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On Friday during class, we watched the documentary, “Default: The Student Loan Documentary.” What did you think about the documentary? After watching the documentary, do you believe that taking out student loans to finance a college education is a wise decision? Yes or no? Justify your answer. Your written response must be between 500-600 words. Please make sure to integrate lecture content and course readings into your answer. https://www.youtube.com/watch?v=wvQR93C6n2EWatching the video by clicking on the link.
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Contexts
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Anti-Social Debts
Andrew Ross
Contexts 2012 11: 28
DOI: 10.1177/1536504212466328
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http://ctx.sagepub.com/content/11/4/28
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anti-
ocial
debts
by andrew ross
Government is fast exit-
28
compelling student users
ing the business of funding
—the would-be benefi-
higher
At
ciaries—to finance their
state universities, tuition
education privately. And
costs have risen by 500
the federal government
percent since 1985, and
is committed to lend
the price gap between
monies, at unjustifiable
leading
rates of interest, to facil-
education.
public
institu-
tions and private colleges is
itate that end, leading
narrowing sharply. Lawmakers
to a student debt crisis
in Washington and state capi-
that has become impos-
tols across the nation are
sible to ignore.
All illustrations: Corey Fields
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In the public mind, the “privatization of education”
encompasses university-industry partnerships, intellectual property licensing agreements, corporate sponsorship of research,
or “contract education”—whereby a firm will pay a community college to up-skill its trainees. But the quintessential act
of education privatization is to shift responsibility for funding
onto individuals.
This transfer of fiscal responsibility from the state has been
proceeding for more than three decades. Even in the immediate pre-recessionary years, when debt was still considered a
worthy asset and employment a plausible prospect, it was easy
to predict that mounting levels of student debt were unsustainable over time. Today, in the face of chronic underemployment,
we can safely conclude that a large portion of the 1 trillion dollars currently owed by debtors is unpayable in their lifetimes.
Two-thirds of U.S. students graduate with loan debt, averaging
$27,000, and then rapidly fall behind in
their payments—41 percent of the class
of 2005 is either delinquent or in default.
Increasingly, student debt is a topic
of discussion at family dinner tables and
even in the halls of Congress. Thanks in
large part to the great public amplifier of the Occupy movement, this year’s presidential contenders have been forced to
embrace student loan reform as a talking point in their respective campaigns. But as student debt becomes the primary
source of funding for American colleges and universities, it
threatens the democratic ideal of a freethinking citizenry.
greater than for federal loans, and so private lending is expected
to surpass the government sector in 10 to 15 years.
Unlike almost every other kind of debt, student loans are
non-dischargeable through bankruptcy, and, over time, collection agencies have been granted extraordinary powers to
extract payments, including the right to garnish wages, tax
returns, and social security. It’s no wonder that student loans
are among the most lucrative sectors of the financial industry.
Nor is it any surprise to find a thriving market in securitized loans
(almost a quarter—$234.2 billion—of the aggregate $1 trillion
debt) known as SLABS (Student Loans Asset-Backed Securities).
Given the predatory nature of student lending, many commentators have compared SLABS to the subprime mortgage
securitization racket that inflated the housing bubble and triggered the financial crash. Since SLABS are often bundled with
other kinds of loans and traded on secondary debt markets,
Over 40 percent of the class of 2005 is either
delinquent or in default of their student loans.
how the profits flow
Universities are one of the few places where neoliberalism—the economic program of deregulation, financialization,
and free enterprise that used to be known as the Washington
Consensus—has not missed a beat since its death was prematurely declared. In 2010, the federal government disbanded
the old Federal Family Education Loan Program (FFELP) lending system. FFELP had been an extremely lucrative program for
private banks, which were subsidized for issuing governmentguaranteed loans. As part of this reorganization, all federal
loans now originate with the government, though service fees
for administering the loans are still designated to Sallie Mae,
Nelnet, and other industry giants. In taking this step, the federal government put its official stamp on the neoliberal funding
formula that is now normative in U.S. higher education.
