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The Debt Trap: How Student Loans Became a National Catastrophe
An NPR Best Book of 2021
From acclaimed Wall Street Journal reporter Josh Mitchell, the “devastating account” ( The Wall Street Journal ) of student debt in America.
In 1981, a new executive at Sallie Mae took home the company’s financial documents to review. “You’ve got to be shitting me,” he later told the company’s CEO. “This place is a gold mine.”
Over the next four decades, the student loan industry that Sallie Mae and Congress created blew up into a crisis that would submerge a generation of Americans into $1.5 trillion in student debt. In The Debt Trap , Wall Street Journal reporter Josh Mitchell tells the “vivid and compelling” ( Chicago Tribune ) untold story of the scandals, scams, predatory actors, and government malpractice that have created the behemoth that one of its original architects called a “monster.”
As he charts the “jaw-dropping” (Jeffrey Selingo, New York Times bestselling author of Who Gets in and Why ) seventy-year history of student debt in America, Mitchell never loses sight of the countless student victims ensnared by an exploitative system that depends on their debt. Mitchell also draws alarming parallels to the housing crisis in the late 2000s, showing the catastrophic consequences student debt has had on families and the nation’s future. Mitchell’s character-driven narrative is “necessary reading” ( The New York Times ) for anyone wanting to understand the central economic issue of our day.
From acclaimed Wall Street Journal reporter Josh Mitchell, the “devastating account” ( The Wall Street Journal ) of student debt in America.
In 1981, a new executive at Sallie Mae took home the company’s financial documents to review. “You’ve got to be shitting me,” he later told the company’s CEO. “This place is a gold mine.”
Over the next four decades, the student loan industry that Sallie Mae and Congress created blew up into a crisis that would submerge a generation of Americans into $1.5 trillion in student debt. In The Debt Trap , Wall Street Journal reporter Josh Mitchell tells the “vivid and compelling” ( Chicago Tribune ) untold story of the scandals, scams, predatory actors, and government malpractice that have created the behemoth that one of its original architects called a “monster.”
As he charts the “jaw-dropping” (Jeffrey Selingo, New York Times bestselling author of Who Gets in and Why ) seventy-year history of student debt in America, Mitchell never loses sight of the countless student victims ensnared by an exploitative system that depends on their debt. Mitchell also draws alarming parallels to the housing crisis in the late 2000s, showing the catastrophic consequences student debt has had on families and the nation’s future. Mitchell’s character-driven narrative is “necessary reading” ( The New York Times ) for anyone wanting to understand the central economic issue of our day.
272 pages, Hardcover
Published August 3, 2021
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Josh Mitchell
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Displaying 1 - 30 of 142 reviews
October 4, 2022
You ever read a book that makes you want to start banging on pots and pans and just scream
Reading this book really put the student loan crisis into perspective for me... It walks you through the history of student loans in the US (a very new concept) and points out how quickly investors started using school debts to get a buck.
From the origin of many for profit schools who charged exactly how much stipend veterans received for a school year to the way Sallie motherfucking Mae has shaped the student loan program every part of this book makes you feel a chilling rage.
As a young person, I, my parents, teachers, classmates, all accepted that going to college was shitfaced expensive. And we knew how insanely more expensive it was to go than it was for our parents, or their parents, but we just ??? accepted that as How it Be. And reading this book really makes you realize how absolute bullshit it all was. A fabricated reality. Make mommy and daddy pay for school it'll totally be worth it that's so normal yay! (?!)
The quote that stood out the most: For our nation's history, wealth would be passed down to the newer generations. For the first time, debts started being passed up generations. (not a direct quote) The parent plus program is so batshit insane crazy manipulative horrible evil HOW DID WE JUST ACCEPT THIS AS NORMAL? And why the literal fuck are people still getting away with this?
The best part of the book came towards the end when Mitchell reminds us of Biden's original promised student loan forgiveness program during his campaign. HA! HAHA!!
I'm evil now
Reading this book really put the student loan crisis into perspective for me... It walks you through the history of student loans in the US (a very new concept) and points out how quickly investors started using school debts to get a buck.
From the origin of many for profit schools who charged exactly how much stipend veterans received for a school year to the way Sallie motherfucking Mae has shaped the student loan program every part of this book makes you feel a chilling rage.
As a young person, I, my parents, teachers, classmates, all accepted that going to college was shitfaced expensive. And we knew how insanely more expensive it was to go than it was for our parents, or their parents, but we just ??? accepted that as How it Be. And reading this book really makes you realize how absolute bullshit it all was. A fabricated reality. Make mommy and daddy pay for school it'll totally be worth it that's so normal yay! (?!)
The quote that stood out the most: For our nation's history, wealth would be passed down to the newer generations. For the first time, debts started being passed up generations. (not a direct quote) The parent plus program is so batshit insane crazy manipulative horrible evil HOW DID WE JUST ACCEPT THIS AS NORMAL? And why the literal fuck are people still getting away with this?
The best part of the book came towards the end when Mitchell reminds us of Biden's original promised student loan forgiveness program during his campaign. HA! HAHA!!
I'm evil now
June 12, 2021
Before You Talk About The Student Loan Problem, Read This Book. Here, Mitchell does a phenomenal job of going from the very beginning - before World War I even - and showing just how the student loan problem grew from a well-intentioned idea into the massive debt bomb that we are now struggling with at all levels. Other than one short, couple of pages - if that - section near the end, Mitchell keeps all personal ideas and politics out of the narrative, instead focusing on as objective a reporting of the events as they unfolded as I've ever seen. Indeed, there are only two things that I can think to ding him on at all here, and neither one quite warrants a star reduction:
1) Throughout the narrative, particularly once his timeline gets into the 1990s and 2000s eras, Mitchell doesn't account for the rise of State-sponsored lottery-funded scholarship programs. Though upon a bit of research, it seems that these only exist primarily in the Southeast: Arkansas, Florida, Georgia, Kentucky, New Mexico, South Carolina, Tennessee, West Virginia. Though I've lived in three of those States and had my college funded by Georgia's HOPE Scholarship - it is at least plausible that anyone living outside of those States, or without close friends or family in them, has never heard of these programs. (And yet even with HOPE, I still managed to amass a $20K student debt load that had ballooned to nearly $40K before I began actively repaying it - upon threat of legal action - largely due to exactly the forces Mitchell describes in this text, but mostly because I was an idiotic 18yo and it was "free money". Though I'm proud to note that as of this moment, I have less than the various forgiveness amounts that are being bandied about in DC - which Mitchell also covers, in a near up-to-the-minute fashion, even 2 months before publication of this book. An amount that I *will* pay off before the current suspension of interest - signed by President Trump and extended by President Biden - expires, currently slated for less than two months after this book is published.)
2) The Bibliography is a bit scant at only about 15% of the text, though there is a decent portion of the book - focusing on a singular case study in recurring episodes throughout the narrative - where Mitchell conducted extensive interviews and examinations of the relevant documents personally.
Overall truly an excellent, objective look at the history and many factors that have created today's student loan problem. And as GI Joe once said, "knowing is half the battle". Very much recommended.
1) Throughout the narrative, particularly once his timeline gets into the 1990s and 2000s eras, Mitchell doesn't account for the rise of State-sponsored lottery-funded scholarship programs. Though upon a bit of research, it seems that these only exist primarily in the Southeast: Arkansas, Florida, Georgia, Kentucky, New Mexico, South Carolina, Tennessee, West Virginia. Though I've lived in three of those States and had my college funded by Georgia's HOPE Scholarship - it is at least plausible that anyone living outside of those States, or without close friends or family in them, has never heard of these programs. (And yet even with HOPE, I still managed to amass a $20K student debt load that had ballooned to nearly $40K before I began actively repaying it - upon threat of legal action - largely due to exactly the forces Mitchell describes in this text, but mostly because I was an idiotic 18yo and it was "free money". Though I'm proud to note that as of this moment, I have less than the various forgiveness amounts that are being bandied about in DC - which Mitchell also covers, in a near up-to-the-minute fashion, even 2 months before publication of this book. An amount that I *will* pay off before the current suspension of interest - signed by President Trump and extended by President Biden - expires, currently slated for less than two months after this book is published.)
2) The Bibliography is a bit scant at only about 15% of the text, though there is a decent portion of the book - focusing on a singular case study in recurring episodes throughout the narrative - where Mitchell conducted extensive interviews and examinations of the relevant documents personally.
Overall truly an excellent, objective look at the history and many factors that have created today's student loan problem. And as GI Joe once said, "knowing is half the battle". Very much recommended.
December 17, 2021
This book taught me how the behemoth we call Sallie Mae works— more or less. It is such a complex system, yet the author breaks it down concisely and clearly. He doesn’t cast blame on one administration any more than the next — everyone from LBJ to the Trump administration bears responsibility for the student debt crisis we find ourselves in today.
He uses data and storytelling that kept me engaged on this important yet often amorphous topic (which is part of how it in fact became a crisis).
In terms of writing style for a nonfiction, it was the right length. Any longer and it would have been overdone.
I do think his solutions, while I agree with some, left a little something to be desired in terms of their practicality.
Highly recommend if you’re interested in educating yourself on the student loan history and current state.
He uses data and storytelling that kept me engaged on this important yet often amorphous topic (which is part of how it in fact became a crisis).
In terms of writing style for a nonfiction, it was the right length. Any longer and it would have been overdone.
I do think his solutions, while I agree with some, left a little something to be desired in terms of their practicality.
Highly recommend if you’re interested in educating yourself on the student loan history and current state.
August 16, 2025
admittedly, i read this book some time ago so my thoughts on the topic are not fresh. i also (somewhat) recently graduated college with a masters degree and not a dollar of debt. all this to say, my perspective on the matter of student loans and student loan forgiveness is decidedly skewed.
ultimately, I think mr. mitchell did a good job of capturing the multifaceted and double edged sword that is obtaining a post-secondary school education in America and the difficult financial decisions students and families must make in determining if, when, and where to attend college. i would love to see an update to this book for the post-COVID (and then perhaps the post-Donald-Trump’s-war-on-higher-education) world
ultimately, I think mr. mitchell did a good job of capturing the multifaceted and double edged sword that is obtaining a post-secondary school education in America and the difficult financial decisions students and families must make in determining if, when, and where to attend college. i would love to see an update to this book for the post-COVID (and then perhaps the post-Donald-Trump’s-war-on-higher-education) world
April 13, 2025
Exceptional book. Highly recommended for anyone interested in one of the biggest economic crises of our time - student debt. This book will also erode your faith in both public and private institutions.
Josh Mitchell argues that the American student loan system has metamorphosed into a deeply exploitative and structurally flawed system, disproportionately advantaging academic institutions, loan servicers, and the federal government while systematically disadvantaging borrowers. Conceived with ostensibly noble intentions to democratize access to higher education, the program was fundamentally deficient in design, lacking adequate regulatory oversight and coherent accountability mechanisms. As federally backed loans became increasingly accessible, universities—particularly private and for-profit institutions—responded by inflating tuition costs, engendering a self-perpetuating cycle of escalating expenses and deepening indebtedness. The U.S. Department of Education, functioning more as a financial creditor than as a steward of educational equity, accumulated revenue from interest and punitive fees while neglecting to implement borrower protections. Meanwhile, predatory practices by certain educational enterprises and servicers exacerbated the crisis, frequently misleading students and obstructing access to income-based repayment programs. The cumulative effect has been a pervasive and intergenerational economic burden, particularly devastating for socioeconomically vulnerable populations. Mitchell ultimately argues that the prevailing student loan paradigm has betrayed its foundational promise, transforming higher education into a perilous financial wager and necessitating comprehensive structural reform.
