (2017), https://www.privatebank.citibank.com/ivc/docs/CitiGPS_Education_Backt_
Basics [https://perma.cc/7GB4-82ZB] (“Default and 90-day delinquency rates are about
11%. To some this might appear eerily reminiscent of the mortgage crisis where delinquency
rates had peaked at 11.5% in 2010.”).
80 See FED. STUDENT AID, U.S. DEP’T. EDUC., DIRECT LOAN PORTFOLIO BY
DELINQUENCY STATUS 1 (2017), available at https://studentaid.ed.gov/sa/sites/default/files
/fsawg/datacenter/library/DLPortfoliobyDelinquencyStatus.xls [https://perma.cc/C6R6-
UVQU]; see also CFPB, ANNUAL REPORT OF THE CFPB STUDENT LOAN OMBUDSMAN
(2016), supra note 78, at 4 (finding that one in three student loan borrowers who cure a
default through rehabilitation is delinquent within 60 days).
81 See, e.g., CFPB, MIDYEAR UPDATE ON STUDENT LOAN COMPLAINTS 19 (2016),
available at https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/201608_cf
pb_StudentLoanOmbudsmanMidYearReport [https://perma.cc/2PCZ-PTFG]
(discussing how servicing breakdowns related to the recertification of income-driven
repayment plans may “result in the capitalization of unpaid interest charges, potentially
increasing loan balances by hundreds or even thousands of dollars”); CFPB, STAYING ON
TRACK WHILE GIVING BACK (2017), available at
http://files.consumerfinance.gov/f/documents/201706_cfpb_PSLF-midyear-report
[https://perma.cc/LYQ5-FK3S] (explaining how servicing “delays inhibit [borrowers’]
ability to make qualified payments driven by their income, or borrowers can end up making
dozens of unnecessary payments, costing them thousands of dollars that they might otherwise
never have had to pay”).
834 UTAH LAW REVIEW [NO. 4
to account for their most egregious practices.82 As a result, borrowers routinely fail
to benefit from the protections that are in place.83 The consequences for borrowers
are greater than merely the lost protection of IDR; borrowers encounter breakdowns
starting from the day a borrower receives her first bill and continuing until the day
she pays off her loans.84 These breakdowns are not mere annoyances that can be
greeted with a collective shrug. This is not like calling the cable company.
By October 2017, the CFPB had received over sixty thousand complaints from
student loan borrowers.85 That is more than one new complaint each hour, twenty-
four hours per day, seven days per week since the CFPB started accepting student
82 See Letter from the Nat’l Consumer Law Cent. to the CFPB 7 (July 13, 2015),
available at https://www.regulations.gov/document?D=CFPB-2015-0021-6840
[https://perma.cc/FND4-TZMD] (“There are few laws specifically governing student loan
servicer conduct for either federal or private loans. The absence of clear borrower protections
contrasts with other consumer credit areas such as credit cards and mortgages.”); Letter from
Consumers Union to Monica Jackson, Office of the Exec. Sec’y, CFPB (July 13, 2015),
available at https://www.regulations.gov/document?D=CFPB-2015-0021-0975
[https://perma.cc/Q2XL-6K5F] (“[F]or people who took out loans to get an education, there
are fewer protections and the system is often tough to navigate—as a result, these borrowers
may be at the mercy of their servicers.”).
83 See FROTMAN, supra note 78, at 7 (“The Bureau has heard from tens of thousands of
borrowers who are struggling to keep up with their payments because they are unable to
access essential consumer protections. It’s clear that the status quo isn’t working.”); see also
U.S. GOV. ACCOUNTABILITY OFFICE, FEDERAL STUDENT LOANS: EDUCATION COULD DO
MORE TO HELP ENSURE BORROWERS ARE AWARE OF REPAYMENT AND FORGIVENESS
OPTIONS 13 n.21 (2015), available at http://www.gao.gov/products/GAO-15-663
[https://perma.cc/V8SL-L6RT] (finding that 70 percent of borrowers in default had income
that would entitle them to a reduced monthly payment under an income-driven repayment
plan); Andrew Kreighbaum, New Guidelines on Loan Servicing, INSIDE HIGHER ED (July 21,
2016), https://www.insidehighered.com/news/2016/07/21/education-dept-spells-out-new-
student-borrower-protections [https://perma.cc/H5BE-D5WF] (quoting Secretary of
Education John King as stating “Every borrower deserves access to the right information and
resources to manage and ultimately pay off their debt . . . . When loan servicers make
mistakes or don’t provide the right information at the right time, borrowers pay the price”).
84 See, e.g., CFPB, STUDENT LOAN SERVICING, supra note 77, at 103–32 (documenting
widespread servicing problems at all stages of student loan repayment); CFPB, STUDENT
DATA & STUDENT DEBT 1 (2017), https://s3.amazonaws.com/files.consumerfinance.gov/f/
documents/201702_cfpb_Enrollment-Status-Student-Loan-Report [https://perma.cc/DF
47-5MKE] (documenting how enrollment status errors may incorrectly trigger early
repayment for student loan borrowers); CFPB, MID-YEAR UPDATE ON STUDENT LOAN
COMPLAINTS 3 (2015), http://files.consumerfinance.gov/f/201506_cfpb_mid-year-update-
on-student-loan-complaints [https://perma.cc/44XQ-V35M] (“Complaints received by
the CFPB indicate that borrowers are having trouble obtaining accurate payoff statements in
order to refinance, as well as experiencing payment processing errors and delays.”).
85 See CFPB, ANNUAL REPORT OF THE CFPB STUDENT LOAN OMBUDSMAN 2 (2017),
available at http://files.consumerfinance.gov/f/documents/cfpb_annual-report_student-
loan-ombudsman_2017 [https://perma.cc/F4ZA-UPSB] (noting that, as of August 31,
2017, the CPFB had received 50,700 student loan complaints and 9,800 debt collection
complaints from student loan borrowers).