Today, at a time when lending rates are at a historic low,
federal loans are offered at rates (3.4 percent for subsidized,
and 6.8 percent for unsubsidized Stafford loans, and 7.9 percent for PLUS loans for parents) that far exceed those at which
the government borrows money. The profits are extravagant:
120 percent of every defaulted loan is recovered. In the private
sector, they are even higher. While banks now only issue 20 percent of all student loans, the rate of increase in loan issuance is
investors are not only speculating on the risk status of student
loans, but also profiting from resale of the loans though collateralized derivatives. In the meantime, creditors stand to profit
most from defaults, when additional fees and penalties kick in,
and so they often seek out high-risk borrowers just as subprime
lenders did during the housing bubble.
This is not the only way debt-based profit is mined from
the daily business of higher education. As low-income families get priced out of public colleges, they are pushed into the
Contexts, Vol. 11, No. 4, pp. 28-32. ISSN 1536-5042, electronic ISSN 1537-6052. © 2012 American
Sociological Association. http://contexts.sagepub.com. DOI 10.1177/1536504212466328
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indenture or investment?
for-profit system, whose mercurial rise has been fueled by the
ready availability of federal loans. For families with a multigenerational experience of college, the staggering array of higher
education choices can be confusing. But first-generation students, with limited access to information about their choices,
are especially easy prey for the “admissions counselors” of forprofit colleges that act as a conduit for the lending industry.
In the for-profit sector, 95 percent of students graduate
with debt (versus 58 percent of students at all institutions),
and graduation rates, already low, are falling. While the largest proportion of student debt is racked up by students from
With wealth now diverted more exclusively to the 1 percent
(bypassing the top quintile to which most college graduates
aspire), the belief that education debt is a smart investment in
a high-income future has eroded. Should we, instead, compare
student debt to a form of indenture? The analogy has served
as a useful provocation. In a knowledge economy, where a
college degree is considered a passport to a decent livelihood,
workforce entrants must go into debt in return for the right to
labor. This kind of contract is the essence of indenture. Moreover, for the traditionally indentured, employment has usually
been guaranteed or is readily available, and the bonds are paid
off in a relatively timely manner. By contrast, student debt can
endure for decades, and employment prospects are more and
more precarious. A damaged credit score—triggered by two
delayed payments—will generate additional obstacles to finding employment, since many employers consult the student
debt payment schedules of applicants to gauge their reliability.
The emerging pattern for those who want to preserve
their credit record is to put their preferred career paths on hold
for several years, and therefore risk abandoning them, until
they have paid off their loans through employment options
that are much less desirable. Ironically, the quickest pathway toward discharging debts is to find work in the finance
industry, issuing loans, or speculating on derivatives. For those
caught in the limbo of more precarious labor, the burden of
finding the means to pay off student debt may drastically
reduce the choices traditionally available to the college-educated workforce. The outcome is a nightmare to national economic managers struggling to keep the standard elements of
the American Dream in place—homeownership, family formation, upwardly mobile consumer behavior.
Practically speaking, no reform program of any substance
is on the legislative horizon, least of all one that would regulate
the predatory lending practices of Wall Street banks. Congressional members have proposed the Student Loan Forgiveness
Act (H.R. 4170)—which allows for loan forgiveness after 10
years of appropriate debt service—and the Private Student
Bankruptcy Fairness Act (H.R. 2028) —which seeks to restore
the ability to discharge private student
loans through bankruptcy. But these
bills have no chance of passing in their
current form.
The debt relief being pushed by
the Obama administration this year is a
token gesture, aimed at getting some
traction on the youth vote—especially the more disillusioned
or alienated student constituencies. GOP interest in blocking
any Obama competitive advantage ensured that, in June, the
House approved a bill extending the temporary lower rate (3.4
percent) on subsidized Stafford loans for another year. Hailed
as a major victory in the Obama camp, the relief amounted to
Unlike almost every other kind of debt,
student loans are non-dischargeable through
bankruptcy.
middle-income families seeking a private university degree, the
overall impact of debt is magnified among low-income families. African Americans, among all racialized groups, graduate
with the highest debt on average, and those in Deep South
states, where community colleges do not participate in the federal loan system, are most disadvantaged of all.