When hearing about politicians making absurd claims about student loan forgiveness, it’s important to understand that it’s poor policy that lead to the explosion of student debt. Universities built large dorms, and students basically live in 3 star hotels on a credit card for 4 years. The system must be dismantled and rebuilt from the ground up.
Josh Mitchell argues that the American student loan system has metamorphosed into a deeply exploitative and structurally flawed system, disproportionately advantaging academic institutions, loan servicers, and the federal government while systematically disadvantaging borrowers. Conceived with ostensibly noble intentions to democratize access to higher education, the program was fundamentally deficient in design, lacking adequate regulatory oversight and coherent accountability mechanisms. As federally backed loans became increasingly accessible, universities—particularly private and for-profit institutions—responded by inflating tuition costs, engendering a self-perpetuating cycle of escalating expenses and deepening indebtedness. The U.S. Department of Education, functioning more as a financial creditor than as a steward of educational equity, accumulated revenue from interest and punitive fees while neglecting to implement borrower protections. Meanwhile, predatory practices by certain educational enterprises and servicers exacerbated the crisis, frequently misleading students and obstructing access to income-based repayment programs. The cumulative effect has been a pervasive and intergenerational economic burden, particularly devastating for socioeconomically vulnerable populations. Mitchell ultimately argues that the prevailing student loan paradigm has betrayed its foundational promise, transforming higher education into a perilous financial wager and necessitating comprehensive structural reform.
When hearing about politicians making absurd claims about student loan forgiveness, it’s important to understand that it’s poor policy that lead to the explosion of student debt. Universities built large dorms, and students basically live in 3 star hotels on a credit card for 4 years. The system must be dismantled and rebuilt from the ground up.
July 23, 2021
For this and other book reviews, visit www.bargain-sleuth.com.
I went back to school in 2005 while I was home with my two oldest children. I took out just enough to pay for my schooling through a private Wisconsin university that offered an online degree program. When I graduated, I had $28,000 in loans. Flash forward 8 years of paying over $500 a month ($6000 a year) and I still had over $26,000 in loans. If my mother-in-law had not died and left my husband an inheritance, we’d still be paying on the loans. Which is why we’ve always taught the children that they should pick one of the two local universities or the technical college, stay at home, and get their degrees the less costly way. Sadly, our oldest has not heeded our pleas and is planning to go to a public university across the state. We’ve saved some money for her schooling, but not enough to cover her five year program. I worry about the debt load she is going to take on.
Which is why, when NetGalley and Simon and Schuster offered me The Debt Trap: How Student Loans Became a National Catastrophe to read in exchange for an honest review, I gladly accepted. The book will be released to the general public August 3, 2021.
It really all began after World War II, when the G.I. Bill provided each veteran with unemployment checks, $500 a year for college tuition, and loan guarantees to buy homes. While many women served in the military, the powers that be labeled their units civilian, so there were no G.I. benefits for them.
Then in 1957, Sputnik launched and Americans were scared out of their minds of Soviet dominance. Lyndon Johnson looked back fondly on the loan he was given to go to college; it helped make him who he was. He believed if the United States could make college affordable, Americans could beat the “Commies”. It was then, as a member of Congress, that the first federal student loan program started.
Of course, the easy access to loans meant that colleges could raise their tuition at rates that exceeded inflation. So what did Congress do? They increased loan limits and interest rates and let more people borrow money. Private banks that were loaning the money to students made huge profits on the interest paid by former students.
At the same time, Congress made it harder and harder for borrowers to discharge their loans. In 1976, they made it difficult to get out of debts through bankruptcy, but still possible. In 1997, the legislation they passed makes it nearly impossible to get out of paying federal student loans. In 2005, Sallie Mae backed a bill that blocked student borrowers from declaring bankruptcy with their private student loans. Shockingly, during the 2008 meltdown of the economy, Sallie Mae was the first bailout of the financial crisis.
The Debt Trap is an interesting history of how we got where we are today, and offers anecdotal stories at the beginning and the end of the book. There’s no easy answer to the financial aid crisis in our country, which now tops $1.5 TRILLION. Universities keep raising tuition and housing rates beyond the rate of inflation, and lenders are raising the interest rates and loan amounts for borrowers. Something has to give, or as a country, we’re going to be collectively in a world of hurt.
I went back to school in 2005 while I was home with my two oldest children. I took out just enough to pay for my schooling through a private Wisconsin university that offered an online degree program. When I graduated, I had $28,000 in loans. Flash forward 8 years of paying over $500 a month ($6000 a year) and I still had over $26,000 in loans. If my mother-in-law had not died and left my husband an inheritance, we’d still be paying on the loans. Which is why we’ve always taught the children that they should pick one of the two local universities or the technical college, stay at home, and get their degrees the less costly way. Sadly, our oldest has not heeded our pleas and is planning to go to a public university across the state. We’ve saved some money for her schooling, but not enough to cover her five year program. I worry about the debt load she is going to take on.
Which is why, when NetGalley and Simon and Schuster offered me The Debt Trap: How Student Loans Became a National Catastrophe to read in exchange for an honest review, I gladly accepted. The book will be released to the general public August 3, 2021.
It really all began after World War II, when the G.I. Bill provided each veteran with unemployment checks, $500 a year for college tuition, and loan guarantees to buy homes. While many women served in the military, the powers that be labeled their units civilian, so there were no G.I. benefits for them.
Then in 1957, Sputnik launched and Americans were scared out of their minds of Soviet dominance. Lyndon Johnson looked back fondly on the loan he was given to go to college; it helped make him who he was. He believed if the United States could make college affordable, Americans could beat the “Commies”. It was then, as a member of Congress, that the first federal student loan program started.
Of course, the easy access to loans meant that colleges could raise their tuition at rates that exceeded inflation. So what did Congress do? They increased loan limits and interest rates and let more people borrow money. Private banks that were loaning the money to students made huge profits on the interest paid by former students.
At the same time, Congress made it harder and harder for borrowers to discharge their loans. In 1976, they made it difficult to get out of debts through bankruptcy, but still possible. In 1997, the legislation they passed makes it nearly impossible to get out of paying federal student loans. In 2005, Sallie Mae backed a bill that blocked student borrowers from declaring bankruptcy with their private student loans. Shockingly, during the 2008 meltdown of the economy, Sallie Mae was the first bailout of the financial crisis.
The Debt Trap is an interesting history of how we got where we are today, and offers anecdotal stories at the beginning and the end of the book. There’s no easy answer to the financial aid crisis in our country, which now tops $1.5 TRILLION. Universities keep raising tuition and housing rates beyond the rate of inflation, and lenders are raising the interest rates and loan amounts for borrowers. Something has to give, or as a country, we’re going to be collectively in a world of hurt.
March 23, 2022
4.5. Rage-inducing but super eye-opening. Definitely recommend this one to understand how in the hell we got here.
September 6, 2022
For a public policy book, this is an excellent and accessible look at how we’ve gotten to the student debt mess that we are in. It is a bunch that made me sick to my stomach as I read it. The author does a great job of juxtaposing the competing incentives and moral hazard created by the structure of federal student loans. As a cynic might expect, correctly, the student loan system is built in a house of cards with off ramps for the banks and the government, but only a steep slide deeper into debt for the borrower. Overall, an excellent work of investigative journalism and an explainer on economics and corruption.
December 21, 2021
I’d give this a 4.5 - the review of student loan history, creation and corruption is incredible, infuriating, easy to understand and captivating. I wish there were more practical solutions or policy ideas, or ways that is average American can actually help by way of lobbying or lifestyle changes. Left me a little bit depressed and a lot bit angry…. But way more knowledgeable!
July 6, 2024
A really informative book about the history of the student loan program in America and how its unintended consequences and poor policy design choices contributed to the student debt and college affordability crisis today.
A key takeaway from the book is that the federal government *guaranteeing* student loans (e.g. if the student defaults, the government pays the bank for the loan and takes it over) has incentivized colleges to raise tuition beyond the rate of inflation. No matter the price, either the student paying off the loan themself or the government stepping in to *guarantee* the loan means that the college gets its tuition money.
Another key point is that while borrowers for other types of debt (like home mortgages or car loans) must undergo credit checks and vetting, it is very easy for students to take on massive amounts of student debt with very few questions asked. Perhaps considering factors like a student's high school GPA, intended college major, and the college's career placement statistics could play a role here. On the other hand, it can be tough to project a student's future earnings when they are just entering college at 18 years old. It's also important to think about equity considerations (e.g. does placing stricter requirements on potential borrowers lock out too many students from underprivileged backgrounds).
One key point is that even as college tuition prices have skyrocketed, students and families have been willing to take on increasing amounts of student debt because they believe it is an investment in their future that will pay off. As we know now, it does not always pay off, especially when considering not just post-graduation incomes but also post-graduation net worth trajectories. I think it's good that there's a conversation now about the tradeoffs of college and how to make the experience worthwhile for each student. While I think it's good for everyone to have the chance to attend college (not just for the financial benefits but also for the intellectual benefits), I think it's important for families to consider the cost more (e.g. choosing public schools over private schools, maybe starting with community college) as well as potential alternatives (like trade schools, which can yield surprisingly high-paying careers).
Another interesting fact I learned is that when some colleges increased tuition, they actually found that students preferred their school more because they associated the higher cost with higher prestige. It definitely seems like the U.S. News and World Report college rankings have created some unintended incentives.
This book was a bit light on potential solutions, but I think that's fine for its purpose - it's a tough problem to solve and there are many tradeoffs to consider (e.g. efficiency vs. equity). The author does identify some potential solutions at the end, including: (1) forgiving interest on student loans (2) making schools put up their own money (have them financially "on the hook" if the student defaults, to disincentivize increasing tuitions and awarding too much loan money) (3) free community college (4) encourage college alternatives like apprenticeships (5) stop subsidizing grad school so much, which causes grad school tuition to increase. There are pros and cons to each of these approaches (in particular I wonder if completely forgiving interest on student loans disincentivizes people from paying them off in a timely manner).
Overall this was a strong introduction to the student debt crisis - backed by quantitative data as well as interesting personal stories about Americans affected by student debt. I am definitely now interested in learning more about this subject and potential policy solutions.
A key takeaway from the book is that the federal government *guaranteeing* student loans (e.g. if the student defaults, the government pays the bank for the loan and takes it over) has incentivized colleges to raise tuition beyond the rate of inflation. No matter the price, either the student paying off the loan themself or the government stepping in to *guarantee* the loan means that the college gets its tuition money.
Another key point is that while borrowers for other types of debt (like home mortgages or car loans) must undergo credit checks and vetting, it is very easy for students to take on massive amounts of student debt with very few questions asked. Perhaps considering factors like a student's high school GPA, intended college major, and the college's career placement statistics could play a role here. On the other hand, it can be tough to project a student's future earnings when they are just entering college at 18 years old. It's also important to think about equity considerations (e.g. does placing stricter requirements on potential borrowers lock out too many students from underprivileged backgrounds).
One key point is that even as college tuition prices have skyrocketed, students and families have been willing to take on increasing amounts of student debt because they believe it is an investment in their future that will pay off. As we know now, it does not always pay off, especially when considering not just post-graduation incomes but also post-graduation net worth trajectories. I think it's good that there's a conversation now about the tradeoffs of college and how to make the experience worthwhile for each student. While I think it's good for everyone to have the chance to attend college (not just for the financial benefits but also for the intellectual benefits), I think it's important for families to consider the cost more (e.g. choosing public schools over private schools, maybe starting with community college) as well as potential alternatives (like trade schools, which can yield surprisingly high-paying careers).
Another interesting fact I learned is that when some colleges increased tuition, they actually found that students preferred their school more because they associated the higher cost with higher prestige. It definitely seems like the U.S. News and World Report college rankings have created some unintended incentives.
