It may be hard to pin down exactly what the Occupy Wall Street protesters want, but one of the sources of their frustration seems clear. Many of the demonstrators are drowning in student debt.
Source: Gennine Kelly
Occupy Wall Street
Rose Swidden came to Zuccotti Park in Lower Manhattan from upstate New York, where she is studying agriculture at SUNY Cobleskill. She expects to graduate in May with $35,000 in debt, and doesn't know how she will pay it back.
"We did what we were told to do: go to college, get an education, you'll get a job, you'll get a house, you'll be cool," she said. "And that's what we did. And now here we are done with it—and now what?"
One proposed list of demands for the Occupy Wall Street movement includes "free college tuition" and "immediate across the board forgiveness" of student debt. While neither demand may be very realistic, the student debt problem is very real.
According to FinAid.org, which carries a "student debt clock" on its website, outstanding student debt is on pace to top $1 trillion in a matter of months. Student debt surpassed credit card debt in 2010, and has not looked back. The average 2011 college graduate had $27,204 in student debt, according to the organization.
One reason for the debt crunch: college tuition continues to rise at more than twice the core rate of inflation, according to the U.S. Bureau of Labor Statistics. At the same time, students and their families are not adjusting their expectations for a college education to reflect the poor economy.
Protester Angelina Lesniewski graduated from a Massachusetts liberal arts college in May with an English degree. She has no job prospects in her field, and $28,000 in student debt.
"I could have gotten a degree in something practical like psychology, which I find very interesting but I would have been miserable," she said.
The unemployment rate for people aged 20 to 24 was 14.7 percentage in September according to the government, putting the finances of recent graduates on a collision course with the dismal job market.
Predictably, student loan default rates are rising.
The U.S. Department of Education reported last month that the official default rate jumped to 8.8 percent in fiscal 2009—the most recent data available—compared to 7 percent the year before. The rate is even higher at for-profit schools: 15 percent in fiscal 2009 versus 11.6 percent the previous year.
Those numbers represent a snapshot in time, the report said, since they only cover loans in which the first payment became due between October 1, 2008 and September 30, 2009, and went into default before September 30, 2010. Experts say the overall default rate is likely much higher, and the number of people having trouble making payments is even higher than that.
"These two year default rates are just the tip of the iceberg when it comes to borrower distress," said Lauren Asher of the non-profit Project on Student Debt. "They don’t capture people who are in delinquency, forbearance or deferment, or who've had to extend their repayment which means they are now paying more interest over time to keep payments low."
More troubling, Asher said, is a rise in private student loans, which she says carry far fewer consumer protections than government loans. Many students turn to private lenders to fund their education, either because they have reached their limit on government loans—$31,000 for a bachelor's degree—or have not utilized all the government aid programs available.
"Experts agree whether you talk to lenders or student financial aid advisers that federal loans should come first because they come with important repayment options and consumer protection options," Asher said.
- Slideshow: States With The Most Student Debt
Many private lenders got out of the student loan business last year after the federal government began lending money directly to students. Previously, the government guaranteed loans made by private lenders. Some private lenders stayed in the business, however, servicing loans for the government and offering non-guaranteed loans of their own.
They include Sallie Mae, the nation's largest student loan company, which, like any lender, securitizes portions of its loan portfolio—bundling student loans into securities and selling them to investors. The securitization market for student loans had also dried up, in part because of the credit crunch. Now, the market is coming back. Sallie Mae sold more than $3 billion worth of student loan-backed securities in the first half of this year.
With default rates rising, Lauren Asher likens student loan securities to subprime mortgage-backed securities during the housing bubble.
"There's reasons to be concerned about the return to growth in the private student loan market because that means more students are taking on more high risk debt," Asher said.
Of course, if some of the protesters get their way, with free tuition and debt forgiveness, the problem might go away. Rose Swidden, the agriculture student-turned-protester, acknowledges the demands may be far-fetched, but said it is worth a try.
"Sometimes if you shoot for the moon, you land in the stars."
