Speaker 0 00:00:00 Hello everyone, and welcome to the 147th episode of the Atlas Society. Asks, my name is Jennifer Anju Grossman. My friends call me Jag. I am the c e o of the Atlas Society. We are the leading nonprofit organization introducing young people to the ideas of Ayin Rand in fun, creative ways, graphic novels, animated videos, music. Uh, today we are joined by Josh Mitchell. Before I even begin to introduce our guest, I wanna remind all of you that you can ask questions. Uh, if you are watching us on Zoom, Instagram, Facebook, Twitter, uh, LinkedIn, YouTube, use the comment section. Go ahead, start typing in those questions in the queue, and we'll get to as many of them as we can. Cuz this is a hot topic very much in the news. Student loan debt. So my guest, Josh Mitchell, is author of The Debt Trap, how Student Loans Became a National Catastrophe, which explores the last 70 years of the student loan industry, uh, that would submerge a generation of Americans into 1.6 trillion in student debt. Mitchell is a journalist for the Wall Street Journal. Uh, he spent 14 years in the papers DC Bureau winning the Education Writer Association's 2016 Award as the nation's top education reporter among large news outlets. He is now based in London joining us from there in his, uh, London flat above a nightclub. So, um, appreciate it cuz it's a bit late there. Uh, Josh, thanks for joining us.
Speaker 1 00:01:51 Yes, sure. Thanks.
Speaker 0 00:01:54 All right. Well, first I just wanted to, I mentioned obviously we're also disturbed by the arrest of your Wall Street Journal colleague Evan Gersh, KVI, and Russia on charges of spying. Any updates on this case or insights from your perch as a foreign correspondent?
Speaker 1 00:02:14 Yeah, I don't have much more than what our paper has reported itself or told he's in good spirits and apparently divided administration has stepped up its efforts to try and, you know, consider this to ha uh, consider him a hostage. Excuse me. And so I think this will increase the efforts on the Biden administration to really try and get him free. That's, that's as much as I know as at this point.
Speaker 0 00:02:38 All right. Thank you. Well, circling back to your book, perhaps you can fill our viewers in on the journey that, uh, culminated in, in the writing of the debt trap. You dedicate the book to your mother, who I understand passed away six years ago. How did her experience help you better understand the people whose struggles you cover in the book?
Speaker 1 00:03:05 Sure. Uh, so she raised me on her own. Um, and she never went to school to, she never got a higher education and she was an administrative assistant her whole life. And so I saw up close how much of a struggle that was for her to raise kids on her own. And that this was right around the time in the eighties and nineties where going to college really was considered essential to having a wels a you know, a good paying job. And so, you know, I saw up close, I mean, she, she lived paycheck to paycheck, and I really came to see that you, you really needed to go to college in order to, to succeed. And so when I started writing this book, I found a character who is much like her. Um, the, one of the main characters of my book, she, herself was a mom who raised kids on her own.
Speaker 1 00:03:52 And she actually decided to get a higher education. She went to grad school. She went to college in the grad school, and she really, you know, tried to do things the, the, the right way and tried to do everything that she was told to do. Um, and she ended up, you know, going to grad school and she came out and she did get the job that she wanted to, but she also ended up under a, this huge burden of debt. And so it really opened my eyes, um, you know, because I could see my mom having done the same thing that she did. And, uh, yeah, I think that that's, that's the big link there.
Speaker 0 00:04:26 Uh, and also on your father's side, your grandfather's experience was also influential in shaping your perspective. Yes,
Speaker 1 00:04:34 Yes. Uh, so, you know, while I was raised by my single mom who, you know, never had much in, you know, um, in terms of being able to give, give us much, my grandfather, he would always tell us, you know, look, um, he, he had set aside a college trust fund for his grandchildren. Um, you know, he actually did go to college. He went to Harvard. Um, and so he was able to save up money throughout his life. And while he did not give us gifts, he did say from a very early age, all you have to do is get into college and it's paid for. So I kind of had the best of both worlds where, you know, I sort of knew what it was like to, to struggle on my mom's side, but then I also had the, you know, I also knew that I would have college paid for.
Speaker 0 00:05:23 Got it. So after graduating, uh, you had a couple of reporting jobs before landing a spot at the Wall Street Journal, um, obviously perhaps the most prestigious paper, uh, in the United States. How did you come to cover, uh, the student loan debacle?
Speaker 1 00:05:43 Yeah, so, you know, I was actually just covering news and, you know, one day my, my, um, my boss came up to me and said, you know, there's this news coming out of, uh, the Consumer Financial Protection Office, uh, where student debt had crossed a trillion, do do dollars, um, can you write this up? And I just wrote up a quick news story. And, um, there were basically, that was really highly read that that day. And so I saw that a lot. This touched a lot of people. A lot of people wanted to read more about it. And so I did, you know, more stories on, and, and the more that I wrote about it, the more people would write to me and say that it was an issue for, for, for them. So I just decided to write about it more and more.
Speaker 0 00:06:31 Uh, so let's start with some numbers to get a sense of the scope of the problem. You write that 43 million people owe a combined 1.6 million trillion in student debt, uh, more than both credit card debt and car loans. This book was published a couple of years ago. So do those numbers still hold and can you help break this down in terms of average debt and which level of debt might be growing faster than others?
Speaker 1 00:07:01 Sure. So, you know, those numbers still hold. And one of the main reasons why is because when the pandemic started, president Trump and then President Biden, um, decided to put student loan payments on hold. And so what you've had is, uh, and those are still on hold. And so what you've had is, you know, all these people who have student debt have not had to make a payment for about three years now. Um, and so yes, that's still how much people owe and that's, that continues to grow cuz people are still going to college, so they're taking out more debt to go to college, but nothing is really being paid down. Some people have decided to pay down their debt during the pandemic, but I think most people have, have not. Um, and so now there's obviously this, you know, case in the high court about, you know, whether this debt forgiveness plan is going to, you know, be, be put in place.