2018] BROKEN PROMISES 835
loan complaints in 2012.86 Driven by these complaints, the CFPB and other federal
and state law enforcement officials allege rampant illegal practices across the student
loan market that are hurting student loan borrowers at every stage of repayment.87
These enforcement actions offer evidence that, too often, on top of the historic
debt that was pushed onto an entire generation, the process of repaying a student
loan routinely adds insult to injury. After saddling borrowers with a mountain of
student debt, they are then subject to harmful and illegal industry practices that drive
them to default or lead to thousands of dollars in unnecessary costs.88 Collectively,
86 See CFPB, MONTHLY COMPLAINT REPORT VOL. 22, 4 n.5 (2017), available at
https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/201704_cfpb_Monthly-
Complaint-Report [https://perma.cc/G5YC-MQH3].
87 See, e.g., Nearly 78,000 Service Members to Begin Receiving $60 Million Under
Department of Justice Settlement with Navient for Overcharging on Student Loans, U.S.
DEP’T JUST. (May 28, 2015), http://www.justice.gov/opa/pr/nearly-78000-service-members-
begin-receiving-60-million-under-department-justice-settlement [https://perma.cc/UQ57-
39RH]; FDIC Announces Settlement with Sallie Mae for Unfair and Deceptive Practices and
Violations of the Servicemembers Civil Relief Act, FDIC (May 13, 2014),
http://www.fdic.gov/news/news/press/2014/pr14033.html [https://perma.cc/VH2X-JUHF];
CFPB Sues Nation’s Largest Student Loan Company Navient for Failing Borrowers at Every
Stage of Repayment, CFPB (Jan. 18, 2017), https://www.consumerfinance.gov/about-
us/newsroom/cfpb-sues-nations-largest-student-loan-company-navient-failing-borrowers-
every-stage-repayment [https://perma.cc/AAX8-SWA7] [hereinafter CFPB Sues Navient];
CFPB Takes Action Against Wells Fargo for Illegal Student Loan Servicing Practices, CFPB
(Aug. 22, 2016), https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-
against-wells-fargo-illegal-student-loan-servicing-practices/ [https://perma.cc/DAC5-
C539]; CFPB Orders Discover Bank to Pay $18.5 Million for Illegal Student Loan Servicing
Practices, CFPB (July 22, 2015), http://www.consumerfinance.gov/about-
us/newsroom/cfpb-orders-discover-bank-to-pay-18-5-million-for-illegal-student-loan-
servicing-practices [https://perma.cc/9MMC-RHU5] [hereinafter CFPB Orders Discover
Bank to Pay]; AG Ferguson Files Suit Against Sallie Mae Offshoot Navient Corp.,
Announces Student Loan Bill of Rights Legislation, WASH. STATE OFF. OF THE ATT’Y GEN.
(Jan. 18, 2017), http://www.atg.wa.gov/news/news-releases/ag-ferguson-files-suit-against-
sallie-mae-offshoot-navient-corp-announces-student [https://perma.cc/6RBQ-T3DS];
Attorney General Madigan Sues Navient and Sallie Mae for Rampant Student Loan Abuses,
ILL. ATT’Y GEN. (Jan. 18, 2017), http://www.illinoisattorneygeneral.gov/pressroom/2017
_01/20170118.html [https://perma.cc/XU5G-GG44]; AG Healy Sues to Protect Public
Service Loan Forgiveness, ATT’Y GEN. MASS. (Aug. 23, 2017),
http://www.mass.gov/ago/news-and-updates/press-releases/2017/2017-08-23-pheaa-
lawsuit.html [https://perma.cc/ANB8-5UYQ]; Attorney General Shapiro Sues Nation’s
Largest Student Loan Company for Widespread Abuses, OFFICE OF ATT’Y GEN. JOSH
SHAPIRO (Oct. 5, 2017), https://www.attorneygeneral.gov/Media_and_Resources/Press_
Releases/Press_Release/?pid=4042 [https://perma.cc/WR2W-G8NC]; CFPB Takes Action
Against Citibank for Student Loan Servicing Failures that Harmed Borrowers, CFPB (Nov.
21, 2017), https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-
against-citibank-student-loan-servicing-failures-harmed-borrowers/ [https://perma.cc/D9JV
-ZMT8].
88 See, e.g., CFPB Sues Navient, supra note 87 (“From January 2010 to March 2015,
the company added up to $4 billion in interest charges to the principal balances of borrowers
836 UTAH LAW REVIEW [NO. 4
this adds billions of dollars of additional student debt to household balance sheets,
thereby creating a further drag on the economy and damaging the financial future
for millions of people.
Over the last six years, the CFPB has shown a widening disconnect between
the protections touted in press releases and the reality forty-four million people face
on the ground.89 Widespread harmful and illegal practices, misaligned economic
incentives, and antiquated or ill-considered public policies coalesce in ways that
who were enrolled in multiple, consecutive forbearances. The Bureau believes that a large
portion of these charges could have been avoided had Navient followed the law.”); CFPB
Projects that One-in-Three Rehabilitated Student Loan Borrowers Will Re-default Within
Two Years, CFPB (Oct. 17, 2016), https://www.consumerfinance.gov/about-
us/newsroom/cfpb-projects-one-three-rehabilitated-student-loan-borrowers-will-re-default-
within-two-years/ [https://perma.cc/22SR-JWGJ] (stating that program implementation
failures may cost consumers $125 million in unnecessary interest charges alone); CFPB
Orders Discover Bank to Pay, supra note 87 (“Today’s action demonstrates how Discover
failed at providing the most basic functions of adequate student loan servicing for a portion
of the loans that were transferred from Citibank. Thousands of consumers encountered
problems as soon as their loans became due and Discover gave them account statements that
overstated their minimum payment. Discover denied consumers information that they would
have needed to obtain tax benefits and called consumers’ mobile phones at inappropriate
times to contact them about their debts.”).
