Prior to the onset of the Covid-19 pandemic, more than 1 million Americans defaulted on their student loans every year. Now, with unemployment claims spiking amid another surge in coronavirus cases and an estimated 6 in 10 people with student loan debt struggling to cover their expenses, the financial vulnerability of borrowers has only increased.
The Biden administration and its allies in Congress have pledged to make student debt relief a priority. But as policymakers target long-term solutions to the crisis, it is imperative that we consider all the factors that have pushed our country to the edge of a student loan debt cliff — including the role of private money in politics.
Our campaign finance system has laid the foundation for the student debt crisis, sustaining a federal student loan apparatus that serves the interests of certain major political donors and industry insiders at the expense of student borrowers. While financial institutions and for-profit colleges — which wield outsized influence in our elections — have advanced their deregulatory agendas in Washington, they have also precipitated a rapid rise in our country’s student debt bill, leaving borrowers with overwhelming tuition costs and almost no protections against predatory lending, loan servicing, or recruiting practices.
Some 45 million Americans now owe a total of $1.7 trillion in student loan debt — a figure that has doubled in just the last 10 years. Economists have long considered this debt bill to be a major drag on the economy, depressing borrowers’ purchasing power and preventing millions of Americans from saving for retirement, investing in their own businesses, and buying homes. Even before the pandemic, nearly two in three borrowers could not make monthly payments large enough to pay down the principal on their student loans, and more than half of Americans called student debt “a major problem” for the country.
And though its effects are pervasive, the burden is not borne equally: because of intergenerational wealth disparities and widespread discrimination in labor markets, Black and Latino borrowers, especially Black and Latina women, shoulder a disproportionate amount of this debt.
For now, a federal pause on student loan payments is helping to keep borrowers above water in the wake of the pandemic. But the situation remains dire, especially for Americans between the ages of 16 and 35, who face a pandemic unemployment rate twice that of older adults and more than four in ten of whom hold student debt. Nearly 60 percent of student borrowers now say that they would struggle to resume their payments next month if they had to do so. President Biden has directed the Department of Education to extend the Covid-19 student loan forbearance through September 2021. But what comes after that is unknown, meaning that payments may come due later this year for millions of Americans who cannot afford to make them.
This level of financial precarity exists thanks in no small part to a decades-long effort by Wall Street banks, student loan servicers, and for-profit colleges to advance policies that bolster their own bottom lines. Between 2000 and 2004, student loan companies more than tripled their contributions to federal campaigns as part of a successful lobbying blitz aimed at making private student loans nearly impossible to discharge in bankruptcy. This policy, enacted in 2005, virtually guarantees that borrowers are always on the hook for their private student loans, even in the case of financial hardship.
Lenders, on the other hand, have been empowered to extend nearly unlimited lines of credit to students regardless of their ability to repay, enabling schools to further raise tuition while forcing students to borrow even more money to attend. Unsurprisingly, the provision has yielded a massive return on investment for the private student loan industry, which has since grown by more than 70 percent. Put simply: the industry pushed aggressively for this legislation while simultaneously funneling cash into the coffers of lawmakers’ campaigns.
For-profit colleges have similarly leveraged political spending to protect their financial interests at the expense of students. In the wake of the Great Recession, when many out-of-work Americans looked to higher education for an opportunity to get ahead, the industry increased campaign contributions in order to fend off regulations. These companies contributed nearly $1.8 million to campaigns in 2008, more than $2.7 million in 2010, and $4.9 million in 2012, all while generating up to 90 percent of their revenue from federal funds in the form of Pell Grants and student loans. Nearly a decade later, for-profit colleges remain largely unregulated — even amidst prominent settlements related to for-profit college fraud, extensive evidence of discriminatory advertising, and renewed calls for accountability.
Though student loan servicers and for-profit colleges do not contribute to campaigns at the scale of other industries and dark money groups, they have nevertheless been effective in targeting their political spending on the gatekeepers of higher education legislation. In the 2014 election cycle, for example, when the average House winner spent $1.5 million overall, former congressman and chair of the House Committee on Education and the Workforce John Kline (R-MN) brought in over $200,000 from the for-profit education sector. While taking these contributions, he urged fellow members of Congress to block the Department of Education’s gainful employment regulations — which required academic programs to meet minimum thresholds for graduates’ debt-to-income ratios in order to receive federal student aid money — and killed legislation to curtail for-profit colleges’ abuse of federal student aid under the GI Bill.
In a political system that too often gives big donors unique access to elected representatives, it is not a coincidence that meaningful action to address rapidly rising student indebtedness has stalled in Congress. Because our system of privately funded campaigns forces lawmakers to spend an inordinate amount of their time fundraising, members of Congress may find themselves far more exposed to the concerns of industry leaders than to those of the Americans most burdened by student debt, who are disproportionately women, people of color, and low-income students.
In order to pave the way toward a more equitable system of higher education, Congress must take on the outsized influence of money in politics. The solutions are already available — our leaders just need to use them.
For instance, enacting small donor public financing would allow candidates to rely less on wealthy donors and special interest groups and devote more time to engaging with the issues that matter to their constituents. At the same time, strengthening dark money disclosure requirements would empower voters to decide for themselves whether their elected representatives are really putting their interests first. These reforms are critical to revitalizing our democracy, and they are all included in the For the People Act, a landmark bill now before Congress.
Our higher education system should create opportunity, not push millions of student borrowers to the brink of financial catastrophe in the middle of a pandemic. But our big money political system stands in the way. If we want higher education to be available to all Americans, we also need a democracy that works for all Americans, not just the wealthy and well-connected.