Speaker 1 00:07:48 But yes, those are still the, that's still the amount of debt that is out there. It's really hard to talk about what the average person with student debt is. If you think about the student loan market, it, it is a very di di diverse market. It's like the housing market. You know, if I were to try and tell you what the average homeowner is, it would be hard to group someone who owns a house in Georgetown, d dc with someone who owns a condo. You know, um, I don't know, choose a rural state in the middle of the country. You know, those are very two different housing markets. Um, and it's the same thing with student loans. You know, you have a lot of people who obviously went to grad school, um, you know, grad school at one point, I think it still is about 40% of all outstanding student debt.
Speaker 1 00:08:34 So I think a lot of people, you know, when they think about someone, uh, lots of student loan, they think about like a young 18 year old who's going to a four year public college. It's, that's one segment of it. But you have, you have those people, you have people who went to prestigious private schools that end up getting into a lot of student debt. Again, you have people who, who go to grad school, that's a huge amount. But then, then you have a lot of people who went to a two year public college or a two year for profit college. Um, they don't borrow as much as those other groups, but they, they have becoming, they have become a growing group of people with student debt. So it's really hard for me to say this is the average person, person with student debt.
Speaker 0 00:09:16 Who then, uh, to break it down into the, those different groups is hit the hardest. Are they public or private institutions, undergrad or graduate demographic factors coming into play?
Speaker 1 00:09:28 Right? So it depends on what different problem you're looking at. And I basically break down student debt into probably three problems. One problem, the people who struggle the most in paying their debt are, again, this group of people who went to public two year community colleges or, and or, uh, two year for-profit schools or four year for pro for-profit schools. You know, it's counterintuitive, but most people who default on their loans, who don't make, who end up at least a year behind on their student loan payments, that group owes about five to 10,000. Okay? So that's not that much in the grand scheme. And so it's counterintuitive because you would think, you know, that the people who are defaulting on their loans are people who have the highest amounts. It's actually in general, the people with the lowest amounts. And again, this is a group of people who ended up most likely dropping out of college.
Speaker 1 00:10:26 And so they ended up going to college. They, they may be spent a a a year there and they drop out and they never paid down their, their student debt. So if you wanna look at who's defaulting on their loans, it's largely that that group, and again, these are people that probably weren't, you know, pre prepared to go to college. You know, they, they may have enrolled in a two-year public college, but they had to take, you know, high school level courses because they had to get caught up and then they end up dropping out. Um, but that's not the only problem with student debt. You know, there's a very big group of people who owe what I call ju jum jumbo student loans. And these are people who owe 50,000, a hundred thousand, sometimes 250,000, maybe 500,000. And that is a growing group of people.
Speaker 1 00:11:09 And again, these are people who went to grad school, and so they end up going to grad school. Now, those tend to earn the most when they come out, but they're still not earning enough to keep up with their monthly student loan payments. And so they are current on their student loans, so they're not defaulting. But one of the main reasons why they're current is because they're enrolling in these debt forgiveness programs, which is essentially a way of, you know, saying, of congress saying, okay, we acknowledge we've given you too much debt, we're gonna have to forgive some of it. So they're current on their loans, they're not, their credit is not being harmed. However, they're not paying down their debt. You know, in a lot of cases, their balances are growing because the monthly payments they're making are not enough to even cover the interest. So that in and of itself is a problem. And then you have people who, you know, the other sort of third group is those who maybe went to a, a four year public college or a four year private college. And again, they don't owe the jumbo student loans. Um, but college costs have risen very quickly for them, and they're in debt as well. So those are roughly the three groups that I would break down student debt work.
Speaker 0 00:12:26 So you've chronicled the impact, both statistically and anecdotally on individuals struggling, uh, with school loan debt. What about the taxpayers who picks up the tab on the defaulted subsidized, or is now being discussed forgiven, uh, school loans?
Speaker 1 00:12:44 Yeah. You know, I mean, that's, that's basically the, the problem. One of the problems here is taxpayers are picking up the tab. And so, you know, okay, I've, I I've been asked, okay, well what does that mean? How do taxpayers pay for, well, basically it gets added on to, to the, the debt, okay? Mm-hmm. <affirmative>. And so our debt has been growing for a long time, and this is just adding to that problem. Um, you know, what's,
Speaker 0 00:13:07 So let's say somebody owes, uh, $20,000 and they default and they're not going to pay. So it's, they owe it to Sally May or who, who do,
Speaker 1 00:13:20 Who is it? No. So they, they used to, well, that's a whole other issue that my book goes over. But basically, most student debt right now, the ed, the education department holds it. Now, there is this old federal student loan program that was in existence prior to 2010, where the banks, including sa Sally May, would, um, you know, would, would be the ones that held the debt and actually owned the debt. And then the taxpayers would reimburse the bank if the student defaulted on the loan. There is still a little bit of that debt. Now, I wouldn't say a little, there's still a significant amount of, of that debt outstanding, but most federal student debt is actually held within the education department. And so when students don't repay, it basically gets added on to the, to, to the, uh, depth.
