--:-- Sean Rameswaram: All right, Luke Vanderplug, Today Explained producer. Here we are at the Mattress Firm in Brentwood, Washington, D.C. What the heck are we doing?
--:-- Luke Vanderplug: We're going to try on some mattresses.
--:-- Sean Rameswaram: Okay, it looks like we've got soft, medium, or firm. Which do you think you are?
--:-- Luke Vanderplug: I don't know. I'm kind of a soft guy.
--:-- Sean Rameswaram: What a softie.
--:-- Luke Vanderplug: What a softie.
--:-- Sean Rameswaram: Okay, let's find out which it is. Mattressfirm.com slash podcast to find out how you can improve your sleep.
--:-- Sean Rameswaram: Pop quiz. Three questions. Question one, how many Americans have student loans?
--:-- Luke Vanderplug: 43 million of us hold some student debt.
--:-- Sean Rameswaram: Question two, what percentage of graduating seniors borrow money to pay for college?
--:-- Luke Vanderplug: Over 70%.
--:-- Sean Rameswaram: And final question. What is the average amount of loan debt that students are burdened with when they graduate?
--:-- Luke Vanderplug: $10,000, $68,000, $26,000, $34,000.
--:-- Sean Rameswaram: The answer is, in fact, $34,000.
--:-- Luke Vanderplug: I know a lot of you are like, it's $68,000. I just know it.
--:-- Sean Rameswaram: Extra credit. What happens when you default on a student loan?
--:-- Luke Vanderplug: It's not pretty, it's super punitive, and things keep getting worse.
--:-- [Sound of a clip playing]
--:-- Sean Rameswaram: Madam Secretary, I think we are facing a student loan crisis in America. And let me tell you why. This is Senator Dick Durbin at a hearing with Education Secretary Betsy DeVos last year.
--:-- Senator Dick Durbin: Student loan debt now is greater than credit card debt in America. In the year 2016, the number of defaults on student loan repayments increased by 14% over the previous year.
--:-- Betsy DeVos: Well, Senator, let me just say that I totally agree with you that student debt and student loans are of grave concern. I talked about that during my confirmation hearing, and I feel no differently now. In fact, I probably feel more strongly about the critical nature of the increasing student debt.
--:-- Libby Nelson: Every class that graduates from college is the most indebted class in American history until the next class graduates.
--:-- Sean Rameswaram: Libby Nelson is the education explainer at Vox, and Late last week, Betsy DeVos tried to tweak how education works in America.
--:-- Libby Nelson: So on Friday, Betsy DeVos sent a letter to states, essentially, telling them that they can't regulate loan servicers on their own.
--:-- Sean Rameswaram: No big deal, right? The Secretary of Education is like, hey, states, let us handle loans. That's our thing.
--:-- Libby Nelson: But if you take a few steps back, you start to see that this could be bad news for a lot of people.
--:-- Sean Rameswaram: So if you took out a student loan, if you're a person with student debt and you took out a student loan any time before 2009, 2010 or so, you probably got it from a bank or at least you think you got it from a bank.
--:-- Libby Nelson: It was from something like Sally May or from Nelnet. Those banks were actually just lending the federal government's money and getting a cut of the funds in order to do that.
--:-- Sean Rameswaram: In 2010, the education department cut the banks out of this part of the process and they started making all of the student loans themselves.
--:-- Libby Nelson: So most – the vast majority of student loans issued in America now come directly from the federal government.
--:-- Sean Rameswaram: But they don't do everything else. They don't enroll you in payment plans themselves. They don't deal with your paperwork. They aren't the ones who send you a note if you've paid off the loan.
--:-- Libby Nelson: They contract with nine private companies called loan servicers who handle everything after you actually receive the loan.
--:-- Sean Rameswaram: So this was an Obama administration initiative?
--:-- Libby Nelson: Yes, this was a big deal for the Obama administration. Switching to the government making the loans saved a good amount of money.
--:-- Sean Rameswaram: But in order to keep some private companies in the mix, they ended up with these loan servicing contracts.
--:-- Libby Nelson: And was the intention there to save money for students or to literally save the federal government money?
--:-- Sean Rameswaram: It was literally to save the federal government money.
--:-- Libby Nelson: OK. Are these nine companies making more money under this new system of direct loans?