89 See, e.g., Navient Statement on Apr. 10, 2017 Article, available at
https://news.navient.com/static-files/7e0e7414-45af-4979-80da-d9f5ef40ee7f; but see
CFPB, CFPB Sues Nation’s Largest Student Loan Company Navient for Failing Borrowers
at Every Stage of Repayment (Jan. 18, 2017), https://www.consumerfinance.gov/about-
us/newsroom/cfpb-sues-nations-largest-student-loan-company-navient-failing-borrowers-
every-stage-repayment [https://perma.cc/AAX8-SWA7]; CFPB, CFPB Takes Action
Against Wells Fargo for Illegal Student Loan Servicing Practices (Aug. 22, 2016),
https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-against-wells-
fargo-illegal-student-loan-servicing-practices/ [https://perma.cc/M962-PS89]; CFPB, CFPB
Orders Discover Bank to Pay $18.5 Million for Illegal Student Loan Servicing Practices
(July 22, 2015), http://www.consumerfinance.gov/about-us/newsroom/cfpb-orders-
discover-bank-to-pay-18-5-million-for-illegal-student-loan-servicing-practices
[https://perma.cc/9MMC-RHU5]; CFPB, SUPERVISORY HIGHLIGHTS: ISSUE 13, FALL 2016
(Oct. 2016), https://www.consumerfinance.gov/documents/1389/Supervisory_Highlights_
Issue_13__Final_10.31.16 [https://perma.cc/7296-G7UC]; CFPB, SUPERVISORY
HIGHLIGHTS: ISSUE 15, SPRING 2017 (Apr. 2017), https://www.consumerfinance.gov/docu
ments/4608/201704_cfpb_Supervisory-Highlights_Issue-15 [https://perma.cc/94W4-
8XAN]; CFPB, SUPERVISORY HIGHLIGHTS: ISSUE 10, WINTER 2016 (Mar. 2016),
http://files.consumerfinance.gov/f/201603_cfpb_supervisory-highlights [https://perma.
cc/5XKP-KR5F]; CFPB, SUPERVISORY HIGHLIGHTS: ISSUE 9, FALL 2015 (2015),
http://files.consumerfinance.gov/f/201510_cfpb_supervisory-highlights [https://perma.
cc/Q5QM-YTWS]; CFPB, 2015 ANNUAL REPORT OF THE CFPB STUDENT LOAN
OMBUDSMAN (Oct. 2015) https://www.consumerfinance.gov/data-research/research-
reports/annual-report-of-the-cfpb-student-loan-ombudsman-2015/ [https://perma.cc/79SN-
MR9C]; CFPB, 2016 ANNUAL REPORT OF THE CFPB STUDENT LOAN OMBUDSMAN (Oct.
2016), https://www.consumerfinance.gov/data-research/research-reports/2016-annual-
report-cfpb-student-loan-ombudsman [https://perma.cc/79SN-MR9C].
2018] BROKEN PROMISES 837
deny payment relief to struggling student loan borrowers.90 Furthermore, when
struggling borrowers fall victim to a rigged system, they are treated like tax cheats
and dead beat parents as they are driven to poverty through garnishment and
offsets.91 With this in mind, two conclusions are inevitable.
A. Policymakers, Regulators, and Law Enforcement Officials Neglect
the Student Loan Market at Borrowers’ Peril
Simply because the word “student” comes before “loan,” policymakers
routinely treat these consumers like second class citizens. As previously mentioned,
when compared to other consumer financial products like credit cards or mortgages,
the companies paid to manage the student loan repayment process are subject to less
oversight and consumers are entitled to fewer affirmative protections.92 Student loan
90 See, e.g., Susan Dynarski et al., An Economist’s Perspective on Student Loans in the
United States, ECON. STUD. AT BROOKINGS (2014), http://www.brookings.edu/~/media/
research/files/papers/2014/09/economist_perspective_student_loans_dynarski/economist_p
erspective_student_loans_dynarski [https://perma.cc/SZS6-343D] (“Here we have a
classic ‘principal-agent’ problem, with the agent (the student loan servicers) having little
incentive to act in the best interests of the principal (the federal government). Student loan
servicers don’t have much incentive to prevent borrowers from defaulting, because the
servicers either don’t own the underlying loans or, if they do, face few costs if a borrower
defaults. Restructuring a borrower’s payments and preventing default requires effort, and the
beneficiary of this effort is the government and the student—not the servicer.”); see also
Molly Hensley-Clancy, How America’s Student Loan Giant Dropped the Ball, BUZZFEED
(Feb. 13, 2017, 10:46 AM), https://www.buzzfeed.com/mollyhensleyclancy/how-things-
went-wrong-at-americas-student-loan-giant?utm_term=.ruBN1D2LzX#.gyXGeQq30w
[https://perma.cc/7D76-J4AJ] (“At Navient’s call centers . . . [a Navient employee]
said . . . [d]uring March Madness, her managers created a bracket on the wall and had agents
compete against one another to collect payments and resolve accounts.”).
91 See, e.g., U.S. GOV’T ACCOUNTABILITY OFF., GAO-17-45, SOCIAL SECURITY
OFFSETS: IMPROVEMENTS TO PROGRAM DESIGN COULD BETTER ASSIST OLDER STUDENT
LOAN BORROWERS WITH OBTAINING PERMITTED RELIEF (2016), http://www.gao.gov/assets/
690/681722 [https://perma.cc/W7AC-H9C3] (showing that 47 percent of student loan
borrowers subject to Social Security offsets have a monthly benefit that is below the poverty
line and is further reduced by the offset. For 16 percent of borrowers, their Social Security
benefits are above the poverty line but the offset reduces the benefit below the poverty line);
CFPB, SNAPSHOT OF OLDER CONSUMERS AND STUDENT LOAN DEBT (Jan. 2017),
https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/201701_cfpb_OA-
Student-Loan-Snapshot [https://perma.cc/284M-RNY5] (detailing the financial strain
benefits offsets have on older student loan borrowers); CFPB, 2016 ANNUAL REPORT OF THE
CFPB STUDENT LOAN OMBUDSMAN, supra note 89 (documenting how servicing
breakdowns can lead to “unnecessary offset of tax returns garnishment of wages or certain
[S]ocial [S]ecurity benefits, and prolonged ineligibility for federal student aid.”).