Speaker 0 00:14:16 Now when, uh, this debt gets, it, it, it, somebody's in, in default or they don't pay it back, uh, is it, do you have any grasp on, uh, are most of those people not paying back even the principal, or they paid back some of the principal and they're just,
Speaker 1 00:14:36 One of the more shocking things that I discovered in reporting this, is that again, people who default, something like 90% never make a single payment. So they enroll in, in their local college. And also, this is something I'm gonna say that is kind of controversial, uh, you know, because a lot of progressive advocates don't like this inconvenient fact, but a lot of the status significant chunk was taken out, um, during the housing crisis. If you, if you recall, unemployment was exceptionally high during the housing crash. And afterward, up until around 2010, um, even after we, you know, the crisis supposedly ended, unemployment was still high. And so you had a lot of people enroll in public community colleges. One of the reasons, not the only reason, but one of the reason was because people were really struggling to make ends meet. And they knew a significant amount of people knew that if they enrolled in their community college, they could very quickly and easily get access to Pell grants and student loans.
Speaker 1 00:15:40 And actually, the Obama administration sent a letter to everyone on unemployment at the time saying, now is a good time to enroll in your local college because you have access to, you know, this, this student aid that you can really quickly get and it'll help you go to college. They wanted to get people into college to get skills, but a lot of people said, oh, unemployment, you know, I'm on unemployment. Okay, I I'm gonna go into this local college and get this money. And a lot of them drop out. Um, and then they never repay it. Uh, and, and they never make a payment. And they're very hard to, to get, get a, get a ahold of, you know, I mean, um, a lot of these ser servicers that the education department relies on to collect the debt, email them, you know, call them, and they don't respond. So a lot of people just don't make a single payment when they default it loan,
Speaker 0 00:16:29 They just walk away. Right. And if I understand correctly, they're not necessarily even interested in the education. Some are, some aren't, but some are just like, okay, uh, well, that money will go to the school, the community college, and I'll get some living assistance. And,
Speaker 1 00:16:46 And I've, and I've talked to people, you know, I did a story one time on a guy who, again, he enrolled, he and his wife enrolled in a for-profit college. Um, and they, they really did want to go to school and, and, you know, and, and they, they kind of wanted to become like a nurse. It was one of those nurses that draws blood mm-hmm. <affirmative>. Um, and they ended up paying like tens of thousands and student loan money to this college, um, the for-profit school. And then they come out and they couldn't find jobs. And I interviewed him and he said, I'm not paying a dime. He's like, you know, I felt like I was deceived here. Um, this, the college lied to me about, about how many job opportunities there were for these type of workers. There were no opportunities when I left school, and the education department gave me the loan money to give this to the school. So why would I pay back a dime when I didn't get the job that I was supposed to get? I think a lot of people feel, feel that way.
Speaker 0 00:17:44 Interesting. So, uh, your book tells a story of how we got here, starting from day one of the federal student lending, uh, program in the late 1950s. What are, were some of the original motivations and assumptions of the program? And were there any flaws in those assumptions from the beginning?
Speaker 1 00:18:06 Well, my book opens with a scene of Sput Sputnik. Now this, you know, was a sort of surprising start to the student loan program, but basically it started with our, you know, with our concern about the U S S R getting ahead of us in the space race. And so, um, the idea was, you know, uh, members, um, including LBJ at the time, um, you know, wanted to have more scientists to, you know, basically help us reclaim the space race. And so in order to do that, you know, he and other others, you know, wanted to create the student loan program to enable certain students, not everyone, you know, at this point, there was no idea of let's have college for all. I mean, you had the GI Bill, um, uh, but that was really, you know, just for vets. Whereas here, you know, the, the idea was let's get the sort of highest performing students in high school, you know, the top quarter of students in their class, let's give them the opportunity to, you know, go on to college.
Speaker 1 00:19:15 Um, and there were some stats that were floated around at the time. There were some studies that indicated that half of those people, half of the top quarter of students in, in each high school senior class did not go onto college because they couldn't afford to. So the, so the whole idea was, you know, let's, let's, you know, give these students these high performing students who, but for the cost would be going on to college, let's give them the opportunity to go on to college. That's, that's how it started. Um, but very quickly, within about 10 years, then it started to expand and do this broader goal of, you know, let's just not, you know, reclaim the space race. Let's just not help the smartest students get into college. Let's also give more disadvantaged students the opportunity to get a leg up. Um, you know, and so very quickly it, like the goal expand, expanded
Speaker 0 00:20:03 Mm-hmm. <affirmative>, and then that began to also invite a question of, well, these might not be students that would be able to pay pac. And then of course, uh, all of this free money to the colleges, well, not free, but, um, ready cash for the colleges from
Speaker 1 00:20:24 The, from the very start. Yeah. I'm sorry, go, go ahead. Well,
Speaker 0 00:20:27 Just led to the tuition in increases, which then, you know, snowballed the problem in a way.
Speaker 1 00:20:33 Yeah. And you know, I think one important way to frame it is that from the very start of this program, I don't think society, um, you know, and particularly members of Congress tried to resolve this tension of how many people do we want to go to college and should it be free? And those are really intention. Like if you, if you want universal access, and if you want everyone to be able to go to college, that's gonna be very expensive. And so I think from, from the very start, number one, we didn't sort of have this whole discussion about is college for, for everyone. And then number two, I don't think there was really an acknowledgement of how expensive this would be. And so every step along the way, there was this attempt by Congress or whoever was in the White House to expand college access and pretending that they could do it on the cheap.
Speaker 1 00:21:37 And they came up with all of these ways to make it look cheap to taxpayers, but really it was actually increasing costs. And we can go into how that happened, you know, I mean, it's sort of evolved over time, but, um, one of the things that they did was basically give schools access to all this taxpayer money without really attaching strings to it. And so, as you just mentioned, and this is one of the arguments in my book that actually drove up costs. Um, it really took out any dis discipline in the system, um, for schools to keep a lid on cost infl. In fact, it incentivized them to raise their costs, because the more that they charge, the more money they earned. Not just in higher tuition, but actually schools own. Sally May, then we can go into that, but it was like the most perverse system one could ever think of, you know?