--:-- Sean Rameswaram: They're definitely making less money under direct lending than they were under the old bank-based lending system.
--:-- Libby Nelson: So the servicing contracts are kind of a bone to be thrown to these companies that have lost all of their major business in the past.
--:-- Sean Rameswaram: You don't get a choice about which servicer you get. You just are randomly assigned one.
--:-- Libby Nelson: Occasionally, your loan will move to a different servicer. And this is a process that can get really complicated if you're trying to figure out what's gone wrong with your student loan.
--:-- Sean Rameswaram: if you have lost your job and are trying to figure out how to avoid defaulting on your loan while still not making the same payments you used to.
--:-- Libby Nelson: I've talked to student loan policy experts who struggle with this.
--:-- Sean Rameswaram: A few years ago, I talked to a woman with a master's in social work and a PhD in education policy who had been tossed around on the phone when she was trying to get through to her servicers.
--:-- Libby Nelson: So this is literally her area of expertise and she couldn't navigate it?
--:-- Sean Rameswaram: Exactly.
--:-- Libby Nelson: There are people where this is literally what they do. and they have sometimes struggled to navigate this system.
--:-- Sean Rameswaram: It especially difficult for people who are trying to change payment plans or trying to lower their payments consolidate their loans
--:-- Libby Nelson: Obviously some people have fine experiences with servicers but the Consumer Financial Protection Bureau which collects complaints have heard that servicers don't tell borrowers about the plans that are best for them.
--:-- Sean Rameswaram: They push them into plans with higher interest rather than plans that could lower their payments.
--:-- Libby Nelson: And the thing that's really important here, I think, is for the most part, people who are on the phone with the servicers and going to that, length are people who want to pay back their loans and we're making a good faith effort.
--:-- Sean Rameswaram: And there are thousands of dollars at stake here for most people.
--:-- Libby Nelson: And you don't get a choice. You know, if you don't like your service or you can't leave and just transfer your loan to someone else.
--:-- Sean Rameswaram: So you're sort of stuck with these people.
--:-- Libby Nelson: Okay, so I think we're caught up now.
--:-- Sean Rameswaram: People are trying to navigate this super confusing system set up by the federal government.
--:-- Libby Nelson: They're not finding it easy.
--:-- Sean Rameswaram: And the states are now upsetting the federal government because they're trying to help?
--:-- Libby Nelson: So some states have started writing borrowers' bills of rights, including D.C. and Illinois and several other states, which would require servicers to do a few things.
--:-- Sean Rameswaram: They would make them inform borrowers about loan forgiveness, about different repayment options, ensuring that they have people on hand who can explain ways to lower your payments.
--:-- Libby Nelson: In addition to the borrowers' bills of rights, which have been in state legislatures,
--:-- Sean Rameswaram: There have been state attorneys general who have sued servicers over some of these issues and are trying to bring a little bit of enforcement to the table as well.
--:-- Libby Nelson: And now the education secretary, Betsy DeVos, is trying to tell the states to butt out.
--:-- Sean Rameswaram: Or has she already successfully done that?
--:-- Libby Nelson: She's certainly tried.
--:-- Sean Rameswaram: So she sent a letter saying basically regulating servicers is a federal responsibility.
--:-- Libby Nelson: It's not something that the state should be doing.
--:-- Sean Rameswaram: It doesn't appear to have discouraged the states involved at all.
--:-- Libby Nelson: So it's not totally clear where this is going to go.
--:-- Sean Rameswaram: But this is certainly something that they're trying to do and saying, hey, we make the rules here.
--:-- Libby Nelson: You can't come in and make a different set of rules that the servicer has to play by in your state but not in other states.
--:-- Sean Rameswaram: And is that just the education secretary trying to keep everything consistent through and through?
--:-- Libby Nelson: That's certainly what they'd say.
--:-- Sean Rameswaram: This is obviously something that the loan servicers wanted because, you know, from a generous point of view, it is difficult to do business if you're regulated in different ways.
--:-- Libby Nelson: From a less generous point of view, perhaps they don't want to have this additional scrutiny and this additional pressure on their business.
--:-- Sean Rameswaram: And we've seen that Betsy DeVos' education department has generally been more friendly to the private sector than previous departments have been.
--:-- Libby Nelson: Okay.