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a mere $9 in savings per month for a handful of borrowers. At
the same time, and with much less public attention, graduate
students lost the federal subsidy by which the government paid
the interest accrued on subsidized loans while in school and for
six months after graduation.
Nor should we expect enlightened responses from university leaders, for whom debt-financed education has lavishly
serviced their own bank accounts. The salaries of senior administrators have risen in tandem with tuition
costs and student debt. Faculty have established their own wall of denial around
the issue, which may take some time to
breach. Since their salaries have been stagnant or rising at rates below the cost of living increases, they (quite rightly) don’t feel
responsible for skyrocketing college costs. Nor are they keen to
inflame public sentiment that may further destabilize the fragile
state of their profession.
Student debtors have begun to break the silence. At
Occupy locations around the country, those confronting chronic
underemployment while being saddled with crushing debt burdens offered eloquent testimony. Tumblr and other websites
swelled with the stories of students who felt too constrained
by guilt to stand up in the face-to-face agora of Occupy. The
act of casting aside the shame and humiliation that accompanies debt, especially for those aspiring to join the middle class,
was an important kind of “coming out” for student debtors.
It seemed to herald a decisive political moment, and may now
be blossoming into a movement all of its own (see www.
strikedebt.org). The alternative—suffering the consequences
of debt and default in private—is a thinly documented trail
of tears, leading to depression, divorce, and suicide in ever
increasing numbers.
Analysts who have investigated Occupy’s claims about the
1 percent have concluded that, of all the factors responsible for
the upward redistribution of wealth, financial manipulation of
debt ranks very high. But the imposition of debt is not just a
mode of wealth accumulation, it is also a form of social control,
with acute political consequences.
This was most notable in the case of the International
Monetary Fund (IMF) “debt trap” visited upon so
many postcolonial countries as part of Cold War
client diplomacy. In the global North, debt has
been institutionalized for so long as a “good”
consumer asset that we forget how homeownership was promoted
as an explicitly antisocialist policy in
the United States in
the 1920s. Subsequently, the long-term
mortgage loan became the basis of anti-communist citizenship; William Levitt, the master merchant builder, pronounced
that “no man can be a homeowner and a Communist.” In the
postwar decades, the threat of a ruined credit score effectively
limited the political agility of our “nation of homeowners.”
Can the same be said of student debt? Protest is no longer a rite of passage for students. The rising debt burden has
played no small part in stifling the optional political imagina-
Debt relief is sorely needed but this single
corrective act by itself won’t alter the formula
for debt-financed education.
tion of students in the decades since the 1960s. Now typically
saddled with debts on day one of college, they are obliged to
seek out low-paying jobs to stave off further debt; they are
compelled to think of their degree as a bargain for which their
future wages have been traded. These are not conditions under
which a free critical mind is likely to be cultivated. This is one of
the reasons why student debt abolition might be more effectively approached as the target of a political movement than
one aimed at limited economic reforms.
real debt relief
Most of the initiatives that have sprung up in response to
the student debt crisis are aimed at limited economic reforms,
such as restoring bankruptcy provisions and other protections
that are enjoyed by consumer debtors. But paying for education is not like buying a flat-screen TV, and student loans should
not be packaged in the same way.
Real change will alter the customary neoliberal practice of
treating public goods, like education, as a profit center. The long
list of developed and developing countries—none of them as
affluent as the United States—which provide free public education demonstrate how different national priorities are elsewhere.