92 See, e.g., Letter from the National Consumer Law Center to the Consumer Financial
Protection Bureau (July 13, 2015), https://www.regulations.gov/document?D=CFPB-2015-
0021-6840 [https://perma.cc/FND4-TZMD] (“There are few laws specifically governing
student loan servicer conduct for either federal or private loans. The absence of clear
838 UTAH LAW REVIEW [NO. 4
borrowers routinely face breakdowns and harmful practices that would simply never
be permitted in other markets.93 And a series of recent actions by the U.S.
Department of Education purport to further shield the largest student loan companies
from scrutiny by regulators and law enforcement officials.94
B. The Department of Education Cannot Self-Regulate
If policymakers seek to accomplish any meaningful and lasting reform, they
must overcome the misguided notion that one of the nation’s largest creditors, the
Department of Education, should be relied upon to self-regulate. Too many people
borrower protections contrasts with other consumer credit areas such as credit cards and
mortgages.”); Letter from Suzanne Martindale, Staff Attorney, Consumers Union, to Monica
Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau (July 13,
2015), https://www.regulations.gov/document?D=CFPB-2015-0021-0975 [https://perma.
cc/2J4C-8KYE] (“[F]or people who took out loans to get an education, there are fewer
protections and the system is often tough to navigate—as a result, these borrowers may be at
the mercy of their servicers.”).
93 For example, the CFPB has noted the issues student loan borrowers face when their
loans are transferred to a new servicer. In 2015, the CFPB released data from one large
student loan servicer showing that:
Out of the more than 2.5 million accounts transferred, the company encountered
problems with more than one out of five borrower accounts. These problems
largely related to the transfer of records and other basic account
information. . . . The cause of many of these problems may have originated with
servicing errors made by the transferor servicer. Issues identified by this company
include: Incorrect balance information leading to a change in monthly
payment . . . ; incorrect balance information that would have produced balloon
payments . . . ; multiple consecutive forbearances prior to transfer . . . ; [and]
trailing and missing payments.
CFPB, ANNUAL REPORT OF THE CFPB STUDENT LOAN OMBUDSMAN (Sept. 2015),
http://files.consumerfinance.gov/f/201509_cfpb_student-loan-servicing-report
[https://perma.cc/M4VJ-4UT2]; cf. 12 U.S.C. § 2605(b)–(e) (2018) (defining mortgage
servicer obligations in the event of a servicing transfer); 12 C.F.R. § 1024.33 (regulations for
mortgage servicing transfers).
94 See Letter from Kathleen Smith, Acting Asst. Secretary, Office of Postsecondary
Education, to The Honorable Richard Cordray, Director, Consumer Financial Protection
Bureau (Aug. 31, 2017), https://edworkforce.house.gov/uploadedfiles/2017-09-
01_signed_letter_to_cfpb [https://perma.cc/7UP5-9QEL] (revoking an information
sharing agreement related to consumer complaints); U.S. DEP’T OF EDUCATION, FEDERAL
PREEMPTION AND STATE REGULATION OF THE DEPARTMENT OF EDUCATION’S FEDERAL
STUDENT LOAN PROGRAMS AND FEDERAL STUDENT LOAN SERVICERS, 83 Fed. Reg. 10619
(Mar. 12, 2018), https://www.federalregister.gov/documents/2018/03/12/2018-
04924/federal-preemption-and-state-regulation-of-the-department-of-educations-federal-
student-loan; U.S. Department of Education Statement of Interest, Massachusetts v.
Pennsylvania Higher Education Assistance Authority (PHEAA), No. 1784CV02682 (2018).
2018] BROKEN PROMISES 839
are too comfortable only looking to the Department of Education to fix the consumer
debt market it dominates. The Department of Education is responsible for
contracting with private companies to originate and service the more than $1 trillion
in consumer debt it owns.95 In no other market and with no other creditor would
policymakers permit self-policing or reform via contract, rather than imposing
independent statutory and regulatory requirements that are transparent and
enforceable.96
As recent events have illustrated, self-regulation by the Department of
Education leaves student loan borrowers exposed and vulnerable to the political
priorities of each new administration.97 Where sympathetic administrations
prioritized consumer protection, reform that was implemented through guidance and
contracts fail to endure.98 And where one administration may prioritize consumer
protection, the next may seek to advance a different goal.99 But what ties all
95 See Loan Servicing Contracts, U.S. DEPT. OF EDUC. (last visited Apr. 10, 2018),
https://studentaid.ed.gov/sa/about/data-center/business-info/contracts/loan-servicing
[https://perma.cc/4WCB-PSVV].
96 See also U.S. GOV’T. ACCOUNTABILITY OFF., GAO-16-196T, FEDERAL STUDENT
LOANS: KEY WEAKNESSES LIMIT EDUCATION’S MANAGEMENT OF CONTRACTORS (2015),
https://www.gao.gov/assets/680/673725 [https://perma.cc/75MK-6DFN]. For a
historical perspective of the Department of Education’s oversight in a predominately FFELP
loan market, see Statement of Representative George Miller Before House Committee on
Education and Labor (May 10, 2007), https://www.gpo.gov/fdsys/pkg/CHRG-
110hhrg34989/html/CHRG-110hhrg34989.htm [https://perma.cc/HGZ6-U36P] (“[T]he
federal student loan programs must be managed in the best interests of students, parents and
taxpayers. . . . I agree with New York Attorney General Andrew Cuomo that testified before
this committee last month when he said that the department [of Education] had been ‘asleep
at the switch’ when it comes to overseeing the federal student loan programs. In fact, Mr.
Cuomo might have been too polite . . . . Over the last several months, New York Attorney
General Cuomo has led the way in the investigations into the student loan industry, and many
other state attorneys general have begun their own investigations. But the Department of
Education has been conspicuously missing from action.”).