This book was a bit light on potential solutions, but I think that's fine for its purpose - it's a tough problem to solve and there are many tradeoffs to consider (e.g. efficiency vs. equity). The author does identify some potential solutions at the end, including: (1) forgiving interest on student loans (2) making schools put up their own money (have them financially "on the hook" if the student defaults, to disincentivize increasing tuitions and awarding too much loan money) (3) free community college (4) encourage college alternatives like apprenticeships (5) stop subsidizing grad school so much, which causes grad school tuition to increase. There are pros and cons to each of these approaches (in particular I wonder if completely forgiving interest on student loans disincentivizes people from paying them off in a timely manner).
Overall this was a strong introduction to the student debt crisis - backed by quantitative data as well as interesting personal stories about Americans affected by student debt. I am definitely now interested in learning more about this subject and potential policy solutions.
January 27, 2022
3.5 stars
This book started off strong, a thorough yet concise history of the student loan industry. Once it got to the conclusion though, it lost me a little bit. I knew the author wrote for the Wall Street Journal before I read the book so I had a feeling there’d be some nonsense sprinkled in here. Thankfully most of the nonsense was contained in the conclusion.
Mitchell allows himself to express his own political and personal opinions on student debt and college, which lets just say I didn’t always agree with. His repeated assertion that people he spoke with would prefer to pay their exorbitant student loans rather than have their debt erased baffled me. One woman says that she “didn’t want a handout.” Okay, then. I believe that those he spoke with do feel that way, but it seems divorced from the reality of my friends and I. I would be thrilled if my student loan balance was erased overnight. Mitchell also doesn’t support free four-year-college but whatever he’s far from the only one. His opinions aren’t always in step with mine, but they’re typical of conservatives and nothing I wouldn’t expect to hear based on the rest of the book. If you don’t want the book ruined for you, skip the conclusion and draw your own conclusions based on what you’ve read (which was genuinely a gripping read).
This book started off strong, a thorough yet concise history of the student loan industry. Once it got to the conclusion though, it lost me a little bit. I knew the author wrote for the Wall Street Journal before I read the book so I had a feeling there’d be some nonsense sprinkled in here. Thankfully most of the nonsense was contained in the conclusion.
Mitchell allows himself to express his own political and personal opinions on student debt and college, which lets just say I didn’t always agree with. His repeated assertion that people he spoke with would prefer to pay their exorbitant student loans rather than have their debt erased baffled me. One woman says that she “didn’t want a handout.” Okay, then. I believe that those he spoke with do feel that way, but it seems divorced from the reality of my friends and I. I would be thrilled if my student loan balance was erased overnight. Mitchell also doesn’t support free four-year-college but whatever he’s far from the only one. His opinions aren’t always in step with mine, but they’re typical of conservatives and nothing I wouldn’t expect to hear based on the rest of the book. If you don’t want the book ruined for you, skip the conclusion and draw your own conclusions based on what you’ve read (which was genuinely a gripping read).
April 7, 2024
The whole 60-year saga of student loan debt can be summed up by the government working with private finance in a poorly regulated and poorly-overseen arrangement, where private companies were able to privatize the profits while socializing the risks. There were too few guardrails, the policy makers were too optimistic about human and institutional tendencies to seek gain, and looked the other way even when they passed policies that they knew would keep debt burdens on working class folk — because college was such an intrinsic part of the American dream and bettering one’s self and one’s personal economic outlook (as well as the nation’s economic outlook). And yet, the greatest burdens fell on those least likely to be able to sustain those burdens.
In long form, the government allowed money to be more easily accessible to lots of people for higher education. They created a government agency, Sallie Mae, to interface with banks (I think banks loaned Sallie Mae → Sallie Mae loaned to students), and the government guaranteed a 3.5% interest, which was twice the national average. So, of course loads of banks went into the student debt business.
Meanwhile, people who were unlikely to repay the loans still got approved for them. (Historically, upper middle class white folks could get loans for college, excluding working class and/or people of color.) It seems like there wasn’t enough restrictions, either on who could borrow, the vetting process for repayment, or even to what institutions could receive the money (for-profit institutions proliferated in the 1980s). The easy access to money created lots of would-be students.
Instead of making colleges and universities drop their prices because students could now choose wherever they wanted to go… colleges and universities now had lots of students with lots of cash being able to go wherever. So, they started becoming more selective and only admitting students with higher scores — and, they also raised their prices.
This had the effect that, if you had good grades and test scores, you were more valuable to the university and they’d give you merit scholarships to attend their university over another. And who tends to have higher test scores? More affluent families (read: white) who can give their kids test prep courses, or send them to private prep schools. Prospective students from working-class families were less likely to have higher scores, and might get into a great university like Howard — but only one, and have no ability to leverage on price.
Like with most things, poor and working class folks near the brunt of bad policy.
In long form, the government allowed money to be more easily accessible to lots of people for higher education. They created a government agency, Sallie Mae, to interface with banks (I think banks loaned Sallie Mae → Sallie Mae loaned to students), and the government guaranteed a 3.5% interest, which was twice the national average. So, of course loads of banks went into the student debt business.
Meanwhile, people who were unlikely to repay the loans still got approved for them. (Historically, upper middle class white folks could get loans for college, excluding working class and/or people of color.) It seems like there wasn’t enough restrictions, either on who could borrow, the vetting process for repayment, or even to what institutions could receive the money (for-profit institutions proliferated in the 1980s). The easy access to money created lots of would-be students.
Instead of making colleges and universities drop their prices because students could now choose wherever they wanted to go… colleges and universities now had lots of students with lots of cash being able to go wherever. So, they started becoming more selective and only admitting students with higher scores — and, they also raised their prices.
This had the effect that, if you had good grades and test scores, you were more valuable to the university and they’d give you merit scholarships to attend their university over another. And who tends to have higher test scores? More affluent families (read: white) who can give their kids test prep courses, or send them to private prep schools. Prospective students from working-class families were less likely to have higher scores, and might get into a great university like Howard — but only one, and have no ability to leverage on price.
Like with most things, poor and working class folks near the brunt of bad policy.
May 3, 2022
This was a really informative book. I learned a lot. I knew that the government subsidizing higher education is what led to skyrocketing student debt. As the government funneled money into higher education, higher education prices went wild.
I had a conversation with somebody once who somehow didn't grasp this. They just kept saying, "It's important to invest in higher education." And yeah, that sounds pretty and all. It makes no sense though. Basic business knowledge (I'm talking the sort of stuff you learn in a high school ECON class) will tell you that the more people are willing to pay, the more a business will charge. Only in this case, the government was the entity willing to pay. So, colleges went "Hey, let's raise the prices."
I remember in my sophomore year of college mention that I was in debt 20k to my grandfather. We were in a diner and I mentioned this. He dropped his fork and yelled "WHAT?!"
I just stared at him (along with everybody at the tables around us). I said, "That's barely anything. Everyone I know owes much more than me. What did you think college cost?"
He started to say that he figured it cost around $500 a credit. I had to explain that I paid almost $7,000 just in student fees each year. That fee money is in addition to actual classes and books.
Boomers still think we live in a world where you can work part-time during the school year and full-time in the summer and pay for college. That's barely possible for community college and absolutely not possible for a four-year college. Google "average cost of college per year." I'll wait. Then google "full-time earnings minimum wage work." So....do you think anybody can pay for college and gas and living expenses, even if they worked constantly and were super frugal?
Look, socialists who want to argue with me and call me a fascist: I'll give you something-Free public education WOULD be an improvement over what we currently have. What we currently have is the government subsidizing massive corporations and making it possible for them to price gouge and grift. I want either ALL private college or ALL public free college. This mixed-model is just our taxpayer dollars making billionaires rich.
They make money off the debt of students. Worse than that (and what I didn't know before reading this book) THE GOVERNMENT makes money from student debt!
So, the government created Sallie Mae shortly after the start of the Cold War. They wanted more citizens to go to college so that they could beat the Russians. They thought about creating scholarships, but didn't want to add to the deficit. What they did instead was create Sallie Mae to buy loans from banks and give them to students. The government backed these loans, so that Sallie Mae would not suffer any losses if students defaulted. Sallie Mae is a private company, but a private company that has no risks, because the government guaranteed all the loans.
Doesn't that sound....like not a great idea? And the Sallie Mae system is so complex that most people in Congress can't explain how it works.
Sallie Mae was the same idea as Fannie Mae and we all saw how well that worked out.
Look, we can't live in a world where the government creates an incentive for massive corporations to exploit American citizens.
"Well, you chose to take out the loans!" Please tell me what my other options were? At age 18 with every adult in my life telling me going to college was the only way to live a good, stable life.
We either need a private system that the government isn't involved with at all, or we need public universities with no ties to any private enterprises.
With the way it's been working, the government gives a check to students to go to school. Student goes to school. Colleges go "Wonder if we could get some bigger checks?" They raise prices. Government writes a bigger check. So the colleges try it again. The government writes a bigger check.
And yes, the checks are technically coming from Sallie Mae, but the government removed all limits on loans they would guarantee, even for graduate programs. They have limits on Pell Grants, but not on loans.
Also, for subsidized loans, the government pays the interest while the student is in school. For unsubsidized loans, the government makes money off the interest. Some of these profits go into Pell Grants, but some went into reducing the government deficit and some went into unrelated programs like the Affordable Care Act.
This is a mess, y'all.
Big government spending emboldens corporations to grift off American citizens. I'm not entirely opposed to social safety net programs and entitlement programs, but when done, they have to be entirely government funded. Ties to private industry just lead to government-sponsored grifts.
Higher education is number three on the list of industries that spend the most on lobbying in Washington. The only two industries that beat higher ed are big tech and the pharmaceutical industry.
When conservatives argue that student loan debt can't be forgiven because that would be shifting responsibility for loans to American taxpayers, well...American taxpayers have been funding student loans for decades. Not only that, but the government has made a profit off the predatory interest rates.
Both the Obama administration and the Trump administration acknowledged that student debt is a problem and the system is broken. Obama's administration made an attempt at reform, but that attempt didn't do much. And Trump's administration acknowledged the problem, but didn't do anything.
Is Biden going to make any changes to this system?
I really hope so. The more students that default on loans, the more money the government is on the hook for. Eventually that will add to our deficit, despite the profit they've made so far.
We have to do something. This is a bipartisan issue.
Thank you to the author for writing such an incredible book!
The only reason why I'm giving it four stars instead of five is because after getting to the end of the book, I am still somewhat confused on the logistics of Sallie Mae and will have to do some additional research. Also, the book doesn't have footnotes, and there were too many biographical details. Every single person introduced, we get a two-three paragraph biography for them. Not everybody needed a biography. A couple would have been interesting, but it was way too much. I started losing track of people and there were a lot of people introduced, that we could have just been told of their role in the student debt crisis without a play-by-play of their whole childhood, education, and career. It was superfluous and tedious most of the time.
I had a conversation with somebody once who somehow didn't grasp this. They just kept saying, "It's important to invest in higher education." And yeah, that sounds pretty and all. It makes no sense though. Basic business knowledge (I'm talking the sort of stuff you learn in a high school ECON class) will tell you that the more people are willing to pay, the more a business will charge. Only in this case, the government was the entity willing to pay. So, colleges went "Hey, let's raise the prices."
I remember in my sophomore year of college mention that I was in debt 20k to my grandfather. We were in a diner and I mentioned this. He dropped his fork and yelled "WHAT?!"
I just stared at him (along with everybody at the tables around us). I said, "That's barely anything. Everyone I know owes much more than me. What did you think college cost?"
He started to say that he figured it cost around $500 a credit. I had to explain that I paid almost $7,000 just in student fees each year. That fee money is in addition to actual classes and books.