Speaker 0 00:22:36 Well, uh, I know you haven't read Eran, but one would think that, you know, in the fifties and the sixties, there probably were voices out there, the Milton Friedmans and, and the Irans and the Thomas Soles, uh, of, of the world that said, you know, could have predicted that some of this might have happened in terms of, uh, what happens when you try to essentially plan something and, and subsidize, um, with, with governor? I do
Speaker 1 00:23:02 Have to say Mo Friedman, you know, I do mention this in my book, and I don't know if, if you were, if you recall this, this particular part, it was only a couple paragraphs early on, but you know, he actually did recognize that in, when it comes to higher education, private markets did kind of fail. Um, you know, because, and, and I think his argument was, if I recall, it's been, it's been a long time since I wrote that one paragraph. But, you know, I think the main argument is that it's really hard to know how much a college student is going to earn. You know, if you, if you're a bank that is lending someone money to buy a home, you know, there's all these indications of what the value of the home is. And so private markets, you know, have access to information the homeowner has access, has access to information. But if you're lending money to an 18 year old college student, you know, banks at the time were really, uh, averse to lending to college students. Because you don't know if that student is going to drop out. You don't know the quality of the school. You don't know what they're gonna study. You don't know, you know, what the job market's gonna be after they leave college. So Milton Friedman actually interestingly, did say, you know, this was sort of a gap in the private market that kind of needed to be addressed by student loan program.
Speaker 0 00:24:13 Well, then I might disagree with some of his premises, right? Because he, he was already buying into the premise that, uh, not enough people are going to college and, uh, the government needs to step in and, and find a way to rectify that. Um, and, uh, you know, I'm not sure whether they could have tweaked it in such a different way to, to get a vastly different, uh, outcome. But I know you have a lot of suggestions at the conclusion of your book, and we are gonna get to some of those. But first, we also have a lot of questions that are coming in, uh, from the various social media platforms where we're streaming. So let's try to get to some of those cuz they've been patient. Alex Timmer on Facebook asks, where does the blame lie when it comes to all of these students and their college debt, predatory loans, politicians, parents who don't inform kids?
Speaker 1 00:25:07 Wow. Um, I'm reluctant to blame parents, and I'll tell you why I have,
Speaker 0 00:25:13 You can read this book and get the answer.
Speaker 1 00:25:15 Yeah, yeah, no, that's, that's kind of the whole reason I wrote it, was to try and figure out who was at fault. Um, I think that the politicians, you know, this was a self-inflicted wound as one economist told me, um, on behalf of, of the politicians. Um, I will say though, I think the politicians did have some good intentions. You know, I think, you know, for example, bill Ford, he was a congressman. He was a democrat for Mic Mi Michigan, who was in charge of the education committee. He was kind of the champion of this loan program for a very long time. And, um, you know, um, I talked with his chief of staff and he said he felt very strongly about this program. He was actually a big advocate for profit colleges. You know, back in the eighties, the Democrats used to be very much in favor of the profit for profit colleges and Republicans like Bill, Ben, Ben Bennett were, were very much against re profit colleges.
Speaker 1 00:26:07 And the politics kind of switched back in the two thousands. But, you know, back then I talked with Bill Ford's chief of staff, and he said, well, you know, this was a guy, a congressman who saw all of his constituents losing their jobs because of the decline of manufacturing. And he really wanted to help his constituents re-skill go back to college, learn new skills so that, that they can, you know, get new jobs. Um, and so, yes, I do think that, you know, Congress really screwed up in many ways here. I think most of the blame probably lies with them, you know, and I say that because even though, though their intentions were good, there were a lot of red flags along the way. Um, so yes, I would place a lot of blame with members of Congress, but also, you know, a lot of the schools also knew that a lot of their students were defaulting on their loans.
Speaker 1 00:26:58 And, um, I would talk with, you know, the, the heads of these schools, you know, that were raising tuition. And I would ask them, you know, how did you determine how to set tuition? You know, did you do a study? You know, how did you know where to set tuition? And a lot of them would say, we raised the price and we wanted to see how students would respond. And more people applied for, you know, applied to get into our school. So we raised the price again. In other words, you know, raising prices didn't discourage people. It actually, in some ways encouraged students to apply for the school because, you know, the schools, you know, came to the conclusion that if, if they raised their price, more people would consider them a prestigious school. Um, so I think in a lot of cases, and not, not just for-profit schools, I think public schools and private schools also, um, are, are to blame here too,
Speaker 0 00:27:55 On Instagram. Text tax asks what percentage of students who take out loans, uh, but drop out of college,
Speaker 1 00:28:03 Oh, goodness,
Speaker 0 00:28:04 10.
Speaker 1 00:28:05 I did not have that off the top of my head. Um, you know, I know that about 20, I think it's about 20% of community college students take out loans. Um, I don't know how many of them drop out. I know that I think half of community half or most of community college students end up dropping out. But I don't know, you know, how this population's overlap. I don't have the quick answer to that question.
Speaker 0 00:28:26 All right. And on Instagram, also, my modern gal asks, what psychological impact do you think is pressing on young people taking on massive debt that will follow them years to come? So I'm not sure if that seems to be more of a question about the motivations. Uh, you do an excellent job of, of, uh, chronicling the, the consequences and the psychological effects, uh, and, and how, um, challenging that is. But
Speaker 1 00:28:56 Yeah, you know, I, I will say, you know, I'll just, I'll just tell you about again, the main character, the woman that I spotlighted in my book, um, you know, she, she told me that when she took on this debt, she saw it as an investment, and she was actually very proud of it. She, she said that she said she did not want a free handout, you know, that, that she actually wanted to pay her own way. Um, you know, but the problem was is that, uh, and I don't think a lot of people sort of see how this happens over time, but students enroll their freshman year, they're not told how much they're gonna owe by the end of four years, or at least, you know, up until a few years ago, they didn't have any idea how much they would owe at the end of four years.