97 See supra note 96 and accompanying text.
98 See Letter from Betsy DeVos, Secretary, U.S. Dept. of Educ., to James W. Runcie,
Chief Operating Officer, Federal Student Aid (Apr. 11, 2017),
https://www2.ed.gov/documents/press-releases/student-loan-servicer-recompete
[https://perma.cc/Z825-EHHT] (withdrawing the previous administration’s memorandum
detailing policy direction for federal student loan servicing); see also Letter from Ted
Mitchell, Under Secretary, U.S. Dept. of Educ., to James Runcie, Chief Operating Officer,
Federal Student Aid (July 20, 2016), https://www2.ed.gov/documents/press-releases/loan-
servicing-policy-memo [https://perma.cc/W5ZL-A29F]; supra note 96.
99 On March 12, 2018, Education Secretary Betsy DeVos issued a new “interpretation”
of the Higher Education Act, purporting to preclude oversight by states over the servicing of
certain types of student loans. U.S. DEP’T OF EDUCATION, FEDERAL PREEMPTION AND STATE
REGULATION OF THE DEPARTMENT OF EDUCATION’S FEDERAL STUDENT LOAN PROGRAMS
AND FEDERAL STUDENT LOAN SERVICERS. Subsequent to the release of this statement, the
student loan industry has relied on this interpretation to support legal claims that its practices
are, in effect, above the law. See Student Loan Servicing Alliance (SLSA) v. Taylor et al.,
840 UTAH LAW REVIEW [NO. 4
administrations together is the desire to manage a $1 trillion portfolio at the lowest
cost possible in order to invest in other priorities—pitting other higher education
programs against the investment necessary to deliver on the baseline protections
promised to borrowers.
Industry takes its lead from these priorities.100 Unprecedented efforts to
deprioritize or deflect rigorous oversight by independent federal and state agencies
risks leaving a $1 trillion blind spot in the heart of the nation’s financial sector.101
Student loan borrowers deserve better. If the student loan market continues down
this path, it leaves the future of forty-four million people subject to the political
winds and special interest groups who view the student debt crisis as an avenue to
enrich themselves, openly touting that they have no responsibility to help student
loan borrowers.102
IV. THE ROAD AHEAD
The task awaiting today’s policymakers and researchers is, in some ways, more
difficult than the previous crisis. The present problem is a quiet crisis. It is not driven
by storefronts springing up on corners in vulnerable communities and peddling
financial products that strip wealth from those least able to afford it. It does not
feature families forced from their homes because they fell behind on a mortgage they
could not afford. There are no abandoned houses to point to. Research now shows
that a foreclosure harms more than just the individual family.103 The ripple effect of
No. 1:18-cv-00640 (D.D.C. filed Mar. 20, 2018); Pennsylvania Higher Education Assistance
Authority (PHEAA) v. Perez et al., No. 1:18-cv-00770 (D.D.C. filed Apr. 4, 2018).
100 See, e.g., Letter from James P. Bergeron, President, Nat’l Council of Higher Educ.
Resource, to Kathleen Smith, Acting Asst. Secretary for Postsecondary Education, U.S.
Dept. of Educ., http://www.ncher.us/resource/resmgr/images/letters-testimony/2017/07-18-
17_NCHER_Letter_to_ED_ (“NCHER urges the Department to issue regulatory
guidance that clearly states that federal student loan servicers and guaranty agencies are
governed by the Department’s rules and requirements and those of other federal agencies,
and preempt state and local laws and actions that purport to regulate the activities of
participants in the federal student loan programs, including federal contractors.”).
101 See FROTMAN, CFPB, PREPARED REMARKS, supra note 3; see also Letter from 20
State Attorneys General to The Honorable Betsy DeVos, U.S. Dept. of Educ. (Sep. 26, 2017),
https://ag.ny.gov/press-release/ag-schneiderman-fellow-ags-betsy-devos-stop-undermining-
critical-protections-student (“Congress did not exempt the $1.3 trillion federal student loan
market from the CFPB’s jurisdiction—or from the jurisdiction of any other law enforcement
agencies.”).
102 See Defendant’s Motion to Dismiss, CFPB v. Navient, No. 3:CV-17-00101-RDM,
at 20–21 (M.D. Pa. 2017), available at https://news.navient.com/static-files/d95c10ce-11a3-
41b6-8ea7-49a83a41cf04 [https://perma.cc/AY2D-ULB6] (“[T]here is no expectation that
the servicer will ‘act in the interest of the consumer.’”).
103 See G. THOMAS KINGSLEY ET AL., THE URBAN INSTITUTE, THE IMPACTS OF
FORECLOSURES ON FAMILIES AND COMMUNITIES (2009), https://www.urban.org/sites/
default/files/publication/30426/411909-The-Impacts-of-Foreclosures-on-Families-and-
Communities.PDF [https://perma.cc/UJ9N-GWTN]; James H. Carr et al., The Foreclosure
2018] BROKEN PROMISES 841
a foreclosure extends across the community.104 However, to a casual observer, the
signs of a family’s own internal student debt crisis are less visible than the empty
house at the end of the block that used to belong to a neighbor and now belongs to a
bank. But simply because a family’s crisis is not as readily apparent, does not mean
that the effects on communities are any less significant or severe. The burden of
student debt can ravage communities in a myriad of ways.
For example, consider a borrower devoting so much of his paycheck to his
monthly student loan payment that he never puts enough away to save for a home.
He is then pushed into an often punishing rental market that further limits the options
available to him and his family, such as the school district in which they can live,
thus perpetuating a cycle of economic and geographic segregation. Consider also
one of the several towns in rural America where residents lost their jobs after a major
employer—a factory, a mine, or a lumber mill—was shuttered. These residents go
back to school to learn new skills, take on debt, fall behind on their debt despite
protections that should prevent this, and now the town is doubly harmed.
Consider also the thousands of borrowers who took on debt so they could go to
school to learn the skills necessary for vital professions. These borrowers depend on
their credit to get or keep a job because in many states, a credit check can still be
used as a precondition for nearly any employment.105 Furthermore, thousands of
nurses, teachers, EMTs, and other public servants rely on their credit to maintain
their professional licenses.106 And yet, all across the country, these borrowers fall
behind on a student loan and become unable to get or keep the job that keeps a roof
over their head.107
Crisis and Its Impact on Communities of Color: Research and Solutions, NAT. COMMUNITY
REINVESTMENT COALITION (Sept. 2011), https://schar.gmu.edu/sites/default/files/faculty-
staff/cv/ncrc_foreclosurewhitepaper_2011 [https://perma.cc/AG93-TF2P].