--:-- Sean Rameswaram: I'm curious a little bit more about these nine companies. Are they making insane amounts of money?
--:-- Libby Nelson: Have they been for a long time?
--:-- Sean Rameswaram: What are they? Who are they?
--:-- Libby Nelson: The big servicers that people would know are Navient, which is the company formerly known is Sally May.
--:-- Sean Rameswaram: And Nelnet is another.
--:-- Libby Nelson: And then there are several others that are smaller.
--:-- Sean Rameswaram: They have a pretty large federal contract.
--:-- Libby Nelson: The education department spends about a billion dollars a year among all nine of these companies.
--:-- Sean Rameswaram: So it's in the millions for each company, but for the federal government, it's a billion dollar expenditure.
--:-- Libby Nelson: So would like a single national system of regulations make more sense than the current patchwork of state regulations?
--:-- Sean Rameswaram: Almost certainly in the sense that it almost always makes more sense and is more straightforward for companies.
--:-- Libby Nelson: The problem is you've got to get Congress to pass that.
--:-- Sean Rameswaram: And in addition to there being, you know, these philosophical questions about how much you should regulate business,
--:-- Libby Nelson: Some of these companies also are sort of hometown companies for senators.
--:-- Sean Rameswaram: Nelnet is really big in Nebraska, for example.
--:-- Libby Nelson: And so it does mean that there also were some interested parties kind of scattered throughout America on this.
--:-- Sean Rameswaram: I don't hear President Trump talk a lot about student loans.
--:-- Sean Rameswaram: I did hear President Obama talk a lot about student loans.
--:-- Sean Rameswaram: I know about this firsthand.
--:-- Sean Rameswaram: Michelle and I, we know about this firsthand.
--:-- Sean Rameswaram: This is not something I read in a briefing book.
--:-- Sean Rameswaram: This is not some abstract idea for us.
--:-- Sean Rameswaram: We've been in your shoes.
--:-- Sean Rameswaram: When we graduated from college and law school, we had a mountain of debt, both of us.
--:-- Sean Rameswaram: Is anyone in the party that controls, you know, the Congress, the Senate, the White House taking this seriously right now?
--:-- Libby Nelson: Yeah, it's pretty it's honestly pretty astonishing.
--:-- Sean Rameswaram: A few years ago, you know, student debt was a huge deal that every politician was talking about.
--:-- Sean Rameswaram: Even other Republicans, Marco Rubio, for example, used to talk about student debt a lot.
--:-- Sean Rameswaram: It's just it's clearly just not something that is on Trump's radar, in part because higher education isn't really part of his economic vision.
--:-- Sean Rameswaram: Congress is taking some stabs at rewriting the Higher Education Act, which is the law that governs student loans and all of this stuff.
--:-- Libby Nelson: Yeah.
--:-- Sean Rameswaram: But given the way Congress has been on priorities that are arguably more urgent or more important to Republicans controlling Congress,
--:-- Libby Nelson: I personally am not particularly optimistic that anything on that law is going to get done this year.
--:-- Sean Rameswaram: And even if that were to happen, it certainly wouldn't necessarily include any kind of servicing overhaul.
--:-- Sean Rameswaram: Student loans aren't getting easier to navigate and at the same time, they're getting harder to pay off.
--:-- Sean Rameswaram: So where does that leave students?
--:-- Sean Rameswaram: Is college or grad school even a good idea anymore?
--:-- Sean Rameswaram: That in just a minute.
--:-- Sean Rameswaram: All right I ready to try the soft mattress
--:-- Luke Vanderplug: Okay before you do I want to remind you that Mattress Firm offers 120-night sleep trial to ensure perfection and 120-night low-price guarantee so you know you paid the perfect price at mattressfirm.com slash podcast.
--:-- Sean Rameswaram: Let's do it.
--:-- Sean Rameswaram: All right, you got your protective sheet that you're putting down over the pillow.
--:-- Luke Vanderplug: What are you going to do? You jump? You going to dive?
--:-- Sean Rameswaram: All right, here I go.
--:-- Sean Rameswaram: I'm going to jump.
--:-- Luke Vanderplug: Do it.
--:-- Sean Rameswaram: Oh, look at that give.
--:-- Luke Vanderplug: Oh, yeah.