The United States is an outlier in this regard, and efforts to export
the pay-per model have met with strong student resistance, most
recently, in Chile, England, and Quebec. In response
to efforts by states to pay off their sovereign debt
by slashing education budgets, the European
student resistance crystallized around the slogan, “We Won’t Pay for Your Crisis.” In
college towns across
the United States, the
red square, symbol
of the Quebec movement (carrement dans
le rouge), recently became
the summer clothing accessory of choice.
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cred
Debt relief is sorely needed, and a write-off of all current
student debt would be a noble, and appropriate, contribution to the jubilee tradition, whereby elites periodically forgive
unsustainable debt burdens. But this single corrective act by
itself won’t alter the formula for the debt financing of education. An affordable education system needs to be reestablished.
As part of our Occupy Student Debt Campaign, we argued
that for $70 billion a year, the federal government could, and
should, cover the tuition of all students enrolled in two and
four year public colleges. In the twentieth century, the decision to properly fund K-12 education was a prerequisite for
a society that wanted a stable middle class. If the American
middle class has any future in this century, then a decision will
have to be made to extend the guarantee to tertiary education. Loans should be interest-free—no one should profit from
them. So, too, private universities, which benefit from public
largesse in all sorts of ways, but not least through the federal
loan program, should adopt fiscal transparency. Students and
their families surely have a right to know how colleges spend
and allocate their tuition fees.
Top university administrators and trustees have had little
to say about the rapid escalation of tuition costs over the last
two decades. They seem content to weather the current storm.
It is unlikely that costs will stabilize until demand falls off, and
even if this were to happen nationally, the growth in overseas
demand—fueled by the desire of the swelling middle class in
the global South for brand-name degrees—would more than
make up the deficit.
Analysts put the global growth rate at 80 percent over
the next decade, and that figure may well dictate how college
32
administrators, faced with weakening political will on the part
of their state legislatures, react to budgetary dilemmas. The
rush to establish online and offshore programs, and branch
campuses is a telltale symptom of their response. There are
many risks involved in such ventures, especially those hosted by
authoritarian states. But the prospect of adding overseas revenue streams will continue to attract higher education’s fiscal
managers, driven by desperation or ambition or simply by their
training in neoliberal economics.
The struggle over wages was a defining feature of the
industrial era. Will the struggle over debt play a similar role in
the postindustrial economy? Given the centrality of higher education to the formation of knowledge capitalism, the growing
conflict around student debt seems to fit the bill. Bargaining
over the outcome will take many forms. Just as industrial elites
once recognized that wages had to be raised to stimulate consumer purchasing, so too, they will entertain the reduction of
debt burdens to facilitate the re-entry of middle-class debtors
into the circuits of big-ticket consumption.
Some are already contemplating debt strikes and other
methods of debt refusal. For these tactics to gain legitimacy in
the public mind, the moral ideology of honoring debts, however unjustly incurred, will need to be challenged and eroded.
The track record of the finance sector before and after 2008
shows that this morality does not apply to Wall Street. Loans
are no more than electronic figures on a computer screen. They
are new forms of money and credit that did not exist hitherto
and they are created ex nihilo for the use of the borrower.
Financiers know this, and so they treat debts accordingly, as
matters to be renegotiated or written off at will. Only the little
people are expected to actually pay off their debts.
recommended resources
Collinge, Alan Michael. The Student Loan Scam: The Most
Oppressive Debt in U.S. History—and How We Can Fight Back
(Beacon, 2009). A survey of how private banks have profited lavishly from student loans.
Graeber, David. Debt: The First 5000 Years (Melville Press,
2011). A comprehensive, iconoclastic history of the relationship
between, credit, debt, and state violence.
Meister, Robert. “Debt and Taxes: Can the Financial Industry
Save Public Universities? Privatization Is Now the Problem—Not
the Solution,” Representations (2000), 116:128-155. Persuasive
analysis of how the UC system relies on debt financing.
Williams, Jeffrey J. “Student Debt and the Spirit of Indenture,”
Dissent (2008), 55:73-78. A provocative account of the analogy
of stud …
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