104 See KINGSLEY ET AL., supra note 103; Carr, supra note 103; see also Brief of Nat’l
Ass’n of Counties as Amici Curiae, Bank of America v. Miami, 137 S. Ct. 1296 (2016),
available at http://static1.1.sqspcdn.com/static/f/624306/27284305/1476191781460/BOA_
filed ?token=HTNgFPT14MuaeHcz3ZoecAJw9W8%3D [https://perma.cc/HY6X-
JY2X] (arguing that cities are uniquely harmed when banks engage in discriminatory lending
practices that lead to foreclosures).
105 See AMY TRAUB, DEMOS, DISCREDITED: HOW EMPLOYMENT CREDIT CHECKS KEEP
QUALIFIED WORKERS OUT OF A JOB (2013), http://www.demos.org/sites/default/files/
publications/Discredited-Demos [https://perma.cc/99FJ-UUSD] (noting that as of
February 2013, only 8 states have passed legislation that restrict employment discrimination
based on credit checks).
106 See Jessica Silver-Greenberg et al., When Unpaid Student Loan Bills Mean You Can
No Longer Work, N.Y. TIMES (Nov. 18, 2017), https://www.nytimes.com/2017/11/18/
business/student-loans-licenses.html [https://perma.cc/QT5S-E2NJ]; JOBS WITH JUSTICE,
STATE LAWS AND STATUTES THAT SUSPEND PROFESSIONAL LICENSES AND CERTIFICATES
(2014), http://www.jwj.org/wp-content/uploads/2015/02/State-Laws-and-Statutes-That-
Suspend-Professional-Licenses-and-Certificates [https://perma.cc/2R9H-38QB].
107 See Silver-Greenberg, supra note 106.
842 UTAH LAW REVIEW [NO. 4
A growing body of evidence suggests that millions of Americans are
experiencing crises exactly like these.108 Individual lives are disrupted; families
become buried under the financial consequences of unmanageable student debt; and
this devastation ripples across their communities. The stakes are high and the
consequences are enormous for neighborhoods, communities, states, and the
nation—all driven by a cycle dependent on the debt that flows through this broken
system and spurred on by the tired assumptions that set the country down this path.
So, what can researchers and policymakers do to end the student debt crisis?
The national conversation is starting to incorporate exciting and far reaching
proposals for how actors at all levels of the public or the private sector can help new
borrowers avoid the consequences of student debt.109 This is a laudable and
108 See, e.g., William Elliott III, New Report: Are Student Loans the Best We Can Do?,
NEW AM. (Sept. 9, 2014), https://www.newamerica.org/asset-building/the-ladder/new-
report-are-student-loans-the-best-we-can-do/ [https://perma.cc/RR38-Q88U] (“[A] growing
body of research is beginning to reveal that student loans, large and small, have negative
effects on far too many potential students’ college preparation, the decision to enroll in
college, which college to select, whether to stay and complete college, which job to take after
college, whether and when to marry, when they have kids, the amount of overall financial
stress they experience, whether to buy a home, and whether, when, and how much they save
for retirement.”); Remarks of Secretary Lew Before the Financial Literacy Education
Commission (Oct. 2013), http://www.treasury.gov/press-center/press-releases/Pages/jl2191
.aspx [https://perma.cc/R5TB-6H3H] (Secretary of the Treasury Jacob Lew remarked that
student debt is “hampering our economy” across multiple sectors of society); Richard Fry,
Young Adults, Student Debt and Economic Well-Being, PEW RES. CTR. (May 14, 2014),
http://www.pewsocialtrends.org/2014/05/14/young-adults-student-debt-and-economic-well
-being/ [https://perma.cc/AME2-BVZ9] (“Research also shows a troubling connection
between higher debt burdens and other economic challenges like material or health care
hardship. As student loan borrowers enter repayment, they are less likely to have emergency
savings or save for retirement. One study shows that households headed by a young, college-
educated person without student debt have seven times the typical net worth as a similar
household with student debt.”); see also Phyliss Korki, The Ripple Effects of Rising Student
Debt, N.Y. TIMES (May 24, 2014), https://www.nytimes.com/2014/05/25/business/the-
ripple-effects-of-rising-student-debt.html?_r=0 [https://perma.cc/Q2NE-TEQY].
109 See, e.g., MARK HUELSMAN, DEMOS, THE CASE FOR DEBT-FREE PUBLIC COLLEGE
(2015), http://www.demos.org/sites/default/files/publications/thecasefordebtfreecollege-
_mark_ [https://perma.cc/GA6X-6RQP] (detailing “why a return to a debt-free system
of public universities and colleges would help revive the promise of affordable higher
education regardless of one’s family income”); Keith Ellison, The Argument for Tuition-Free
College, AM. PROSPECT (Apr. 14, 2016), http://prospect.org/article/argument-tuition-free-
college [https://perma.cc/2RJ2-AZ8Y] (“The first step in making college accessible again,
and returning to an education system that serves every American, is addressing the student
loan debt crisis. . . . Eliminating student loan debt is the first step, but it’s not the last. Once
we ensure that student loan debt isn’t a barrier to going to college, we should reframe how
we think about higher education.”); Michael Dannenberg & Konrad Mugglestone, The
Promise of “Free” College, DEMOCRACY JOURNAL (Nov. 14, 2017), https://democracy
journal.org/arguments/the-promise-of-free-college/ [https://perma.cc/Q3PW-EA8Y]
(defining metrics to evaluate free college policy proposals); see also CFPB, INNOVATION
2018] BROKEN PROMISES 843
necessary endeavor, but it is wholly inadequate to address the crisis borrowers are
facing today. Policymakers could make college free for everyone tomorrow, but that
would do nothing to help the millions of Americans struggling today. For those
borrowers with student debt, solutions that help the next guy not only miss the mark,
but reinforce the notion that America is willing to write off this entire generation of
borrowers. America cannot forget forty-four million people.