Speaker 1 00:29:39 If, if, if, if you think about it, it, if you, if you buy a house like you, you have the notes, okay? And, and you're told how much you're going to pay over time, how much interest you'll pay over time, how many years it's gonna take to pay off. You're, you, your eyes are wide open when you, when you sort of buy a house, at least these days. Um, whereas with, with, when you, when you, when you go to college, you know, the price is, is the price of what it is for your freshman year, and then they raise it 5%, 6% the, the next year, and then the interest rates oftentimes increase based on what Congress does. Mm-hmm. <affirmative>. Um, and also, I, I just wanna mention this, this story, you know, I asked these consultants that these colleges hire to help determine what the price is of college.
Speaker 1 00:30:26 I one time asked one of those, these big consultants, why do you only advise these colleges on what to charge freshmen? Why don't you advise them on when to charge sophomores or juniors? And they go, because once they get these, he said, once they get these students in as freshmen, they know that they're very likely not going to transfer schools. So they're kind of captive. Um, which means then they can charge tuition. You know, they can raise tuition three, four per 5% the next year, and then their third year they can raise in another 5%. And so by the time these students leave, they've spent four or five years in college, and the tuition has increased 20% or more. Um, and on top of that, the interest accrues on a lot of these loans. So, you know, this main character in my book, she didn't know how much she was gonna, you know, have, by the time she left, she thought it was an investment. And then by the time she came out of college, she couldn't keep up with her payments because the monthly payments were way more than what she was earning.
Speaker 0 00:31:27 Right. So we touched earlier on Sally May, and in the book you describe it as a quote, money laundering operation. How so?
Speaker 1 00:31:39 Yeah. So this gets to the dysfunction of the program that I was referring to. So basically at the time when Lyndon Johnson wanted to expand the federal student loan program, he wanted to do it in a way that would not raise the federal de deficit. And so basically he said, instead of having the US Treasury Department or the edu, you know, there wasn't education department at the time, but instead of having the, the treasure department directly made, make loans to students, which would show up as a cost on for the taxpayer, let's just somehow convince banks to make loans. And if we will do that by guaranteeing the banks essentially a profit. So not only will we cover the default if the student defaults, you know, not, not only will taxpayers reimburse them on the backend, but we'll also give them a little bit of profit each for each loan that, that they do make.
Speaker 1 00:32:34 And so, um, by basically convincing the banks to make the loan upfront, it did not show up as a government expenditure. It would show up later on when the government covered the default, right? But it didn't really show up as a government expenditure. And so they created this, you know, they called a quasi public corporation of, you know, um, SA sa SA Sally May, and now this was a company created by Congress. It was a for-profit company, but it had all of the powers of the Treasury Department to basically borrow as cheaply as the Treasury Department can borrow. Um, and so basically, you know, congress in this off but budget way gave Sally Mae money, which Sally May then took that money and gave it to the banks to make loans to students. So it was this big convoluted system where, again, on paper it looked cheap. It looked an expensive to run a student loan program, but it actually was making it much more expensive. Um, because not only, you know, were they giving a lot of loans to students who ultimately were not gonna repay them, but they were also, you know, paying the banks money to extend the loans. And oh, by the way, SA Sally May's shareholders were banks and colleges. So think about the conflict of interest there. Um, this is what I mean by there were these huge incentives for colleges to raise their prices because the more students
Speaker 1 00:34:14 Took on in student in student debt, that that meant that students could pay higher prices. So it, it enabled schools to raise their tuition because now, you know, students had access to credit, but then on top of that, like, uh, the schools and the banks themselves directly profited from hot, you know, um, when, when the, the, the company, you know, made more loans. Um, so it was a very con, convoluted system.
Speaker 0 00:34:46 So you talked a little bit about, uh, Lyndon Johnson and about, uh, the Obama administration sending out these letters to people that were, um, receiving unemployment checks, encouraging them to go to enroll in, in community colleges. Any other sort of, um, ways of describing how the various administrations either did nothing or helped improve or made the problem worse?
Speaker 1 00:35:16 Every administration wanted to expand access to college. Um, and so every administration, you know, at some point, uh, you know, expanded the student loan program or, you know, increased subsidies to the colleges. There, there was an effort, you know, there, there was some discussion within the Clinton administration to try and hold schools accountable when their students defaulted. Um, and, and Congress actually did, you know, at some point in the nineties, tightened the, the rules so that, you know, schools, you know, um, would lose access to the student loan program. You know, students would not be able to spend student loans at schools that, you know, had a lot of students defaulting on loans. But then, you know, gradually Congress, you know, Republicans in the late nineties, they sort of started to, you know, become sort of allies of the for-profit college industry. Um, they, you know, helped to, to, to water down those, those rules.
Speaker 1 00:36:15 So, you know, there's sort of, you know, been efforts here and there throughout different administrations, um, and from each party to try to address some of these problems. But again, every single time this happened, you would run into this, this concern that if you crack down too much on colleges, you're going to deny access for students to go to college. You know? And so, you know, we don't want to, you know, prevent everyone from, you know, we, we wanna allow everyone to go to college, and if you close this college because they're doing a bad job, then guess what? You're cutting off opportunities for disadvantaged students to go to college.