Boomers still think we live in a world where you can work part-time during the school year and full-time in the summer and pay for college. That's barely possible for community college and absolutely not possible for a four-year college. Google "average cost of college per year." I'll wait. Then google "full-time earnings minimum wage work." So....do you think anybody can pay for college and gas and living expenses, even if they worked constantly and were super frugal?
Look, socialists who want to argue with me and call me a fascist: I'll give you something-Free public education WOULD be an improvement over what we currently have. What we currently have is the government subsidizing massive corporations and making it possible for them to price gouge and grift. I want either ALL private college or ALL public free college. This mixed-model is just our taxpayer dollars making billionaires rich.
They make money off the debt of students. Worse than that (and what I didn't know before reading this book) THE GOVERNMENT makes money from student debt!
So, the government created Sallie Mae shortly after the start of the Cold War. They wanted more citizens to go to college so that they could beat the Russians. They thought about creating scholarships, but didn't want to add to the deficit. What they did instead was create Sallie Mae to buy loans from banks and give them to students. The government backed these loans, so that Sallie Mae would not suffer any losses if students defaulted. Sallie Mae is a private company, but a private company that has no risks, because the government guaranteed all the loans.
Doesn't that sound....like not a great idea? And the Sallie Mae system is so complex that most people in Congress can't explain how it works.
Sallie Mae was the same idea as Fannie Mae and we all saw how well that worked out.
Look, we can't live in a world where the government creates an incentive for massive corporations to exploit American citizens.
"Well, you chose to take out the loans!" Please tell me what my other options were? At age 18 with every adult in my life telling me going to college was the only way to live a good, stable life.
We either need a private system that the government isn't involved with at all, or we need public universities with no ties to any private enterprises.
With the way it's been working, the government gives a check to students to go to school. Student goes to school. Colleges go "Wonder if we could get some bigger checks?" They raise prices. Government writes a bigger check. So the colleges try it again. The government writes a bigger check.
And yes, the checks are technically coming from Sallie Mae, but the government removed all limits on loans they would guarantee, even for graduate programs. They have limits on Pell Grants, but not on loans.
Also, for subsidized loans, the government pays the interest while the student is in school. For unsubsidized loans, the government makes money off the interest. Some of these profits go into Pell Grants, but some went into reducing the government deficit and some went into unrelated programs like the Affordable Care Act.
This is a mess, y'all.
Big government spending emboldens corporations to grift off American citizens. I'm not entirely opposed to social safety net programs and entitlement programs, but when done, they have to be entirely government funded. Ties to private industry just lead to government-sponsored grifts.
Higher education is number three on the list of industries that spend the most on lobbying in Washington. The only two industries that beat higher ed are big tech and the pharmaceutical industry.
When conservatives argue that student loan debt can't be forgiven because that would be shifting responsibility for loans to American taxpayers, well...American taxpayers have been funding student loans for decades. Not only that, but the government has made a profit off the predatory interest rates.
Both the Obama administration and the Trump administration acknowledged that student debt is a problem and the system is broken. Obama's administration made an attempt at reform, but that attempt didn't do much. And Trump's administration acknowledged the problem, but didn't do anything.
Is Biden going to make any changes to this system?
I really hope so. The more students that default on loans, the more money the government is on the hook for. Eventually that will add to our deficit, despite the profit they've made so far.
We have to do something. This is a bipartisan issue.
Thank you to the author for writing such an incredible book!
The only reason why I'm giving it four stars instead of five is because after getting to the end of the book, I am still somewhat confused on the logistics of Sallie Mae and will have to do some additional research. Also, the book doesn't have footnotes, and there were too many biographical details. Every single person introduced, we get a two-three paragraph biography for them. Not everybody needed a biography. A couple would have been interesting, but it was way too much. I started losing track of people and there were a lot of people introduced, that we could have just been told of their role in the student debt crisis without a play-by-play of their whole childhood, education, and career. It was superfluous and tedious most of the time.
September 5, 2023
In the last few years, I’ve really dug into racial and class disparity in housing via books like Evicted, The Color of Law, Race for Profit. In Race for Profit, Keeanga-Yamahtta Taylor uses the term “predatory inclusion” for the changes to housing policy in the 70s, that ended redlining and were intended to provide homeownership access more equally, but led to a new type of discrimination in the real estate industry and terribly unequal outcomes. That dynamic is so clearly at work in higher education and the student loan system in the way it exists today. Debt is limiting or negating entirely the benefits of a degree for too many people, while reinforcing and laundering wealth disparities. In all, I agree with the authors conclusions about what changes need made in our student loan system, though I think he doesn’t go quite far enough.
Anyway, if you want some very frustrating details about Sallie Mae and how the Department of Ed got into the business of lending, and why that’s basically terrible for everyone involved (student, taxpayers, government) [which is not at all to say the private lenders were better, they werent], you’ll love this book!
Anyway, if you want some very frustrating details about Sallie Mae and how the Department of Ed got into the business of lending, and why that’s basically terrible for everyone involved (student, taxpayers, government) [which is not at all to say the private lenders were better, they werent], you’ll love this book!
January 7, 2022
Total student loan debt in the US is a soul-crushing one and a half trillion dollars. This book explains how this situation results from many different steps, taken over decades by many different people--and how those steps seemed right from the point of view of the people taking them. Some of those people became very, very rich. Others, not so much.
The author is a WSJ reporter and he has an instinctive understanding of the big picture of how money works. I had trouble following how the different ways student debt can be treated in US budget and deficit calculations drove policy decisions that ended up having a profound impact on millions of individuals.
I was hoping for a story of heroes and villains--where the villains would be people at the opposite end of the ideological spectrum from me. Instead, I got a very nuanced and very human story that showed me how complex this situation is. It turns out that we're all in this together.
The author is a WSJ reporter and he has an instinctive understanding of the big picture of how money works. I had trouble following how the different ways student debt can be treated in US budget and deficit calculations drove policy decisions that ended up having a profound impact on millions of individuals.
I was hoping for a story of heroes and villains--where the villains would be people at the opposite end of the ideological spectrum from me. Instead, I got a very nuanced and very human story that showed me how complex this situation is. It turns out that we're all in this together.
October 18, 2022
A lot more complicated and corrupt than I ever realized. An injustice that Colleges and Sally Mae are not accountable for artificially increasing the price, among other things
Was very interesting to learn about the very inception of this program and how it evolved throughout each decade.
Was very interesting to learn about the very inception of this program and how it evolved throughout each decade.
October 31, 2022
Comprehensive and satisfying history of how college loans became, as the author says, a "national catastrophe." I think he made the material as interesting as possible and explained things very well. Recommend to anyone interested or looking to fill in their knowledge gaps on the topic.
February 19, 2022
This should be required reading for everyone.
Read
August 28, 2022I don't know how to adequately express how angry I became while reading this. The entire system is broken. And predatory.
September 5, 2023
every american should read this book. a lesson in personal finance, politics, and empathy.
July 10, 2022
In the 1950s, certain people thought more Americans should have access to higher education. After all, the G. I. Bill provided just that for hundreds of thousands of veterans returning from WWII, and the result had been a better-educated and more prosperous workforce employed in skilled fields, so why not extend that to everyone? Problem was Congress didn’t want to give a handout to the poor, choosing instead to finance low-interest loans.
The other problem was banks didn’t want to loan poor people money. Statistically, the poor are the least likely to repay such debt, and education is intangible and not something the bank can repossess upon default.
The solution was to create a Federal agency that would guarantee the loans to the banks so even if students defaulted, the banks would be paid with taxpayer money: Sallie Mae. Using the same principle the government had made to guarantee mortgages, student loans were now Federally guaranteed.
For the banks.
Banks began pushing more and more kids to sign up for college in order to sell more loans. While it had government officials on its Board, Sallie Mae was privately owned by universities and financial institutions. It became a publicly traded company some 15 years after its founding, with the express purpose of turning it into a profitable business. Now with shareholders to please, the only way to increase profits was to sell more loans, which they did. They got schools to push college as the only way into the middle class. They scared an entire generation of young people into signing up for massive amounts of debt on the promise it will all pay off in the future.
But those jobs didn’t exist in the quantities that matched enrollment.
_____
Even in the 1990s, congress found evidence that universities were wasting the loan money on campus construction and administration salaries instead of educating the students. Education itself was being slashed, with for-profit colleges being some of the worst quality and the highest cost. They were not the only predators, with established private and public institutions cutting education programs while beefing up administration and campus amenities, pocketing profits and leaving the students with debt they couldn’t pay. (Highline. Generation Screwed: https://highline.huffingtonpost.com/a...)
Prior to this, Universities were funded in major part by state governments. Now a new mindset began to take over: loans are a source of revenue and profit. Everyone can make money off them. Once state governments got a taste of making money this way, they cut taxpayer funding to schools, forcing them to raise tuition and rely on loans as a source of income. The more they charged, the more they made.
This represented a shift in mindset in how universities operated. Places of higher learning never were businesses because what they do is not businesslike. (Unmaking the Public University, by Christopher Newfield: Goodreads review) Once universities began to seek profit, they became predators, and the students were the herd of cattle to be picked off. The focus became on raising revenue, not education. Grants became loans because everyone wanted a piece of the pie, and universities were now under pressure to offer courses and tracts that generated profit, not what broadened the mind and provided students with a breadth of experience.
It has only become more magnified over the decades.
What was meant to be an initiative to help the poor achieve social mobility through higher education fell victim to profiteering as soon as it was created. All of it could have been avoided had Sallie Mae not been set up from a business standpoint. Congress protected the banks, not the students, and it’s a safe bet Congress structured Sallie Mae the way it did because congressmen were cozy with the banks.
_____
In the 90s, people began to call out higher education for profiteering. Very early on, colleges and lending institutions figured out students were not consumers of higher education, but captives, so they were free to raise tuition and fix prices and even charge different students different rates for the same education, depending on what would net the university more money. (See an American Sickness, by Elisabeth Rosenthal, Goodreads review, to learn how American healthcare took the same path.) The Clinton administration aimed to combat this by phasing out Sallie Mae and simply allowing the Treasury Department to issue loans directly to students. No need for the banks to be middlemen, and no layers of business tacking on interest. Direct loans would save students money.
Naturally, Sallie Mae’s owners did not take this lying down. Firmly under corporate management in the 1990s, it began aggressively lobbying congress to loosen restrictions on itself and for-profit universities. It allied with places like ITT Tech and The University of Phoenix to sell its loans to prospective students rather than the direct loan program. Selling loans was its business, and the more loans it sold, the more money the managers and shareholders made. While any bank could issue a student loan, Sallie Mae’s CEO pushed to corner the market through exclusive deals with universities, public, private, and for-profit. Congress did nothing because as far as anyone knew, education was a solid investment, guaranteed to pay off through future, gainful employment.
(Plus, the Clinton administration used interest from student loans to close the Federal deficit. The government had gotten a taste of the Wall Street method of making money, and now it, too, was in the business of extracting money from students.)
Banks knew it didn’t matter who got the loan. Just sell more and more and offer derivatives and securities backed by those loans to hide the risk. If this sounds like the housing crash of 2008, that’s because it’s all the same. (The Big Short, by Michael Lewis, Goodreads review) Banks did not have to do this. Sallie Mae did not have to do this. State governments did not have to get into the student loan business, and universities themselves did not need to behave this way either, but corporate management and pressure from shareholders drove them to issue more and more loans and raise interest rates higher and higher as colleges raised their tuition more and more in a perpetual quest for more profit.
It was only a matter of time before people began defaulting, but Congress closed that option by gutting bankruptcy laws to make it nearly impossible to discharge student loans. Now that the government had skin in the game, and influential lobbyists for lending institutions pushing to lift the limit on how much students could borrow, of course the government would ensure the debt really was a trap.
