If you know of the singer Tennessee Ernie Ford —in his early years he’d play a hick, walk into a New York nightclub full of sophisticates ready to titter, and walk out with every single last person locked away in his hand — and keep the song Sixteen Tons out of your head.
You load sixteen tons and what do you get? Another day older and deeper in debt. Saint Peter don’t you call me ’cause I can’t go. I owe my soul to the company store.
The great Merle Travis wrote the song about coal mines in Muhlenberg County, Kentucky, where his father worked. The first two sentences came from a letter Travis received from his brother. The other two from his father, who told a neighbor one day that he couldn’t afford to die because he owed his soul to the company store.
Mine owners ran company stores workers would pay for food, clothing, and other needs with “scrip,” or credit from the company. Up until the 1950s, workers often lived in company-owned towns. There were no competing businesses. Owners created the entire economic structure with high prices and low wages to keep proud and honest miners perpetually imprisoned through debt.
It’s an old business model, forged during feudalism when nobles were granted ownership of vast lands through political acts that became hereditary. The unlucky majority were tenants and had to provide military service and turn over part of their crops, another form of perpetual debt.
Today the model has been extended, and is being reinforced, in education, through costs that grow far faster than median incomes, questionable activities by loan collection groups, and changing policies from the Trump administration.
Being able to borrow money at relatively low rates — interest for undergraduate direct federal loans up until July 1 of this year is 3.76 percent — is an important tool to address income inequality.
But the spiraling cost of education has resulted in a rapidly escalating loan total, and repercussions, for those who need loans to attend school.
- According to the Cleveland Federal Reserve Bank, “accounting for inflation, overall student loan balances almost tripled between the start of 2005 and the end of 2015.”
- The New York Fed has identified student loan balances as the fastest rising category of debt.
- The Boston Fed found “a fairly strong negative correlation between student loan debt and wealth (excluding student loan debt) for a group of households with at least some college experience.” Student borrowers are less likely than those who attended college to own a home, with a 10 percent increase in debt associated with a 1 percent decrease in personal wealth.
These are averages. When you consider economic background, there are additional issues. The wealthier the student’s family, the more likely graduation and the full benefit from the education.
Only 9 percent of U.S. kids whose families are in the bottom income quartile (less than $34,160 annual income) get a bachelor’s degree by age 24. That compares to 34 percent of students from a middle family ($63,600 to $108,650) and 17 percent from a lower middle class family ($34,160 to $63,600). Seventy-seven percent of those from a top quartile background ($108,650 or more) graduate.
Loans have ballooned in size and importance for two reasons. Educational costs in tuition, fees, and room and board have rocketed ahead of personal income, at least for middle and lower economic classes, for years. Financial aid hasn’t come close to match. According to a Pell Institute study, unmet financial need for those in the lowest quartile was, in constantly 2012 dollars, twice as large in 2012 as in 1990.
Published at Sun, 16 Apr 2017 14:29:00 +0000
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