Speaker 0 00:36:56 Well, you mentioned for-profit schools, and, um, I can see how perhaps some Republicans might have assumed that they'd be a welcome free market corrective, but from what I gather from your book, many of these outfits, uh, sprung up to take advantage of the ready supply of government guaranteed loans. Uh, so how do for-profit schools fit in, and to what extent could they be part of the solution or part of the problem?
Speaker 1 00:37:28 Well, for-profit schools have been around for hundreds of years. Um, you know, in, in some form this
Speaker 0 00:37:34 Country was founded on for-profit education <laugh>.
Speaker 1 00:37:37 Yeah. And, and you know, what's interesting is, um, you know, when the GI Bill started, you know, there was a big congressional investigation because the GI Bill, I think, I think it offered like 500 do do, do dollars. Um, and, and, and basically it, it offered everyone that amount to go to the college of their choice if they could get in. And so you had, you had instantly a, a lot of for-profit schools open up and set their price at that, uh, you know, at at at 5, 5, 500. Um, and so, um, and these were schools that weren't really teaching good, you know, that were, that weren't doing a good job of teaching their students. A lot of their students dropped out. And, you know, and so, um, there was a big congressional investigation even back then into for-profit schools. So basically every, at every point in time where Congress has, you know, given money to students, there has been a rise of for-profit schools to try to collect some of that money.
Speaker 1 00:38:37 Now, my, my book does not, you know, suggest that private colleges and public colleges don't do some of the same things. But I do think that, uh, because for-profit schools were owned, especially in the two thousands by Wall Street investors, there was a significantly higher amount of pressure for them to enroll as many students as they could while also keeping a lid on costs. So it's not that I don't think some of the same problems occur in public and nonprofit education, but I do think the profit motive makes it is so acute when it's, you know, owned by Wall Street investors who have to meet a bottom line that the problems are just that much worse in the for-profit sector. And they're also serving, and just fyi, and to be fair, they're also often serving disadvantaged populations who are not as prepared as a a academically as students who go to selective colleges.
Speaker 1 00:39:52 And, you know, I'll just give you one thing that I learned when I was going through some of these transcripts of these Wall Street, you know, COR corporations, uh, just to kind of, you know, learn how they were able to make so much money. One of them said, you know, Hey, look, the California community colleges are saying that they don't have the capacity to serve our students, you know, come over and take some of these excess students that we don't have the capacity to serve. So in part, for-profit colleges are filling a gap that the public sector, you know, that a, a gap that exists among public colleges. Um, but I do think the problems are far more acute in the for-profit sector.
Speaker 0 00:40:40 Well, uh, on Facebook, Howard Moore just asked a question that I have been rattling around in my, uh, head here because, um, you know, in the solutions, uh, and we're hopefully gonna be able to, to get to some of them. Um, but, but one thing that you don't talk about, perhaps it was a decision cuz it really is, you're, you're focusing on the higher education system, but Howard is asking, do you think the American K through 12 system is failing properly to educate students, uh, for them to have a better idea of what they want to do in college or, or, you know, having the skills, I mean, Chicago, where there're dozens of, uh, schools where no student can, um, read or do math at grade level. I mean, it, it seems like pretty much a disaster and fixing that problem would, uh, would po possibly go a long, long way towards, um, helping students better prepare for these life choices?
Speaker 1 00:41:37 I completely agree, and I think, um, I think that, um, so much of, uh, so many of the problems with student debt with higher education reflect the fact that our K through 12 system has declined in quality over the years and is not doing a good enough job in preparing students to, you know, either be in the workplace or go to college. Um, you know, and again, you know, one of the things that opened my eyes is when I started to write about community colleges, um, you know, there are so many people who end up having to take high school level courses, um, because they're just not up to speed on English and math. And so essentially a lot of these loans are basically paying students to redo high school again, um mm-hmm. <affirmative>, and then they drop out and then they owe student debt.
Speaker 1 00:42:23 So, um, I do think that's a big problem. I, I talked with one of the advisors during the Lyndon Johnson administration, he's still around in DC and I went out to coffee with him and he was talking about why they, you know, got behind this idea of basically universal access to college or something close to it. And I said, why would you do that? What, you know, why, why not if, if you were focusing also on, you know, K through 12 education, cuz that was part of the Lyndon Johnson, you know, administration's efforts was to improve K through 12. Why did you also, you know, wanna expand access to college to disadvantaged kids? And he said, well, we were concerned about people who already went through the pipeline, you know, so yes, we were doing all of these reforms, you know, to improve K through 12 education, but what about the people that already went through K through 12? You know, we, we didn't want to just leave them, you know, uh, we, we we wanted to help them as well. So, you know, again, this is where you sort of, you, you, you talk to people who put these programs in place and you do understand that they had good intentions and that there weren't easy answers. Um, but in short, I do agree with you that, that a lot of the problems are, are, are reflective of problems like k in K through 12
Speaker 0 00:43:40 Vernon Forge on Instagram also, um, asking a question that's been on my mind. And, uh, it is whether, um, student loan debt continues down this path or is there a breaking point fast approach thing. So an extension of that is, as you've mentioned, there's been a pause on repaying student loans for the past three years. I'm not sure whether or not, um, interest has still been accruing or whether that was paused as well. And
Speaker 1 00:44:15 Con Congress paused the interest or the interests and the administrations through executive actions paused the
Speaker 0 00:44:22 Interest. Yes. Yeah. So let's kind of go with the worst case scenario. Let's say none of these reforms get passed and things just keep continuing down this, um, path. So what, what are the consequences? Higher national debt?
