The student loan crisis is horrible even from a conservative perspective
by David Atkins
Hullabaloo veteran Dave Dayen has an outstanding new piece at Salon on the subject of student loans. I wrote earlier today about the generational conflict that the student loan crisis is engendering; Dave Dayen points out that it's leading to a modern form of indentured servitude:
At a time when overall student debt approaches $1 trillion, the facts reveal that student loans aren’t loans, not in the traditional sense. They exhibit none of the qualities of modern consumer financial instruments, and are often sold under false pretenses, with the promise of a lifelong benefit that never materializes. We need to change how these loans work and have a broader conversation about what we should be doing — including bankruptcy and refinancing — to help future generations obtain a quality, affordable education, which is critical to our economic future.
The roughly two-thirds of U.S. students who take out loans to finance their college education can end up in a situation most resembling the historical concept of indenture. In medieval times, peasants would sign deeds to work land, which would then get cut in a jagged line (looking like teeth, or “dentures”). Each party would get half, and rejoining them would prove the authenticity of the contract. Colonial indentures would trade years of labor for the opportunity of transportation to the New World. The indentured could not alter the terms of the contract, no matter their circumstances. One way or another, the debt would get paid.
Dayen goes on to point out the various ways in which these loans can be bad bets: failing to graduate (often not due to poor academic performance but due to the need to make a living simultaneously), going to a rip-off degree mill private "school", and a general lack of jobs post-graduation in certain fields. More importantly, however, the debt on these loans is increasingly difficult to escape:
Before 1976, student debt was treated the same as any other in the bankruptcy process. Amid rising default rates – yes, even back then – Congress got it in its head that people were ripping off the government for a free education and then shedding the loans (a couple of well-placed stories about doctors declaring bankruptcy after graduating from medical school added to the panic). In an effort to stop this, Congress passed a law permitting students only to discharge loans in bankruptcy five years after origination, unless they demonstrated undue hardship.
In 1990 the five-year rule was extended to seven years, and then in 1998 Congress dropped that requirement altogether, making undue hardship the only way to discharge student loans in bankruptcy. And undue hardship is a very large chore to prove, according to Bob Lawless, law professor at the University of Illinois. “The courts require proof of an inability to get by without a modification,” Lawless told Salon. “They’re reluctant to allow a discharge if someone just has a lower-paying job and can’t afford the payment.” So the bankruptcy law has become harsher at the same time that college tuition has ballooned, increasing demand for student loans. As then-law professor Elizabeth Warren said in 2007, “Why should students who are trying to finance an education be treated more harshly than someone … who racked up tens of thousands of dollars gambling?”
In addition to having no escape from their loans, students must deal with aggressive creditors that can get to virtually any income source to secure payment – paychecks and tax refunds included. The Department of Education uses an “army of private debt collectors,” some of the most notorious financial operators out there, to intimidate and harass student borrowers. These collectors earned $1 billion in commissions from taxpayers in 2011.
This is madness. It's immoral. It's also harmful to the economy--whether one sits on the right or left side of the political fence.
Politicians of all stripes like to talk about the need to spur entreneurship in a flattened global economy. That's mostly a garbage talking point that won't help most people. But insofar as pushing people to start their own businesses is a good thing, the lack of single-payer healthcare and the burden of student loan debt are the two greatest obstacles, not taxes or regulations. Older Americans can't leave their jobs for fear of losing their healthcare, while younger Americans with college educations can't risk saddling themselves with the risk of entrepreneurship while being burdened with major student loan debt.
I know this from personal experience. I was fortunate enough to receive an excellent education at home, and went to UCLA on full-ride academic scholarship while working at my parents' business 30 hours a week after classes. I started my own business a couple of years after graduation in a field wholly unrelated to my major (there aren't a lot of jobs out there for Greek and Latin majors), but directly related to my apprenticeship at my parents' business. I still make my modest living from that small business I started nearly eight years ago. Though I know I provide no more value to society than a teacher or other public sector worker, Republicans would call me one of their dearly beloved "producers"--a fact I often use to tweak them.
But had I been saddled with with the indentured servitude of $50,000 in student loans to attend UCLA, there is no way I would have dared to strike it out on my own. I would barely have started to pay back that level of debt. I would likely have been forced into a horrible, dead-end job somewhere with little expectation or hope or income advancement, and I would have been tempted like so many other Americans to buy into one the great American asset bubbles in order to have a hope of getting ahead.
The student loan crisis isn't just an abomination from a progressive standpoint for all the obvious reasons. It's also horrible from a conservative standpoint. If the objective is to make of every American a self-sustaining, freedom-loving capitalist entrepreneur, saddling them with loans they cannot repay at the beginning of working age is the very worst thing one can do.
If Republicans really believe their rhetoric, they'll do something about it. On the other hand, if their intent is to create a desperate, indentured labor pool struggling just to maintain the facade of a middle class existence while begging for scraps from the corporate table, then doing nothing is a perfect choice.
But I think we already know what they're going to do, don't we? So let's just remember that when conservatives do nothing on this issue, it will be proof that they're not interested in removing barriers to entrepreneurship and capitalist risk taking. They're interested in creating a vulnerable, dependent class of desperate grist for the corporate mill.
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