_____
An entire generation of kids was tricked into taking out loans to get an education on the promise of joining the middle class (and fear of flipping burgers at McDonald’s for the rest of their lives). It was a money-making scheme for the banks and for the government itself. It was, and still is, predatory: scaring children into taking on debt for an education, no matter the price—debt they could not escape to get a job that may not even exist. All Sallie Mae and the banks cared about was issuing more loans. More debt. More profit.
There was no demand for college graduates. The demand was to sell loans, and to meet that demand, schools sold loans regardless of whether there was need for people holding such degrees. Lending institutions and colleges were making profit signing kids up for debt, so that’s what they did.
Government opted for the easy solution and raised debt ceilings instead of addressing the rising tuition while quality of education decreased. The Obama administration cracked down on a few such for-profit schools (nobody misses those annoying ITT Tech ads, and there’s a special place in hell for Corinthian Colleges), but even with those institutions gone, the students are still left with a worthless certificate, and debt. The banks get a bailout while the students are punished for doing what they were told they had to do to be adults. This is no surprise, as the for-profit education industry lobbied congressmen aggressively, and the government itself had no reason to stop profiting from its own loans. Providing “opportunity” to “disadvantaged students” was used as a cover to load students with debt they couldn’t escape. Everyone was making money off getting kids into debt, so everyone got in on the money machine, parasites feeding off parasites feeding off the host.
_____
The Debt Trap lays bare what we already figured out: higher education is a scam designed to line the pockets of the rich at the expense of students and taxpayers. It never used to be, but once a corporate mindset took over, it became a machine to fleece people who desire gainful employment. Once the goal of higher education became to sell loans, students became the product, captives to the debt they were told they had to take out as an investment in their future. That was always the metaphor: it’s an investment that will pay off once students get their dream jobs.
But even on Wall Street, investments often don’t pay off, and someone is left holding the bag. From the very beginning, the student loan program was designed to protect the lending institutions while exposing the borrowers and taxpayers to all the risk. That’s what your student loan pays for.
Regarding how to fix this problem, the author singles out the government interfering with a market as the root cause of the problem, and while he makes a good case for government creating an incentive for companies and schools to behave this way by offering to back all student loans with taxpayer money, I think he misses an even bigger picture. Profit motive is the heart of the problem, not government policy.
For example, the author cites the pressure from professors for bigger salaries as a major reason for schools to raise tuition, and while I’m sure that may be true in some areas, most universities are cutting back on tenured professors and replacing them with adjuncts. They are cutting back on education itself while raising tuition. If that’s not a symptom of running things like a business instead of a school, I don’t know what would be. ("I'm An Adjunct Who Also Works In A Grocery Store," Buzzfeed, https://www.buzzfeednews.com/article/...)
Indeed, government made Sallie Mae because of pressure and input from banks, and when a Wall Street executive began running the company as a business whose sole product was student loans, that’s when the problems became outrageous. Getting big money out of government—separating the two so government answers only to voters and not to businessmen—should be the conclusion.
Perhaps education should be considered a right and not a privilege. A century ago the USA decided K through 12 should be, so why not beyond? The author doesn’t propose this, and I think it’s the other thing he misses: loans are the incentive. When loans are involved, things can’t help but become predatory. My takeaway from this book is to stop thinking we can fund education with debt and get profit motive out of education. (And healthcare, prisons, firearms, utilities...)
The other problem was banks didn’t want to loan poor people money. Statistically, the poor are the least likely to repay such debt, and education is intangible and not something the bank can repossess upon default.
The solution was to create a Federal agency that would guarantee the loans to the banks so even if students defaulted, the banks would be paid with taxpayer money: Sallie Mae. Using the same principle the government had made to guarantee mortgages, student loans were now Federally guaranteed.
For the banks.
Banks began pushing more and more kids to sign up for college in order to sell more loans. While it had government officials on its Board, Sallie Mae was privately owned by universities and financial institutions. It became a publicly traded company some 15 years after its founding, with the express purpose of turning it into a profitable business. Now with shareholders to please, the only way to increase profits was to sell more loans, which they did. They got schools to push college as the only way into the middle class. They scared an entire generation of young people into signing up for massive amounts of debt on the promise it will all pay off in the future.
But those jobs didn’t exist in the quantities that matched enrollment.
_____
Even in the 1990s, congress found evidence that universities were wasting the loan money on campus construction and administration salaries instead of educating the students. Education itself was being slashed, with for-profit colleges being some of the worst quality and the highest cost. They were not the only predators, with established private and public institutions cutting education programs while beefing up administration and campus amenities, pocketing profits and leaving the students with debt they couldn’t pay. (Highline. Generation Screwed: https://highline.huffingtonpost.com/a...)
Prior to this, Universities were funded in major part by state governments. Now a new mindset began to take over: loans are a source of revenue and profit. Everyone can make money off them. Once state governments got a taste of making money this way, they cut taxpayer funding to schools, forcing them to raise tuition and rely on loans as a source of income. The more they charged, the more they made.
This represented a shift in mindset in how universities operated. Places of higher learning never were businesses because what they do is not businesslike. (Unmaking the Public University, by Christopher Newfield: Goodreads review) Once universities began to seek profit, they became predators, and the students were the herd of cattle to be picked off. The focus became on raising revenue, not education. Grants became loans because everyone wanted a piece of the pie, and universities were now under pressure to offer courses and tracts that generated profit, not what broadened the mind and provided students with a breadth of experience.
It has only become more magnified over the decades.
What was meant to be an initiative to help the poor achieve social mobility through higher education fell victim to profiteering as soon as it was created. All of it could have been avoided had Sallie Mae not been set up from a business standpoint. Congress protected the banks, not the students, and it’s a safe bet Congress structured Sallie Mae the way it did because congressmen were cozy with the banks.
_____
In the 90s, people began to call out higher education for profiteering. Very early on, colleges and lending institutions figured out students were not consumers of higher education, but captives, so they were free to raise tuition and fix prices and even charge different students different rates for the same education, depending on what would net the university more money. (See an American Sickness, by Elisabeth Rosenthal, Goodreads review, to learn how American healthcare took the same path.) The Clinton administration aimed to combat this by phasing out Sallie Mae and simply allowing the Treasury Department to issue loans directly to students. No need for the banks to be middlemen, and no layers of business tacking on interest. Direct loans would save students money.
Naturally, Sallie Mae’s owners did not take this lying down. Firmly under corporate management in the 1990s, it began aggressively lobbying congress to loosen restrictions on itself and for-profit universities. It allied with places like ITT Tech and The University of Phoenix to sell its loans to prospective students rather than the direct loan program. Selling loans was its business, and the more loans it sold, the more money the managers and shareholders made. While any bank could issue a student loan, Sallie Mae’s CEO pushed to corner the market through exclusive deals with universities, public, private, and for-profit. Congress did nothing because as far as anyone knew, education was a solid investment, guaranteed to pay off through future, gainful employment.
(Plus, the Clinton administration used interest from student loans to close the Federal deficit. The government had gotten a taste of the Wall Street method of making money, and now it, too, was in the business of extracting money from students.)
Banks knew it didn’t matter who got the loan. Just sell more and more and offer derivatives and securities backed by those loans to hide the risk. If this sounds like the housing crash of 2008, that’s because it’s all the same. (The Big Short, by Michael Lewis, Goodreads review) Banks did not have to do this. Sallie Mae did not have to do this. State governments did not have to get into the student loan business, and universities themselves did not need to behave this way either, but corporate management and pressure from shareholders drove them to issue more and more loans and raise interest rates higher and higher as colleges raised their tuition more and more in a perpetual quest for more profit.
It was only a matter of time before people began defaulting, but Congress closed that option by gutting bankruptcy laws to make it nearly impossible to discharge student loans. Now that the government had skin in the game, and influential lobbyists for lending institutions pushing to lift the limit on how much students could borrow, of course the government would ensure the debt really was a trap.
_____
An entire generation of kids was tricked into taking out loans to get an education on the promise of joining the middle class (and fear of flipping burgers at McDonald’s for the rest of their lives). It was a money-making scheme for the banks and for the government itself. It was, and still is, predatory: scaring children into taking on debt for an education, no matter the price—debt they could not escape to get a job that may not even exist. All Sallie Mae and the banks cared about was issuing more loans. More debt. More profit.
There was no demand for college graduates. The demand was to sell loans, and to meet that demand, schools sold loans regardless of whether there was need for people holding such degrees. Lending institutions and colleges were making profit signing kids up for debt, so that’s what they did.
Government opted for the easy solution and raised debt ceilings instead of addressing the rising tuition while quality of education decreased. The Obama administration cracked down on a few such for-profit schools (nobody misses those annoying ITT Tech ads, and there’s a special place in hell for Corinthian Colleges), but even with those institutions gone, the students are still left with a worthless certificate, and debt. The banks get a bailout while the students are punished for doing what they were told they had to do to be adults. This is no surprise, as the for-profit education industry lobbied congressmen aggressively, and the government itself had no reason to stop profiting from its own loans. Providing “opportunity” to “disadvantaged students” was used as a cover to load students with debt they couldn’t escape. Everyone was making money off getting kids into debt, so everyone got in on the money machine, parasites feeding off parasites feeding off the host.
_____
The Debt Trap lays bare what we already figured out: higher education is a scam designed to line the pockets of the rich at the expense of students and taxpayers. It never used to be, but once a corporate mindset took over, it became a machine to fleece people who desire gainful employment. Once the goal of higher education became to sell loans, students became the product, captives to the debt they were told they had to take out as an investment in their future. That was always the metaphor: it’s an investment that will pay off once students get their dream jobs.
But even on Wall Street, investments often don’t pay off, and someone is left holding the bag. From the very beginning, the student loan program was designed to protect the lending institutions while exposing the borrowers and taxpayers to all the risk. That’s what your student loan pays for.
Regarding how to fix this problem, the author singles out the government interfering with a market as the root cause of the problem, and while he makes a good case for government creating an incentive for companies and schools to behave this way by offering to back all student loans with taxpayer money, I think he misses an even bigger picture. Profit motive is the heart of the problem, not government policy.
For example, the author cites the pressure from professors for bigger salaries as a major reason for schools to raise tuition, and while I’m sure that may be true in some areas, most universities are cutting back on tenured professors and replacing them with adjuncts. They are cutting back on education itself while raising tuition. If that’s not a symptom of running things like a business instead of a school, I don’t know what would be. ("I'm An Adjunct Who Also Works In A Grocery Store," Buzzfeed, https://www.buzzfeednews.com/article/...)
Indeed, government made Sallie Mae because of pressure and input from banks, and when a Wall Street executive began running the company as a business whose sole product was student loans, that’s when the problems became outrageous. Getting big money out of government—separating the two so government answers only to voters and not to businessmen—should be the conclusion.
Perhaps education should be considered a right and not a privilege. A century ago the USA decided K through 12 should be, so why not beyond? The author doesn’t propose this, and I think it’s the other thing he misses: loans are the incentive. When loans are involved, things can’t help but become predatory. My takeaway from this book is to stop thinking we can fund education with debt and get profit motive out of education. (And healthcare, prisons, firearms, utilities...)
November 29, 2021
Inequity and personal responsibility clash in Josh Mitchell's The Debt Trap: How Student Loans Became A National Catastrophe.
Josh Mitchell, a reporter for the Wall Street Journal, takes us on an important journey. Mitchell traces the history of student loans from visionaries Lyndon Johnson and Carl Elliott (1957 - 1969) through seven historical phases in order to understand the financial catastrophe cascading down to the present (2016-2018). Along the way we meet Sallie Mae, Al Lord and Ed Fox (the two biggest architects of the student loan industry), discover how Presidents, Democrat and Republican, fostered the debt crisis by enabling colleges to "raise their prices with abandon," and we hear the stories of those strangled by mounting student debt.