Speaker 1 00:44:40 Yes. Interestingly, interestingly, um, tuition inflation, um, has actually come down. And for the first time ever, several years ago, I don't, I don't remember the exact year, but, uh, for the first time basically ever, tuition was rising slower than overall inflation. So, um, and, and the reason why I think is because since 2010 or so, uh, college enrollment has, has declined. Um, and I think what's happened, you know, we, we've actually run some polls to ask Americans, do they think college is worth it? And something like six years ago or so, don't quote me on that. Six or eight years ago, you had like a solid majority of households say, yes, it's worth it. And now we just recently had a poll that came out a couple weeks ago that basically said most, you know, 56% I think now say it's not worth it. So I think you've had Americans faith in higher education drop, and, and a lot of people are now saying it's not worth it.
Speaker 1 00:45:49 A lot of people are going directly into the workforce. We've had this era of like exceptionally tight job mar markets. Um, and so what we're seeing is, um, employers are actually lowering their college degree standards mm-hmm. <affirmative> and, and in other words, a a large share of jobs that used to require someone to have a college degree no longer require that. And I think one of the reasons why is because the job market is so tight, you're seeing employers saying, Hey, does this job really require someone to go to college? Um, so I think both from the employer perspective and also the household perspective, people have lost faith in the power of a, of, of going to college, um, at least at, at the current cost. And so we've actually seen costs come down, um, even though the student loan program is still in place, uh, which, you know, still sort of gives colleges free access to this money. Um, so I think in the long term though, I don't know. Um, I think, I think that if you still keep this program in place, there's always going to be the ability of, of of schools, uh, you know, to raise prices without consequence. Um, at least if you don't tie more strings to, to the loan money. Um, but you also have this broader economic force that has sort of taken away the power of going to college or at least the payoff of going to college.
Speaker 0 00:47:09 Yeah, no, I mean, that's a huge demographic change.
Speaker 1 00:47:13 I I, I, I got to be clear, there's still a big payoff, you know, there still is a college degree premium. Oh, college wage premium, you know, in other words, college graduates still earn on average significantly more than people who don't go to college. However, there is a lot of VA variation with within that. And so I just wanna make that very clear, but yeah.
Speaker 0 00:47:35 Yeah, I mean, I think there is, uh, a sense where people are liking taking a look at this debt, and they're saying, I have to take that into account. Um, there is a sense where people are taking a look at the kind of, um, climate on campus and seeing people getting shouted down and, you know, parents shocked sending their kids to college and, and, uh, seeing, uh, what a sort of, um, lack of intellectual diversity and intolerance for, uh, diversity viewpoint. Uh, and then also, you know, on the positive side, uh, you are seeing many examples of tremendous, um, entrepreneurs, I mean, that have, uh, dropped out of college or decided to forego college. You know, you see, um, uh, even a encouragement of people to, to, uh, maybe consider alternatives like apprenticeships. And I know you write about that. I interviewed Isaac Morehouse, you know, who said in some ways the college degree is a certificate that says, I am no worse than anybody else who graduated from this school. Um, and, uh, that there are increasingly other paths. So, uh, how, how do we encourage that is that that's primarily a private sector people, um, coming up with ways to service the demand of people saying, I'd like an alternative.
Speaker 1 00:49:04 Yeah. You know, and, and we have seen, you know, in some cases employers sort of step up. Um, you know, in Kentucky I wrote about a program, this is not, I don't think it's, I I think I actually may have mentioned it in at the end of my book, but this apprenticeship program in Kentucky where, you know, several big corporations had had agreed to, you know, pay for the tuition of apprentices who, you know, spent part of their time at the local community college taking some classes throughout the week. And then the other part of the week, the other half of the week, they would, you know, work on site. And, you know, this to me seemed like a partnership that was, you know, in part funded by the private sector. Um, and it had, you know, it had good, good, good outcomes. A lot of the graduates, the average graduate of this particular program that I wrote about earns $95,000 five years after going to this program.
Speaker 1 00:49:59 Um, so I think that, you know, we have sort of as a society taken for granted this notion that there's only one way to g to get a higher education, and it's to go to a four year college and it's to be funded by the student loan program. You know, I think everyone had came for a long time to rely on the federal government to, you know, basically, uh, pay for the skills of the workforce. And that kind of left employers off the hook. But I think now what you're seeing is in, in part, you know, because employers realize maybe college doesn't always make someone a better worker. They're now, you know, being forced to, to, you know, sort of think, you know, more about, you know, should we finance this apprenticeship apprenticeship in Kentucky instead of relying on four year schools to fill this gap. Mm.
Speaker 0 00:50:48 So, uh, in the nine minutes we have left, and I, I wanna also leave some space for you to be able to offer any closing thoughts or other perspectives. I know you've got, uh, oh, a whole new portfolio. Um, now you're still, uh, writing about, uh, finance and, um, the economy, but you're, you're doing it from London. Yeah. Uh, but, uh, you do, you do, again, as I mentioned, have some, some really thoughtful, uh, recommendations. I, I wouldn't agree with all of them, but I, but I would love to, to get into some of them. One was, uh, that quote, you'd like to make more four year schools put up their own money. So that, that seems in some ways kind of an obvious thing that they, they should be doing. Um, my alma mater, Harvard just got, um, a, a 300 million grant donation from my, um, my, my classmate, Ken Griffin. Uh, so why isn't this, why, why aren't they doing that? Is that because they can rely on these government backbones?
Speaker 1 00:52:02 Yes. How,
Speaker 0 00:52:03 How would, how, how would having skin in the game change things?