--:-- Sean Rameswaram: How's it feel?
--:-- Luke Vanderplug: Just sinking right in.
--:-- Sean Rameswaram: Instant reaction, please.
--:-- Luke Vanderplug: Yeah, it's sort of cradling me.
--:-- Luke Vanderplug: It's really soft.
--:-- Luke Vanderplug: It's sort of cloud-like.
--:-- Sean Rameswaram: Excellent.
--:-- Luke Vanderplug: Okay, so what are you thinking?
--:-- Luke Vanderplug: Are you a soft guy?
--:-- Sean Rameswaram: Are we decided?
--:-- Luke Vanderplug: I don't know.
--:-- Sean Rameswaram: I feel like I guess I should move on, maybe try the medium.
--:-- Luke Vanderplug: The medium?
--:-- Sean Rameswaram: Wait, what about all the other soft ones?
--:-- Luke Vanderplug: Everyone with a blue thing on it.
--:-- Luke Vanderplug: Everyone with a blue pillow is a soft one.
--:-- Sean Rameswaram: Oh my God, let's do it.
--:-- Sean Rameswaram: Okay, let's try more soft mattresses.
--:-- Sean Rameswaram: This is Today Explained.
--:-- Sean Rameswaram: I'm Sean Rameswaram.
--:-- Sean Rameswaram: Not too long ago, growing student debt reached, like, national crisis levels.
--:-- Sean Rameswaram: For both parties.
--:-- Sean Rameswaram: Here's Marco Rubio in 2015.
--:-- Marco Rubio: Well, it's a personal issue for me.
--:-- Sean Rameswaram: I owed over $100-something thousand dollars in student loans.
--:-- Sean Rameswaram: Easy to pay back.
--:-- Sean Rameswaram: No, I had to write a book.
--:-- Sean Rameswaram: But when I got in the Senate, I was paying, I think it was $800 a month.
--:-- Sean Rameswaram: And Elizabeth Warren in 2016.
--:-- Elizabeth Warren: Student loan debt is weighing down our economy.
--:-- Sean Rameswaram: This is truly an economic emergency.
--:-- Libby Nelson: So what happened?
--:-- Sean Rameswaram: We certainly didn't fix it.
--:-- Sean Rameswaram: We don't hear as much about student debt as we did a couple of years ago,
--:-- Sean Rameswaram: I think because people are getting jobs and the economy is better overall.
--:-- Libby Nelson: But there is still very much a problem that's bubbling there under the surface.
--:-- Sean Rameswaram: And the problem most certainly has to do with rising tuition costs.
--:-- Sean Rameswaram: Part of that is that tuition costs rose really sharply, particularly at public colleges during the recession.
--:-- Sean Rameswaram: I think a quintessential example here is in California.
--:-- Libby Nelson: So if you were born in the 50s or 60s and you went to Berkeley or one of the other wonderful university California campuses,
--:-- Sean Rameswaram: You paid very little in the hundreds of dollars for your education because it was really thoroughly subsidized by the taxpayers of the state.
--:-- Sean Rameswaram: You bought some books, you maybe had some nominal fees here and there,
--:-- Sean Rameswaram: But it was something you could pay for with a summer job or an on-campus job.
--:-- Libby Nelson: At those same schools today, you're looking at upwards of $30,000 when you're taking all of your costs, housing, transportation, books into account,
--:-- Sean Rameswaram: Which is a really dramatic difference.
--:-- Sean Rameswaram: And not something that the average 18 to 22-year-old or even the average older student who's trying to attend college full-time can afford to pay with a part-time job.
--:-- Sean Rameswaram: Yeah, I went to one of those schools.
--:-- Sean Rameswaram: I can relate.
--:-- Libby Nelson: Could you tell me, like what happens when you default?
--:-- Sean Rameswaram: What does it mean and what happens to you?
--:-- Libby Nelson: Yeah, defaulting on a student loan is a very bad thing to do.
--:-- Libby Nelson: It is worse than defaulting on almost any other kind of debt.
--:-- Libby Nelson: It's virtually impossible to discharge a student loan in bankruptcy.
--:-- Sean Rameswaram: So you are stuck with this loan, whether you are paying or not.
--:-- Libby Nelson: The federal government can garnish your wages.
--:-- Libby Nelson: They can take your tax refund.