The Debt Trap is history, economics, higher education, racial and social inequities, and politics. What it is not is a treatise on personal responsibility. Despite beginning and ending on Lyndon Johnson's dual values of personal responsibility and education, I felt Mitchell mostly neglected the former, though his treatment of the latter was exceptional.
As a college President, education and student loans are the stuff of daily life. When Mitchell pegs the student loan system as a national catastrophe, he is not uttering hyperbole.
Neither Thomas nor most borrowers are asking for a handout. They are, however, asking for help. And my personal diatribe aside, Josh Mitchell gives us six recommendations to provide such help:
My recommendation:
If you have been to college, work at a college, have a student who will one day go to college, are concerned about higher education in America or national economics, read this book. Josh Mitchell gives us a splendid history and analysis of student loan debt. But he doesn't stop there. He offers us alternatives to improve the financial system that makes higher education possible for millions. In doing so he moves us toward better education and personal responsibility for it.
Amen to that!
1. How institutions CAN help level the playing field: Don Lively opened Florida Coastal School of Law in 1996, in part, to serve Black and Hispanic students normally passed over by schools obsessed with moving up in national rankings:
2. What online educators must do to help ensure student success: Reflecting on Florida Coastal's later failures, Lively notes: "It was the school's responsibility to provide help to those students--tutoring, mentoring, intensive one-on-one instruction--to ensure they succeeded.
4. The shaky foundation of the twin pillars of the American Dream: Sallie Mae (student loans), as well as Fannie Mae and Freddie Mac (mortgage market) "infused banks with cheap money in the name of helping poor and middle class Americans build wealth." These twin pillars of the American Dream are inextricably linked to debt (93).
A few shocking details:
1. College loan defaults: By 2016, 3,000 people defaulted on a student loan every day (190).
2. Rise of student loan debt in America: Student loan debt nearly tripled from 2007, to $1.4 trillion (200).
3. Political pickles: Grad Plus (a debt multiplier) was born in the Bush 43 administration (177-18). The Obama administration leveraged student loan interest to help fund the Affordable Care Act (133).
4. Big BIG Debt! In 1990 (adjusting for inflation), only 2 percent of all borrowers had balances in excess of $50,000. In 2014 there were 5 million borrowers with student loan debt in excess of $50,000 (71% percent of all student loan borrowers) (192-93).
5. Student loan bankruptcy: It is near impossible to declare bankruptcy due to student loan debt. Authorities can call repeatedly, garnish wages, tax refunds, even Social Security checks (199).
6. Did you know? Prior to his rise to the presidency, Barack Obama was carrying student loan debt until a book deal "wiped his financial slate clean" (205).
7. Student loans and taxpayer liability: Private lenders lost about $535 billion in subprime mortgages when the housing market crashed. Taxpayers are on the hook for $500 billion in unpaid student loans (7, 208).
8. How bad is it? Between 1980 and 1990, all consumer prices rose 62%. Typical family earnings rose 68%. One Year at a private college rose 145%. Public college rose: 113% (76).
What can LBC do?
1. Perform a student debt analysis. What is our student default rate? Why?
2. Ensure the quality of our global education student success process by determining and consistently assessing system measures.
3. Study University of Alabama's model for recruiting students (c.f. p. 167).
5. Help student borrowers to assess their ability to repay student loan debt.
6. Ask the President's Cabinet to read The Debt Trap. Take a half-day to discuss implications. Make The Debt Trap required reading for financial aid, admissions, and student services.
Josh Mitchell, a reporter for the Wall Street Journal, takes us on an important journey. Mitchell traces the history of student loans from visionaries Lyndon Johnson and Carl Elliott (1957 - 1969) through seven historical phases in order to understand the financial catastrophe cascading down to the present (2016-2018). Along the way we meet Sallie Mae, Al Lord and Ed Fox (the two biggest architects of the student loan industry), discover how Presidents, Democrat and Republican, fostered the debt crisis by enabling colleges to "raise their prices with abandon," and we hear the stories of those strangled by mounting student debt.
The Debt Trap is history, economics, higher education, racial and social inequities, and politics. What it is not is a treatise on personal responsibility. Despite beginning and ending on Lyndon Johnson's dual values of personal responsibility and education, I felt Mitchell mostly neglected the former, though his treatment of the latter was exceptional.
As a college President, education and student loans are the stuff of daily life. When Mitchell pegs the student loan system as a national catastrophe, he is not uttering hyperbole.
Today, 43 million people owe $1.6 trillion in student debt, an amount that has tripled since 2006. Americans owe more in student debt than they owe in credit card debt and car loans (3)As a parent of six, however, all of whom attended college on their own dime -- and none of whom were straddled by debt -- I was disappointed that discussions of personal responsibility were mostly neglected. For example, in Chapter 8, "State U In" (a fascinating chapter!), Mitchell recounts the sad tale of Thomas. Thomas graduated from the University of Alabama with $153,000 of debt. Sadly, he was barred from walking in commencement due to an outstanding bill of $2,800, a travesty in an institution whose football coach enjoys the highest salary in the nation ($9.75 million per year) and whose average faculty pay of $152,000 a year makes it a darling of higher education. Thomas' story is a travesty. However . . .
Thomas had cheaper options than Alabama. He could have gone to a state school in Florida for a lot less [because he was a Florida resident]. But he was responding to incentives built into the student loan system--and so was Alabama (181).Was Thomas a "victim of the system?" Yes, I think he was. Could the system have served him better? Absolutely, and it should have. Is Thomas off the hook? No. There were other options. He chose not to take them. That is on him.
Neither Thomas nor most borrowers are asking for a handout. They are, however, asking for help. And my personal diatribe aside, Josh Mitchell gives us six recommendations to provide such help:
1. Forgive interest on student loans. Attempting to scale the ever-growing mountain of debt, many borrowers see no hope of ever paying it off. They don't want them forgiven, but they do want a shot at paying them off. Forgiving interest would help.
2. Make four-year schools put up their own money. This was Lyndon Johnson's original vision. With financial skin in the game, institutions would be more careful, thinking twice before giving away cash willy-nilly.
3. Make community college truly free: Mitchell does not support four years of free college for political and practical reasons. He is, however, a proponent of making a year or two of community college free so students can test the educational waters.
4. Revise the idea of the American Dream to respect and reward alternatives to the four-year degree, particularly apprenticeships. The research is clear: "Apprenticeship programs are effective at getting students well-paid jobs" (218).
5. The government should stop subsidizing grad school. Mitchell explains a number of financial educational products, among them Grad Plus, which he charges with being the most dysfunctional. Eliminating it would drive down graduate education and cause students to think twice before tackling the master's degree.
6. States, cities, and communities should step up. Mitchell cites Kalamazoo, Michigan, where wealthy philanthropists invested in the education of their own citizens.In the balance of this review, I'll share some of my highlights ("Amen to that!"), recount a few shocking details I picked up reading The Debt Trap, and end with three considerations for the institution I lead, Lancaster Bible College | Capital Seminary & Graduate School.
My recommendation:
If you have been to college, work at a college, have a student who will one day go to college, are concerned about higher education in America or national economics, read this book. Josh Mitchell gives us a splendid history and analysis of student loan debt. But he doesn't stop there. He offers us alternatives to improve the financial system that makes higher education possible for millions. In doing so he moves us toward better education and personal responsibility for it.
Amen to that!
1. How institutions CAN help level the playing field: Don Lively opened Florida Coastal School of Law in 1996, in part, to serve Black and Hispanic students normally passed over by schools obsessed with moving up in national rankings:
Lively believed the practice deepened racial inequality. Those with the highest LSAT scores were predominantly white students who grew up in privilege. Law schools had "this perspective that certain people aren't cut out for this--they can't do it," Lively says. "They can do it if as an institution you're willing to make the commitment to enable them to catch up with those persons that have a more privileged heritage and background life experience" (150).While I disagree with the "disadvantaged" premise which fails to account for personal responsibility, Lively makes a great point! By 2004, 80% of Florida Coastal graduates who sat for the state bar exam passed; the second highest success rate in Florida (154).
2. What online educators must do to help ensure student success: Reflecting on Florida Coastal's later failures, Lively notes: "It was the school's responsibility to provide help to those students--tutoring, mentoring, intensive one-on-one instruction--to ensure they succeeded.
"The whole system broke down," Lively says in retrospect. "We weren't ready to deliver on a scaled basis. To be successful at this level, you've got to have a really strong academic support program. And we haven't built up our academic support program to a level that would enable us to deliver those things that we were convinced we could deliver" (163).3. Educational loans, a "moral hazard." "Studies show that the more an activity is insured, the more people take risks" (44). Lenders with a 100% federal guarantee to cover the debt will lend money more carelessly.
4. The shaky foundation of the twin pillars of the American Dream: Sallie Mae (student loans), as well as Fannie Mae and Freddie Mac (mortgage market) "infused banks with cheap money in the name of helping poor and middle class Americans build wealth." These twin pillars of the American Dream are inextricably linked to debt (93).
A few shocking details:
1. College loan defaults: By 2016, 3,000 people defaulted on a student loan every day (190).
2. Rise of student loan debt in America: Student loan debt nearly tripled from 2007, to $1.4 trillion (200).
3. Political pickles: Grad Plus (a debt multiplier) was born in the Bush 43 administration (177-18). The Obama administration leveraged student loan interest to help fund the Affordable Care Act (133).
4. Big BIG Debt! In 1990 (adjusting for inflation), only 2 percent of all borrowers had balances in excess of $50,000. In 2014 there were 5 million borrowers with student loan debt in excess of $50,000 (71% percent of all student loan borrowers) (192-93).
5. Student loan bankruptcy: It is near impossible to declare bankruptcy due to student loan debt. Authorities can call repeatedly, garnish wages, tax refunds, even Social Security checks (199).
6. Did you know? Prior to his rise to the presidency, Barack Obama was carrying student loan debt until a book deal "wiped his financial slate clean" (205).
7. Student loans and taxpayer liability: Private lenders lost about $535 billion in subprime mortgages when the housing market crashed. Taxpayers are on the hook for $500 billion in unpaid student loans (7, 208).
8. How bad is it? Between 1980 and 1990, all consumer prices rose 62%. Typical family earnings rose 68%. One Year at a private college rose 145%. Public college rose: 113% (76).
What can LBC do?
1. Perform a student debt analysis. What is our student default rate? Why?
2. Ensure the quality of our global education student success process by determining and consistently assessing system measures.
3. Study University of Alabama's model for recruiting students (c.f. p. 167).
5. Help student borrowers to assess their ability to repay student loan debt.
6. Ask the President's Cabinet to read The Debt Trap. Take a half-day to discuss implications. Make The Debt Trap required reading for financial aid, admissions, and student services.
July 29, 2021
The Debt Trap is a quick but thorough history of federal financial aid in the United States that uncovers some of the history and politics that have resulted in the complex system that exists today. I work in higher education and consider myself well-versed in the current system, but I was completely unaware of the machinations and greed that serve as the foundation for the federal financial aid program today.
Josh Mitchell’s book stands out because of the access he has to some of the key individuals who were involved in the creation and manipulation of the federal aid system. At a critical point in the expansion of higher education, key individuals and the federal government itself opted for a model - student loans - that would turn a profit and push higher education to be perceived as a private good rather than a public one. What’s surprising is how little critical thought appeared to be put into the early financial aid system when one considers how large an impact is has had in creating the United States’ unique and troubled financial model.
Mitchell’s book moves quickly and his storytelling keeps the book interesting. It reminds me a lot of The Big Short by Michael Lewis. Ultimately, Mitchell does a solid job of telling this history and identifying key points that have had an outsized impact on the evolution of the federal financial aid system and, more specifically, federal student loans and parent plus loans.