Speaker 1 00:52:07 Well, okay, um, you know, one of the interesting things I learned when I researched this program is that there was actually a federal, not a federal program, there was a na, national Student Loan Program before the federal student loan program, and it actually worked quite well. Um, and again, uh, this was prior to Sputnik, um, employers, this, this was funded largely by employers. Okay. So you had all these corporate CEOs, you know, uh, basically say, we need more skilled workers, we need, you know, uh, more people to go to college. Um, so let's create a, essentially an insurance fund that will ensure banks, so that banks will be comfortable enough to give loans to students. And if the student defaults, then this insurance fund will reimburse the banks. Um, now the trick was schools actually had to put money into the insurance pot, and, and so did banks.
Speaker 1 00:53:02 So you basically had employers, banks and schools finance a national student loan program. And I, it was actually growing very quickly, and it was actually, it had very low default rates. Okay. Um, and it was expanding access to college. It had low default rates, it was funded by private corporations. It sounds great, right? Um, Lyndon Johnson, um, you know, was a very eager and ambitious guy, and his administration basically appeared before Congress when they were arguing, you know, for, for an expanded student loan program. Um, and said, and said, this is not, this program is great, but it's not growing quickly enough to give access to as many people as we want. So, for example, this program had underwriting, um, it wouldn't just give every anyone alone. Um, it would, it would, it would not give loans to freshmen because freshmen were at a high risk of dropping out.
Speaker 1 00:54:04 For example, it would check your credit score, you know, if you were a default on other loans, you know, you might not be able to get a loan. And so this gets back to my point, which is there was always this tension of providing universal access versus keeping a lid on costs. This program, I thought did a pretty good job of, you know, trying to do a little bit of both. Um, again, the default rates were low, but that's also because they weren't just handing out a check to everyone. It wasn't, it was not an UA program. Now, there were some real problems, for example, there were historically black, you know, schools, um, including Howard that, you know, were saying, look, you know, these banks aren't giving loans to our students who they consider too high of a risk. So you sort of ran into these real problems, um, where this program was working well, but it wasn't achieving all of the access that pol politicians wanted to.
Speaker 1 00:54:59 Um, so this is what gets into my second recommendation, which is make community college free. Because then I think you can kind of achieve both goals. You can have a student loan program where the four year, four year schools are on the hook, you know, for some of the loan money, if the schools, if the students default, go back to the way, the way it used to be. But also, if, you know, you, you want to continue giving universal access to, to, to everyone to go to college, you know, let's have the two year public community colleges fill that role.
Speaker 0 00:55:31 Well, uh, and that's probably one that I, I think we could have a, uh, a civil and interesting debate on if we had more time, because, um, and when we look at, with the, uh, the debt, the amounting debt, and the deficit, um, whether or not it makes sense to add another entitlement at this time, particularly at a time when more more people are deciding not to go to college. And so to have them, um, in their taxes, paying for a cost for others who make, uh, a different point of view, but a debate for another, uh, another day. Any, you know, I've, I've asked some questions. Our audience has asked some questions. Any other points that you wanna share from the book? Things that we haven't gotten to, things that may be on your mind now? Um, sure.
Speaker 1 00:56:24 Yeah. No, I, you know, you, you had mentioned that in my new role, you know, I've, I may have a different perspective and, um, you know, I've spent nine months in the UK and I've traveled around Europe. Um, and, you know, one of the most striking things is you do realize how wealthy of a country, the, the United States is. I had never spent time in Europe or the UK before I moved out here. Um, and so for all of its flaws and its warts, um, um, you, you do see just how wealthy and how strong an economy the United States is, even compared to the uk, which is like fifth or sixth largest economy in the world. Mm-hmm. <affirmative>. Um, and I, I do think a large part of that is the, the higher education system is, is, you know, um, basically the, uh, the investment in education overall.
Speaker 1 00:57:16 Um, I think, you know, we probably went as a society too far down this path of putting too much faith in higher education. But at the same token, um, I think there's a risk in going too far down the other side where you know, you become too sort of restrictive in who goes to college. And so I guess my ultimate, you know, thought here is, um, if, if you reform the program, be careful about how sweeping the changes are because you come out here and obviously the United States is doing something right when you know it is such a wealthier place, um, than, than, than, than even the, you, you, you, you can
Speaker 0 00:58:02 Yes. Well, I, I think that we are doing a lot right. Um, some of that may be higher education. Some of it also I think is, uh, in some ways, in some ways our economy is, is still freer. And, uh, we do have this, um, tradition of risk taking and, um, an immigration system that, uh, that welcomes, um, the most ambitious risk-taking, uh, motivated people from, from around the world. So, um, but it gives us a lot of food for thought. Where's the best place to, to follow you? I know you are on Twitter. Uh, and of course we can read your byline at the Wall Street Journal.
Speaker 1 00:58:46 Yeah, those are the, those are the two main places. Uh, Twitter slash j Mitchell WSJ twitter.com/j Mitchell wsj. Um, the book is on Amazon as well as independent book pub publishers if we wanna go, go, go to them. But yes,
Speaker 0 00:59:03 And, and on Audible and I must say a very, very good, uh, narration. So, um, really enjoyed it and appreciate your taking the time to, uh, to come on of course and discuss of course with us. Of course, I've been wanting to talk about this topic for a really long time, so thank you, Josh.
Speaker 1 00:59:19 Well thanks,
Speaker 0 00:59:20 And thanks to all of you who have joined us, uh, today. If you enjoyed this video and any of our other materials and content, please consider making a tax deductible donation to the Atlas
[email protected]. And please be sure to tune in next week when bestselling novelist, Larry Correa, will be our guest on the Society, asks to talk about his book in defense of the Second Amendment, another topic that I've been wanting to dive into in a more, um, substantive way. So we'll hopefully see you next week. Thanks everybody.