--:-- Sean Rameswaram: And they can go to much greater lengths than, say, Citibank could with your mortgage just to get this money back.
--:-- Libby Nelson: And so you basically can't get away from this debt.
--:-- Sean Rameswaram: It's something that's going to follow you.
--:-- Libby Nelson: And there are a lot of people who are finding themselves in this position.
--:-- Sean Rameswaram: Why is student loan default so punitive?
--:-- Libby Nelson: I mean, these are students.
--:-- Sean Rameswaram: These are people who are struggling to contribute to society.
--:-- Libby Nelson: Why can't we take it all easy on these kids?
--:-- Libby Nelson: Well, I think the argument that people make against it is generally if you default on your mortgage, they can take your house.
--:-- Libby Nelson: If you default on your car loan, they can repossess your car.
--:-- Sean Rameswaram: If you default on your student loan, you still have your education.
--:-- Libby Nelson: And so the fear is that if they make it too easy, people will say, you know, honestly, it's worth taking this hit on my credit of declaring bankruptcy in exchange for not having to pay off 20, 40, you know, in cases of graduate loans, $80,000, $150,000 in debt.
--:-- Sean Rameswaram: That said, it can really get to extremes in some cases.
--:-- Libby Nelson: There are people who are clearly really struggling.
--:-- Sean Rameswaram: And you have seen, at least until Trump took office, there was an effort at the education department in some specific cases to make it easier for people to have their debts forgiven,
--:-- Sean Rameswaram: Either because they'd made payments for a long time,
--:-- Sean Rameswaram: Because their school, they could argue that their school had defrauded them.
--:-- Libby Nelson: And so there has been a recognition that maybe in some cases it should be a little easier to get rid of this debt than it's been in the past.
--:-- Sean Rameswaram: I'm wondering how student loan defaults and even student loan debt sort of breaks down by race too.
--:-- Sean Rameswaram: Does it affect some more than others?
--:-- Libby Nelson: It's very much inflected by class and by race.
--:-- Sean Rameswaram: So African-American students who generally come from families with less wealth tend to have the most debt.
--:-- Libby Nelson: Students from low-income backgrounds who don't have parents with savings or with home equity who can help pay for their schooling take on the most debt.
--:-- Sean Rameswaram: And then when you take into account the wage gap that comes into effect later in life especially for students of color
--:-- Libby Nelson: It a really really difficult situation to find themselves in
--:-- Sean Rameswaram: They take on more debt
--:-- Sean Rameswaram: They typically earn less after they graduate
--:-- Sean Rameswaram: They less likely to graduate
--:-- Libby Nelson: It particularly a crisis for students of color
--:-- Sean Rameswaram: And it feels like something that we just can't even really talk about as a culture.
--:-- Sean Rameswaram: You don't want to come out of college and declare yourself crippled by your student loans.
--:-- Sean Rameswaram: You want to come out of college and say, I'm ready to join the workforce.
--:-- Sean Rameswaram: I think that's changed a lot over the last five years.
--:-- Sean Rameswaram: Starting in the depth of the recession with the Occupy movement,
--:-- Sean Rameswaram: There were people who would like write about their student debt on signs and hold it up.
--:-- Sean Rameswaram: It sounds kind of cheesy to say it now, but it really did.
--:-- Sean Rameswaram: It put it on the political agenda in a way that it had not been in the past because in the past,
--:-- Sean Rameswaram: Yeah, people didn't say, hey, you know, I'm $55,000 in debt and I'm stressed out about it or I'm $25,000 in debt and I don't know how I'll pay back my loans or I'm, you know, $150,000 in debt.
--:-- Sean Rameswaram: That really did start to change.
--:-- Sean Rameswaram: People talked to the media about it.
--:-- Sean Rameswaram: People were profiled about their debts and how they were struggling with them.
--:-- Sean Rameswaram: And student debt became sort of an identity in a way that it had not been in the past, over the past five or so years.
--:-- Sean Rameswaram: But there are things, you know, we don't talk about the race gap in this.
--:-- Sean Rameswaram: We don't talk about class as much.
--:-- Sean Rameswaram: It's very much framed as this middle class issue, often with like a white kid from a liberal arts college who took on $65,000 in debt,
--:-- Sean Rameswaram: Which is not really what the crisis looks like in America.