A. Strengthen Consumer Protections in the Student Loan Market
Strengthening consumer protections in this market, while not a cure-all, is a
critical step. At a bare minimum, fixing the severely broken repayment system that
fails more student loan borrowers each day is essential. When society asks people to
take a risk and go to college, it must make sure that at the very least, they do not
spend the next two decades of their lives navigating a minefield of illegal practices.
The student loan market can achieve this through robust oversight at the state
and federal levels. For decades, state and federal regulators have overseen banks,
credit unions, debt collectors, and other companies that provide financial products
or services to consumers.110 This oversight has been a key component of the post-
recession strategy to ensure consumers are protected when things go wrong.111
However, tellingly, until 2014, a student loan servicing industry responsible for
handling over a trillion dollars in consumer debt was not subject to the same federal
HIGHLIGHTS: EMERGING STUDENT LOAN REPAYMENT ASSISTANCE (Aug. 16, 2017),
https://www.consumerfinance.gov/data-research/research-reports/innovation-highlights-
emerging-student-loan-repayment-assistance [https://perma.cc/BXK3-GBZZ] (discussing
“the growing number of employer-based student loan repayment programs that can save
eligible employees hundreds or thousands in loan principal and interests payments, but where
barriers to innovation exist.”); Nat’l Conference of State Legislatures, Student Loan Debt
(Nov. 9, 2015), http://www.ncsl.org/research/education/student-loan-debt.aspx
[https://perma.cc/X673-NUDB] (discussing a variety of state policy ideas for addressing
student loan debt).
110 By 1914, the 48 contiguous states had instituted state-based bank examinations, and
by 1931, they had each established a specific agency for state-based bank regulation.
BENJAMIN KLEBANER, AMERICAN COMMERCIAL BANKING: A HISTORY 99 (1990); see also
CFPB, FEDERAL CONSUMER AGENCY TO PARTNER WITH STATE REGULATORS ON
SUPERVISION OF PROVIDERS OF CONSUMER FINANCIAL PRODUCTS AND SERVICES,
INCLUDING MORTGAGE LENDERS, PRIVATE STUDENT LENDERS AND PAYDAY LENDERS (Jan.
4, 2011), https://www.consumerfinance.gov/about-us/newsroom/consumer-agency-to-
partner-with-state-regulators [https://perma.cc/HH63-GA3S].
111 See Testimony of Steven L. Antonakes, Massachusetts Commissioner of Banks
Before the House Financial Services Committee (Apr. 23, 2009), https://www.csbs.org/sites
/default/files/2017-11/April232009StevenAntonakesTestimony [https://perma.cc/R7M
P-BHDS] (“The states have long been recognized as leaders in responding to consumer
protection issues with innovative solutions. . . . States have been leading the fight to reign in
abusive lending through predatory lending laws, licensing and supervision of mortgage
lenders and brokers, and through enforcement of consumer protection laws and standards of
safety and soundness.”).
844 UTAH LAW REVIEW [NO. 4
accountability.112 And today, only a handful of states have expanded their oversight
to include these companies despite the central role they play in many citizens’
economic lives.113
How does one explain to student loan borrowers all across the country that if
they rent out a spare room on Airbnb, they likely need to obtain a license to do so,
but the companies running the $1.5 trillion student loan system often operate in the
shadows?114 Student loan borrowers deserve a government that focuses on their
problems by building out the critical framework necessary to ensure these
companies are complying with the law.
Additionally, to ensure this oversight is effective, the student loan market also
needs clear rules of the road, just like those in other consumer debt markets. When
setting standards in this market, individual borrowers, law enforcement, and
regulators must be given the tools to hold student loan companies accountable for
meeting these standards.
B. Expanding Help for Struggling Borrowers
Second, the public and private sectors must think of innovative ways to help
borrowers and their families reduce the financial burden caused by student debt.
States have implemented a range of creative solutions that help borrowers in
repayment, from programs like New York’s “Get on Your Feet,” to Maryland’s
“SmartBuy.”115 Programs like these are not only critical for student loan borrowers’
112 See Defining Larger Participants of the Student Loan Servicing Market, CFPB,
https://www.consumerfinance.gov/policy-compliance/rulemaking/final-rules/defining-
larger-participants-student-loan-servicing-market/ [https://perma.cc/89R7-HRW2] (last
visited Apr. 10, 2017).
113 To date, Connecticut (Pub. Acts 15-200 and 15-162), the District of Columbia (L21-
0214), California (AB 2251), Illinois (Public Act 100-0540), and Washington (SB 6029)
have passed legislation for state-based student loan servicing oversight. At least a dozen
other states have considered similar legislation, including Colorado, Maine, Maryland,
Massachusetts, Minnesota, Missouri, New Jersey, New Mexico, New York, Oregon, Rhode
Island, and Virginia.
114 See What Legal and Regulatory Issues Should I Consider Before Hosting on
Airbnb?, AIRBNB, https://www.airbnb.com/help/article/376/what-legal-and-regulatory-
issues-should-i-consider-before-hosting-on-airbnb [https://perma.cc/FV6H-WTDH] (last
visited Apr. 10, 2017) (“In many cities, you must register, get a permit, or obtain a license
before you list your property or accept guests.”).
115 See New York State, Get on Your Feet Loan Forgiveness Program,
https://www.hesc.ny.gov/repay-your-loans/repayment-options-assistance/loan-forgiveness-
cancellation-and-discharge/nys-get-on-your-feet-loan-forgiveness-program.html
[https://perma.cc/W8YB-EV5H] (last visited Dec. 18, 2017) (“The NYS Get on Your Feet
Loan Forgiveness Program provides up to 24 months of federal student loan debt relief to
recent NYS college graduates who are participating in a federal income-driven repayment
plan whose payments are generally capped at 10 percent of their discretionary income.”);
Maryland State, Maryland SmartBuy, http://mmp.maryland.gov/Pages/SmartBuy/default.