My one critique is that, oddly, at the end of The Debt Trap, Mitchell seems to dive unexpectedly into his own personal opinions about whether higher education should be a public good and funded by the government. There was no real basis in the book for this to pop up unexpectedly in the conclusion and the personal/political opinion just seemed to cheapen the excellent writing and storytelling up to that point. It was odd because I really enjoyed the book, but it left a bad taste in my mouth and is one of the final things that a reader comes across. Regardless of personal opinions on this matter, I enjoyed The Debt Trap because it was largely free of the politicizes rhetoric that dominates news coverage and social media. To end this book with an unnecessary and unwanted personal opinion from the author that was fairly removed from the actual content and style of the book was just a bit disappointing. Still I’d recommend this book to others interested in higher education, finance, and U.S. history.
Josh Mitchell’s book stands out because of the access he has to some of the key individuals who were involved in the creation and manipulation of the federal aid system. At a critical point in the expansion of higher education, key individuals and the federal government itself opted for a model - student loans - that would turn a profit and push higher education to be perceived as a private good rather than a public one. What’s surprising is how little critical thought appeared to be put into the early financial aid system when one considers how large an impact is has had in creating the United States’ unique and troubled financial model.
Mitchell’s book moves quickly and his storytelling keeps the book interesting. It reminds me a lot of The Big Short by Michael Lewis. Ultimately, Mitchell does a solid job of telling this history and identifying key points that have had an outsized impact on the evolution of the federal financial aid system and, more specifically, federal student loans and parent plus loans.
My one critique is that, oddly, at the end of The Debt Trap, Mitchell seems to dive unexpectedly into his own personal opinions about whether higher education should be a public good and funded by the government. There was no real basis in the book for this to pop up unexpectedly in the conclusion and the personal/political opinion just seemed to cheapen the excellent writing and storytelling up to that point. It was odd because I really enjoyed the book, but it left a bad taste in my mouth and is one of the final things that a reader comes across. Regardless of personal opinions on this matter, I enjoyed The Debt Trap because it was largely free of the politicizes rhetoric that dominates news coverage and social media. To end this book with an unnecessary and unwanted personal opinion from the author that was fairly removed from the actual content and style of the book was just a bit disappointing. Still I’d recommend this book to others interested in higher education, finance, and U.S. history.
March 25, 2022
It’s someday in March 2015 and I am in my room. Standing over my fixed bed that had 7 college acceptance letters/ folders from different educational institutions (i.e., public, private, for-profit, etc). I put them down in a visibly organized fashion. After learning the cost it would do to my family (and myself), had already visited the campuses, and got a feel for the incoming class, I had to choose one tonight.
I realized something weird after choosing that night. I asked myself “Should I really go?” I knew two things that affected my decision: 1) Throughout the years, my parents always pushed for me to attend college yet they fought about money and 2) the media and journals were always talking about the rising student loan debt in the US. I knew I was going to end up with debt but the real concern for 17 year old me was how much debt. So, like any rational person worried about money, I chose the school that gave me the lowest tuition bill which meant I was going to attend the cheapest college (net scholarships).
Reading this book brought me back to this weird “Choose a College” memory. The sole reason that memory came to me immediately was because I learned that one person (whoever the author interviewed) did the same exact thing I did - minus the bed - yet he left college with loans that amounted to $60,000 ( + incurring interest) debt while I left owing just north of $13,000 (no interest, since I paid it in one installment after the grace period ended). After everything was said and done, I had a $0 Net Worth before 2020 hit.
My debt could’ve easily doubled had I not transferred schools (a school that didn’t need me to take out loans). I accidentally survived that debt game - somehow - unlike millions of others (to this day).
Josh Mitchell, you did outstanding job writing about the student loan debt crisis/ game. Makes perfect sense how the idea of student loan came to be (1957). What followed after that was a jaw dropping read / account - good and bad.
For those who are thinking about going to college, especially graduate school, read this book before you put down a cent. I don’t know you but I do want you to end up like me (i.e., with low debt levels) or better. Please get this.
I realized something weird after choosing that night. I asked myself “Should I really go?” I knew two things that affected my decision: 1) Throughout the years, my parents always pushed for me to attend college yet they fought about money and 2) the media and journals were always talking about the rising student loan debt in the US. I knew I was going to end up with debt but the real concern for 17 year old me was how much debt. So, like any rational person worried about money, I chose the school that gave me the lowest tuition bill which meant I was going to attend the cheapest college (net scholarships).
Reading this book brought me back to this weird “Choose a College” memory. The sole reason that memory came to me immediately was because I learned that one person (whoever the author interviewed) did the same exact thing I did - minus the bed - yet he left college with loans that amounted to $60,000 ( + incurring interest) debt while I left owing just north of $13,000 (no interest, since I paid it in one installment after the grace period ended). After everything was said and done, I had a $0 Net Worth before 2020 hit.
My debt could’ve easily doubled had I not transferred schools (a school that didn’t need me to take out loans). I accidentally survived that debt game - somehow - unlike millions of others (to this day).
Josh Mitchell, you did outstanding job writing about the student loan debt crisis/ game. Makes perfect sense how the idea of student loan came to be (1957). What followed after that was a jaw dropping read / account - good and bad.
For those who are thinking about going to college, especially graduate school, read this book before you put down a cent. I don’t know you but I do want you to end up like me (i.e., with low debt levels) or better. Please get this.
August 10, 2021
This book taught me a lot about the absolute monstrosity that is student debt in the US. Although many (but not all!) of its architects had good intentions, like democratizing access to education and keeping the US globally competitive, it hasn’t always played out that way. In many cases, it’s actually done the opposite, using aggressive advertising with unkept promises luring less-advantaged groups into even worse financial situations.
Also, our current system is a case study in how *not* to structure incentives. As long as students take on mountains of debt at no risk to the university, colleges will keep raising prices at levels significantly above inflation. With wage garnishment and near-impossibility of discharging student debt, even in bankruptcy cases, universities and banks almost always get their money back. It’s the students and taxpayers who end up getting screwed as debt becomes unpayable.
Unfortunately, many of the solutions proposed by politicians don’t actually tackle these exorbitant tuition hikes and are rather shortsighted solutions. And don’t even get me started on Sallie Mae or for-profit universities, two of the biggest culprits in how we got here.
It feels like I busted out all of my SAT vocab words for this review….maybe it’s the subject matter! Really though, I’m concerned about this issue and I hope it’s something we start to take more seriously, so thank you to Josh Mitchell for providing the context around how our student debt system started and evolved.
Also, our current system is a case study in how *not* to structure incentives. As long as students take on mountains of debt at no risk to the university, colleges will keep raising prices at levels significantly above inflation. With wage garnishment and near-impossibility of discharging student debt, even in bankruptcy cases, universities and banks almost always get their money back. It’s the students and taxpayers who end up getting screwed as debt becomes unpayable.
Unfortunately, many of the solutions proposed by politicians don’t actually tackle these exorbitant tuition hikes and are rather shortsighted solutions. And don’t even get me started on Sallie Mae or for-profit universities, two of the biggest culprits in how we got here.
It feels like I busted out all of my SAT vocab words for this review….maybe it’s the subject matter! Really though, I’m concerned about this issue and I hope it’s something we start to take more seriously, so thank you to Josh Mitchell for providing the context around how our student debt system started and evolved.
December 24, 2024
As a degree-holder, I've been paying off my loans for 8 years & am only just seeing the light at the end of the debt tunnel. I've long known I'm one of the lucky few in recent decades who has actually made use of my degree, but this book definitely hammered home just how much those odds were stacked against me from the start (parents with no degrees, lower middle class life so no college savings to go, needing parent PLUS loans, etc). I'm only where I am because I've worked my *ss off to make the principle slowly disappear over time, and played the college game smart by starting at a community college before transferring to a 4-yr school for the Bachelor's degree. Once I pay the last of my $55,000 in loans this year, I will still need another several years and be in my mid/late-30s before I can even hope to own a home.
While I was already aware of the money-hungry schemes of for-profit colleges, this read was a great deep dive into just HOW it happened. Spoiler alert- It wasn't quickly. It was eye-opening to see how the college debt scheme goes back not just decades, but literal generations. If I wasn't already a cynical person, this would absolutely make me so. Moral of the story: politicians & business owners will do anything on the taxpayer's dime to line their own pockets. Student loan reform is not just a liberal ideal- It's necessary if we want subsequent generations to have any chance at all of a stable economic future.
While I was already aware of the money-hungry schemes of for-profit colleges, this read was a great deep dive into just HOW it happened. Spoiler alert- It wasn't quickly. It was eye-opening to see how the college debt scheme goes back not just decades, but literal generations. If I wasn't already a cynical person, this would absolutely make me so. Moral of the story: politicians & business owners will do anything on the taxpayer's dime to line their own pockets. Student loan reform is not just a liberal ideal- It's necessary if we want subsequent generations to have any chance at all of a stable economic future.
December 23, 2021
"student debt in the US is the size of Canada's economy" (p. 3). I'd never heard that particular comparison before, though certainly aware that student loan debt is a big problem for many people.
He covers (repeatedly -- the story is compelling and the research thorough and convincing, but book could have used another round of editing) the vicious cycle of (a) loans are made readily available and interest rates capped, interest deferred while you're in school etc. etc. to increase access to higher ed; (b) students who don't have a good way of knowing what they'll be making after graduation, or even the probability that they will graduate, believe they need a degree and take those loans; (c) schools jack up tuition (or even come into existence, as with some of the shadier for-profit places) to grab those loan dollars; (d) students end up holding the bag with crushing debt loads and not necessarily the seemingly promised high stable incomes; (e) other terrible money problems ensue, spilling over into personal and family problems.
An aspect I hadn't been as familiar with was the ways in which some of the political wrangling at the outset in the '60s leading to dysfunctional features of Sallie Mae setup for federal loans resulted from desire to keep the programs "off the books" so as not to make federal deficit look worse. What a morass.
Book includes, as do most newspaper stories on this topic, some extreme anecdotes from people who owe far more than the average, and it's always easy in reading the details of these to pick out points at which the problem seems individual/local. One that stood out to me as a psychology professor involved repeated mention of a woman's finding out as an undergraduate that actually becoming a licensed independent practitioner as a psychologist would entail going to grad school also -- that's not a state secret, but i guess we have a ways to go in disseminating the specifics of the pathway -- i never hear about someone being stunned to learn that taking premed classes wasn't fully sufficient to become a physician and that they had to also go to med school......
...But author makes a good case that the bulk of the problem is baked into the system, not a matter of individuals doing insufficient research or making unwise decisions. He takes on the timely issue of debt cancellation (as i'm typing this review, i just read that Pres. Biden has taken another baby step in that direction, extending loan payment moratorium another 3 months to May 1, 2022) -- surely would help a lot of people get out from under, but wouldn't change the fouled up incentive structure. His main idea in that regard is giving schools a stake in repayment/default rates. if we were on the hook when someone defaults, the logic goes, we'd think twice about ok'ing loans to marginal students or people who already had a lot of debt etc.
Anyway, if you follow this issue, it's a low percentage of new data or ideas, but it is informative I think to see the history pulled together in one place.
--Not really central to his topic, but for the record.......MLK Jr. assassination was in 1968, not 1969 as he seems (somewhat unclearly, but piecing together a couple passages) to be saying on p. 35. I remember the breaking news report during an episode of "Daniel Boone" on TV, so I'm a stickler for accuracy there.