--:-- Sean Rameswaram: Is it getting to the point where like paying money for college is not a sound economic decision?
--:-- Sean Rameswaram: And I think this is a somewhat scary consequence of this bigger conversation about debt.
--:-- Sean Rameswaram: It is still a very good idea to go to college.
--:-- Sean Rameswaram: It is a very good idea to borrow money to go to college if you cannot afford to go to college otherwise.
--:-- Sean Rameswaram: You earn so much more over the course of your life.
--:-- Sean Rameswaram: There are many other differences in things like health and things like life expectancy, life satisfaction.
--:-- Sean Rameswaram: Between college graduates and non-graduates, going to college is the best economic decision you can make.
--:-- Sean Rameswaram: That said, it matters where you go to college.
--:-- Sean Rameswaram: It matters how much you're paying.
--:-- Sean Rameswaram: It matters what you study.
--:-- Sean Rameswaram: And the thing that absolutely matters the most is whether you graduate.
--:-- Sean Rameswaram: When we talk about student debt in America, we're usually talking about people.
--:-- Sean Rameswaram: And even in this conversation, it's been sort of predicated on you've graduated from college, you've got your degree.
--:-- Sean Rameswaram: The place where student loans are really a huge problem is the people who don't graduate,
--:-- Sean Rameswaram: Who borrowed, you know, $20,000 for two or three years and graduate and maybe don't have that like big ticket scary number on their debt.
--:-- Sean Rameswaram: But they also don't have a degree that can help them get a job to pay it off.
--:-- Libby Nelson: It's not the people with the scary $100,000 loans who are defaulting.
--:-- Sean Rameswaram: It's the people who owe $8,000 but quit college after a year and so just can't scrape the money together to pay that back.
--:-- Sean Rameswaram: Libby Nelson is an editor at Vox.
--:-- Sean Rameswaram: Before we go, today is a numbers day.
--:-- Sean Rameswaram: It's March 14th, 314, Pi Day.
--:-- Sean Rameswaram: It's also the day Albert Einstein was born.
--:-- Sean Rameswaram: And sadly, this March 14th is the day we lost Stephen Hawking.
--:-- Sean Rameswaram: He spent his life explaining the universe to us.
--:-- Sean Rameswaram: And one of the great ironies of his life is that a voice that wasn't really even his became his unmistakable voice.
--:-- Sean Rameswaram: One of the great revelations of the space age has been the perspective it has given humanity on ourselves.
--:-- Sean Rameswaram: When we see the earth from space, we see ourselves as a whole.
--:-- Sean Rameswaram: We see the unity and not the divisions.
--:-- Sean Rameswaram: It is such a simple image.
--:-- Sean Rameswaram: A compelling message, one planet, one human race.
--:-- Sean Rameswaram: We are here together, and we need to live together, with tolerance and respect.
--:-- Sean Rameswaram: We must become global citizens.
--:-- Sean Rameswaram: I have been enormously privileged, through my work, to be able to contribute to our understanding of the universe.
--:-- Sean Rameswaram: But it would be an empty universe indeed, if it were not for the people I love and who love me.
--:-- Sean Rameswaram: We are all time travelers journeying together into the future.
--:-- Sean Rameswaram: But let us work together to make that future a place we want to visit.
--:-- Sean Rameswaram: Be brave, be determined, overcome the odds.
--:-- Sean Rameswaram: It can be done.
--:-- Sean Rameswaram: Okay, Luke, we've done it.
--:-- Sean Rameswaram: We went to mattressfirm.com slash podcast, but then we came into the actual store.
--:-- Sean Rameswaram: You tried 10 soft mattresses.
--:-- Sean Rameswaram: What do you think?
--:-- Sean Rameswaram: What's the verdict?
--:-- Luke Vanderplug: Look, these are great mattresses, but I got to try the full range of firmness before I can make a final decision.
--:-- Sean Rameswaram: Okay, what's next?
--:-- Sean Rameswaram: Medium or firm.
--:-- Luke Vanderplug: You know, it's called mattress firm for a reason.
--:-- Sean Rameswaram: Going straight to the namesake.
--:-- Sean Rameswaram: No one ever said it would be easy.
--:-- Sean Rameswaram: That's tomorrow.
