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Analysis

How the Student Debt Crisis Underscores the Urgency of Campaign Finance Reform

To root out the causes of ballooning student debt, we must start by getting big money out of politics.

February 16, 2021
money
the burtons

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 banksstudent 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.