2018] BROKEN PROMISES 845
financial futures, but must be viewed as an extension of the national effort and
obligation to continue righting the wrongs of the Great Recession. There is no silver
bullet to fix a problem of this scale, but innovative policymaking, diligent oversight,
and a government-wide crackdown on illegal student loan industry practices offer
necessary first steps.
V. CONCLUSION
Society should not succumb to the wishes of those who have not only resigned
themselves to this broken system, but have also endorsed the status quo as an
acceptable new normal.116 We must find ways to end the cycle of debt-fueled higher
education and student loan borrower distress.
Individual groups and organizations across the country are taking notice of how
student debt affects their members. Organizations ranging from the AARP and the
National Association of Realtors, to the NAACP and the American Federation of
Teachers, are continuing to increase their efforts to fix the student debt crisis.117 This
aspx [https://perma.cc/94KF-GFAB] (last visited Dec. 18, 2017) (offering student loan
borrowers a state-funded home mortgage down-payment loan that can be used to pay off
student loan debt); see also Kansas State, Kansas State Loan Repayment Program,
http://www.kdheks.gov/olrh/FundLoan.html [https://perma.cc/47ZP-KXPP] (last visited
May 7, 2018).
116 See, e.g., Claudio Sanchez, Is the Student Loan Crisis Fact or Fiction?, NPR (July
28, 2016), https://www.npr.org/sections/ed/2016/07/28/487032643/is-the-student-loan-
crisis-fact-or-fiction [https://perma.cc/DWB8-ENQP] (“Student debt is really creating a lot
of opportunities for people. People wouldn’t be able to go to college otherwise.”); Joel A.
Elvery, Is There a Student Loan Crisis? Not in Payments, FED. RES. BANK OF CLEV. (May
16, 2016), https://clevelandfed.org/~/media/content/newsroom%20and%20events/publicat
ions/forefront/ff%20v7n02/ff%20v7n0204%20is%20there%20a%20student%20loan%20cr
isis%20pdf ?la=en [https://perma.cc/J4DV-JNEL] (“If the share of young people
pursuing college degrees is going to rise, it will probably be because of increases in college
enrollment by low- and middle-income students, to whom student loans are especially
important. Like any borrower, a potential student loan borrower should focus on whether the
debt is enabling her or him to make a valuable investment in the future.”); Beth Akers &
Matthew Chingos, Is a Student Loan Crisis on the Horizon, BROWN CTR. ON EDUC. POL’Y
AT BROOKINGS (June 2014), https://fortunedotcom.files.wordpress.com/2014/06/is_a_
student_loan_crisis_on_the_horizon [https://perma.cc/VZN5-7JNF]; see also Mark
Huelsman, The Debt Divide: The Racial and Class Bias Behind the “New Normal” of
Student Borrowing, DEMOS (May 19, 2015), http://www.demos.org/publication/debt-divide-
racial-and-class-bias-behind-new-normal-student-borrowing [https://perma.cc/7E3A-
8PWX].
117 See Eilieen Ambrose, Student Debt Traps Older Borrowers, AARP (2014),
https://www.aarp.org/money/credit-loans-debt/info-2014/student-loan-debt-traps.html
[https://perma.cc/HE64-QBZQ]; NAT. ASSOC. OF REALTORS, STUDENT LOAN DEBT AND
HOUSING REPORT 2017: WHEN DEBT HOLDS YOU BACK (2017),
https://www.nar.realtor/sites/default/files/reports/2017/2017-student-loan-debt-and-
housing-09-18-2017 [https://perma.cc/6YCJ-H4EA]; Letter from The Leadership
Conference on Civil and Human Rights, to Secretary Betsy DeVos (Sept. 19, 2017),
846 UTAH LAW REVIEW [NO. 4
is promising, but reinforces how much work still needs to be done and how many
more people need to be doing it. Student debt is not simply a “college student” issue.
It is not only a “consumer protection” issue. Nor is it solely an economic justice
issue, or a civil rights issue, or an elder justice issue. The student loan crisis is all of
these and more.
If this country is to build a foundation for these reforms, more research,
advocacy, and organizing is needed. New scholarship, in particular, is necessary for
these policies to be successful. Researchers should consider the following questions:
• If you care about income disparities and economic justice, what have you
done to demonstrate how student debt entrenches inequality?
• If you care about civil rights and racial justice, what have you done to
explore the uniquely burdensome role of student debt in communities of
color?
• If you remain committed to the American ideal of college as a gateway to
the middle class, what have you done to show how the debt-financed higher
education model impedes this ideal?
• If you care about college access and affordability, what have you done to
ensure that the determinant of success is not limited to walking across the
stage with a diploma?
• If you care about protecting American consumers, what have you done to
lay out a twenty-first century consumer protection framework for the
student loan market?
Perhaps most importantly, the academic community should ask itself if it has
collectively done the work necessary to demonstrate to policymakers across the
country that debt-fueled higher education merely shifts these costs onto those least
able to bear them. Researchers and advocates have an opportunity and obligation to
cast aside the tired and faulty assumptions that underpin this crisis and document for
elected officials that such policy decisions merely shift the burden onto the backs of
the students, families, and communities they represent. The only indisputable
conclusion is that there is much more work to do. America needs to do better for this
generation and for the next. Policymakers need to renew the promise to never let this
happen again. And this time, they need to keep that promise.
https://civilrights.org/letter-re-concerns-impact-student-loan-servicing-debt-collection-
changes-undermined-regulations-black-latino-borrowers/ [https://perma.cc/S5UR-SXBN];
Letter from American Federation of Teachers, to State Attorneys General (Apr. 26, 2017),
https://www.aft.org/sites/default/files/ltr_generic_agstuloansvc_042617 [https://perma.
cc/J3FD-8YG5] (AFT’s coalition wrote to 56 state attorneys general and state banking
commissioners to urge oversight action on behalf of student loan borrowers).
- Utah Law Review
- Broken Promises: How Debt-financed Higher Education Rewrote America’s Social Contract and Fueled a Quiet Crisis
- UTA 2018.4 [1] Frotman
7-2018
Seth Frotman
Recommended Citation