He covers (repeatedly -- the story is compelling and the research thorough and convincing, but book could have used another round of editing) the vicious cycle of (a) loans are made readily available and interest rates capped, interest deferred while you're in school etc. etc. to increase access to higher ed; (b) students who don't have a good way of knowing what they'll be making after graduation, or even the probability that they will graduate, believe they need a degree and take those loans; (c) schools jack up tuition (or even come into existence, as with some of the shadier for-profit places) to grab those loan dollars; (d) students end up holding the bag with crushing debt loads and not necessarily the seemingly promised high stable incomes; (e) other terrible money problems ensue, spilling over into personal and family problems.
An aspect I hadn't been as familiar with was the ways in which some of the political wrangling at the outset in the '60s leading to dysfunctional features of Sallie Mae setup for federal loans resulted from desire to keep the programs "off the books" so as not to make federal deficit look worse. What a morass.
Book includes, as do most newspaper stories on this topic, some extreme anecdotes from people who owe far more than the average, and it's always easy in reading the details of these to pick out points at which the problem seems individual/local. One that stood out to me as a psychology professor involved repeated mention of a woman's finding out as an undergraduate that actually becoming a licensed independent practitioner as a psychologist would entail going to grad school also -- that's not a state secret, but i guess we have a ways to go in disseminating the specifics of the pathway -- i never hear about someone being stunned to learn that taking premed classes wasn't fully sufficient to become a physician and that they had to also go to med school......
...But author makes a good case that the bulk of the problem is baked into the system, not a matter of individuals doing insufficient research or making unwise decisions. He takes on the timely issue of debt cancellation (as i'm typing this review, i just read that Pres. Biden has taken another baby step in that direction, extending loan payment moratorium another 3 months to May 1, 2022) -- surely would help a lot of people get out from under, but wouldn't change the fouled up incentive structure. His main idea in that regard is giving schools a stake in repayment/default rates. if we were on the hook when someone defaults, the logic goes, we'd think twice about ok'ing loans to marginal students or people who already had a lot of debt etc.
Anyway, if you follow this issue, it's a low percentage of new data or ideas, but it is informative I think to see the history pulled together in one place.
--Not really central to his topic, but for the record.......MLK Jr. assassination was in 1968, not 1969 as he seems (somewhat unclearly, but piecing together a couple passages) to be saying on p. 35. I remember the breaking news report during an episode of "Daniel Boone" on TV, so I'm a stickler for accuracy there.
June 23, 2022
Mitchell does a good job of explaining the history of how student loans became such a mess. His prose is reminiscent of long magazine articles. He's good at explaining difficult concepts. I would have given it 5 stars except for an obnoxious chapter where he piles on cliches while he lionizes a Sallie Mae executive. Maybe it was for some crappy business magazine that likes that sort of thing.
The best chapter is about how flagship state universities have grown out of control. He quotes the former President of the University of Alabama, who recounts how he kept jacking up the out-of-state tuition, with the intent of backing off once enrollment leveled off. But it never did! They talk about how the chief groundskeeper went to Disneyland to learn their tricks. Studies have shown that students and their parents make their decision about a school in the first ten minutes based on their impressions of how the school looks.
Schools don't get dinged when students default on their loans. This creates a perverse incentive for schools to jack up their tuition. Mitchell proposes solutions at the end, and one of the chief ones is to change the laws so that schools have more skin in the game with regard to students' debt.
One thing Mitchell briefly touches on, but doesn't delve into deeply is that many students and their parents make stupendously bad decisions. Reading this book, one gets the impression that nobody ever chooses to go to a school because it's less expensive.
What should be done for students who collectively owe $1.7 trillion? I am for debt forgiveness, because I'm a card-carrying liberal, and I don't think students should be punished in perpetuity for bad decisions, or for the bad luck of growing up in an era where tuition has grown out of control. I'm frustrated by politicians who only talk about debt forgiveness without delving into the nuances of the problem, and who say little to nothing about solving the underlying problems. But their message discipline will bring more relief to burdened students than nuance ever will.
The best chapter is about how flagship state universities have grown out of control. He quotes the former President of the University of Alabama, who recounts how he kept jacking up the out-of-state tuition, with the intent of backing off once enrollment leveled off. But it never did! They talk about how the chief groundskeeper went to Disneyland to learn their tricks. Studies have shown that students and their parents make their decision about a school in the first ten minutes based on their impressions of how the school looks.
Schools don't get dinged when students default on their loans. This creates a perverse incentive for schools to jack up their tuition. Mitchell proposes solutions at the end, and one of the chief ones is to change the laws so that schools have more skin in the game with regard to students' debt.
One thing Mitchell briefly touches on, but doesn't delve into deeply is that many students and their parents make stupendously bad decisions. Reading this book, one gets the impression that nobody ever chooses to go to a school because it's less expensive.
What should be done for students who collectively owe $1.7 trillion? I am for debt forgiveness, because I'm a card-carrying liberal, and I don't think students should be punished in perpetuity for bad decisions, or for the bad luck of growing up in an era where tuition has grown out of control. I'm frustrated by politicians who only talk about debt forgiveness without delving into the nuances of the problem, and who say little to nothing about solving the underlying problems. But their message discipline will bring more relief to burdened students than nuance ever will.
February 28, 2023
Some decent information but pretty dull. The storytelling is weak — sometimes deviating from the "point" of a chapter for some minor anecdote that doesn't speak to the greater problem. It's a lot of great annoyances of bureaucratic organizations moving impersonally and slowly. I also didn't like the many references to data points without context. For example, there will be a clause like "the budget was reduced by 22 billion." Ok... is that a lot? What was the original budget? Or the author will make broad and vague claims such as "more education has led to greater prosperity." It's like high school politics — intimating factual data without providing it.
More than anything, the most infuriating aspect of this book was how many times the author uses the phrase "then the phone rang." I think it's literally every single story. Some 12 times across 6 chapters. One time it was a cell phone — that was a fun novelty. It's pretty embarrassing.
Final point, the author clearly hates democrats. This book points the finger at Barack Obama and "Democrats in congress" for exacerbating the issue and providing solutions that will "make the problem worse." Meanwhile the book speaks very favorably of Betsy DeVos and when considering the executives managing private entities that actively participated in predatory lending, the author says "no one person can be blamed for the system." No banker he can't make an excuse for, no Democrat he can't paint in a negative light. I say this as someone who thinks Democrats' talking points on student debt and access to college are all very bad.
Points for being a short book, but it's not great.
More than anything, the most infuriating aspect of this book was how many times the author uses the phrase "then the phone rang." I think it's literally every single story. Some 12 times across 6 chapters. One time it was a cell phone — that was a fun novelty. It's pretty embarrassing.
Final point, the author clearly hates democrats. This book points the finger at Barack Obama and "Democrats in congress" for exacerbating the issue and providing solutions that will "make the problem worse." Meanwhile the book speaks very favorably of Betsy DeVos and when considering the executives managing private entities that actively participated in predatory lending, the author says "no one person can be blamed for the system." No banker he can't make an excuse for, no Democrat he can't paint in a negative light. I say this as someone who thinks Democrats' talking points on student debt and access to college are all very bad.
Points for being a short book, but it's not great.
June 13, 2025
En The Debt Trap, el periodista del Wall Street Journal Josh Mitchell realiza una profunda y perturbadora investigación sobre uno de los problemas más críticos y menos comprendidos de la economía estadounidense: la crisis de los préstamos estudiantiles. Con un enfoque riguroso pero accesible, Mitchell revela cómo el sueño de llevar la educación superior a todos, impulsado por buenas intenciones, acabó creando una estructura financiera que ha atrapado a generaciones enteras en un ciclo de deuda prácticamente imposible de romper.
Lejos de limitarse a los números o a una exposición técnica, el autor entreteje historias reales de personas que viven las consecuencias de este sistema. Figuras como Lisa, una madre soltera con una enfermedad crónica y casi cien mil dólares en deuda, o Brandon, un joven cuya familia se desmoronó por su acceso a la universidad, son solo algunos de los muchos testimonios que le dan rostro humano a una crisis estructural. Estos relatos, dolorosos pero necesarios, revelan con crudeza el costo emocional, social y económico de un sistema que en teoría debía ofrecer oportunidades.
Mitchell también nos guía a través del desarrollo histórico de esta trampa: desde los modestos programas tras la Segunda Guerra Mundial hasta la creación de entidades como Sallie Mae (una empresa que hoy en día está en Bolsa), que transformaron los préstamos estudiantiles en un producto financiero más. Con maestría periodística, expone cómo bancos, universidades y políticos de ambos partidos contribuyeron —consciente o inconscientemente— al crecimiento exponencial de la deuda, mientras convertían la educación en una fuente de ingresos más que en un bien público.
El tono del libro es directo y, por momentos, indignado, aunque nunca pierde el equilibrio analítico. Lo que más impacta no es solo la magnitud de la deuda —que hoy supera los 1,5 billones de dólares—, sino la forma en que fue normalizada y fomentada por instituciones que debían proteger al ciudadano. Mitchell también dedica espacio a examinar propuestas para salir de este atolladero: desde la cancelación parcial de intereses hasta el rediseño completo del modelo de financiamiento universitario, pasando por el impulso a caminos alternativos como los oficios o programas de formación técnica.
The Debt Trap no es solo una crónica del desastre financiero; es también una advertencia sobre lo que ocurre cuando se privatiza la educación sin considerar sus consecuencias humanas. Es un libro urgente, claro y profundamente necesario para entender no solo el sistema educativo estadounidense, sino también los peligros de mercantilizar el acceso al conocimiento. En tiempos donde la deuda estudiantil ha pasado a ser una cuestión política de primer orden, y Joe Biden ha tenido sobre la mesa la condonación de la deuda de los estudiantes, me ha parecido una gran lectura para entender este sistema.
En resumen, 4 estrellas.
Lejos de limitarse a los números o a una exposición técnica, el autor entreteje historias reales de personas que viven las consecuencias de este sistema. Figuras como Lisa, una madre soltera con una enfermedad crónica y casi cien mil dólares en deuda, o Brandon, un joven cuya familia se desmoronó por su acceso a la universidad, son solo algunos de los muchos testimonios que le dan rostro humano a una crisis estructural. Estos relatos, dolorosos pero necesarios, revelan con crudeza el costo emocional, social y económico de un sistema que en teoría debía ofrecer oportunidades.
Mitchell también nos guía a través del desarrollo histórico de esta trampa: desde los modestos programas tras la Segunda Guerra Mundial hasta la creación de entidades como Sallie Mae (una empresa que hoy en día está en Bolsa), que transformaron los préstamos estudiantiles en un producto financiero más. Con maestría periodística, expone cómo bancos, universidades y políticos de ambos partidos contribuyeron —consciente o inconscientemente— al crecimiento exponencial de la deuda, mientras convertían la educación en una fuente de ingresos más que en un bien público.
El tono del libro es directo y, por momentos, indignado, aunque nunca pierde el equilibrio analítico. Lo que más impacta no es solo la magnitud de la deuda —que hoy supera los 1,5 billones de dólares—, sino la forma en que fue normalizada y fomentada por instituciones que debían proteger al ciudadano. Mitchell también dedica espacio a examinar propuestas para salir de este atolladero: desde la cancelación parcial de intereses hasta el rediseño completo del modelo de financiamiento universitario, pasando por el impulso a caminos alternativos como los oficios o programas de formación técnica.
The Debt Trap no es solo una crónica del desastre financiero; es también una advertencia sobre lo que ocurre cuando se privatiza la educación sin considerar sus consecuencias humanas. Es un libro urgente, claro y profundamente necesario para entender no solo el sistema educativo estadounidense, sino también los peligros de mercantilizar el acceso al conocimiento. En tiempos donde la deuda estudiantil ha pasado a ser una cuestión política de primer orden, y Joe Biden ha tenido sobre la mesa la condonación de la deuda de los estudiantes, me ha parecido una gran lectura para entender este sistema.
En resumen, 4 estrellas.
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