This article is based on a talk given at a PSL branch meeting in San Francisco.
This year, student loans transcended credit cards as the highest source of debt for workers in this country. Collectively, people in the United States owe over $1 trillion in student loans. The individual average student loan debt in the United States is $24,300. Unlike most forms of debt, it is now essentially impossible to escape student loans through declaring bankruptcy.
Many of the people who end up with crushing amounts of student loan debt never receive the degree they initially sought. With the skyrocketing cost of college tuition, they have to take out so many different loans that eventually they deplete the sources of loans they can take out. So they drop out, sometimes only a few credits short of a degree, but with tens of thousands of dollars of federal and private loan debt.
Even those who do finish their studies have slim chances of finding jobs with salaries high enough to keep up with the loan payments. I’m a case in point. About 10 years ago, I got accepted into a very expensive graduate program. I wanted to get a Master of Fine Arts, and from there pursue a Ph.D. and end up an academic. So I left a decent-paying union job for grad school.
I got the MFA, but only by borrowing around $70,000. After graduation, the loan payments came so fast and furious that I had to take the first job I could get my hands on—a low-paying retail job. I never had the time or money to even apply to any doctoral programs. Like so many college grads in the last decade, I’ve found work only in the service sector, and essentially all pay besides the minimum I spend for rent and food goes to my student loans.
In doing the research for this talk, I came to realize how relatively lucky I am. I have managed to keep up my payments and avoid late fees and interest rate increases. Not only do most people not avoid such traps, but about one in six of those in student loan debt—around 6 million people—are in default, which means they have not been able to make their student loan payments for an entire year. That is an increase of about one-third in the past five years.
Those who default on their student loans face a lifetime of financial hardship. Not only is there a 25 percent increase in the amount they owe, but their credit score is completely ruined, making it nearly impossible to get a credit card, rent an apartment, buy a house or car, or even get a cell phone. An extremely low credit score can even bar one from certain types of employment.
People are declaring bankruptcy, voluntarily giving up their homes, just to avoid going into default on their college loans, because at least with bankruptcy they can start over. Those who default on federal loans are never forgiven.
In 2010, the federal government itself started issuing Stafford loans, the most common type of education loan. Previously, it had only served as a middleman between the lender and the bank. Why do this? Because the banks were losing too much money to defaulters who managed to successfully hide from their creditors. If the federal government issued the loans itself, it could apply all of its powers of surveillance to track down the debtors.
In the past year alone, the federal government has paid $1.4 billion of taxpayers’ money to collection agencies to track down defaulters. Not only this, the federal government has provided these companies with all of its resources and knowledge about these people. Unless you are living in a cave, it is basically impossible to hide.
The federal government can also take your money more directly and easily than a regular collection agency. It can and does seize tax refunds and social security checks, and it can also do it the old-fashioned way, by garnishing debtors’ wages. The program has, from the government’s perspective, been extremely successful. The recovery rate is at 80 percent. Basically, student loan debt is very lucrative.
And of course, whether or not the debtor goes into default, the government continues to make money off the loans in the form of high interest rates. In making these loans, the government is not simply playing its typical role of protecting the interests of the capitalists but actually functioning itself as a capitalist, and a particular kind, a loan-shark.
While the government is the biggest wheeler-dealer in student loan debt, the banks still possess billions in student IOUs. But with the unemployment rate being what it is for the young, even the ruthless tactics of the government and the banks may not be enough to avoid another debt bubble developing over student loan debt. You cannot garnish wages that do not exist. The banks, in particular, could be in trouble. And we know what will happen if another debt bubble threatens the banks. The government will bail them out, again, with our money. We know how well that worked out for workers in 2008!
Federal student loans started as a progressive program
Like so many of the progressive reforms in this country during the 20th century, the introduction of student loans was a response to the socialist challenge. These reforms began during the Great Depression, because the capitalist class feared that the terrible poverty faced by the working class would lead it to revolt against capitalism as workers in Russia had done in 1917. So, unions were allowed to organize and a welfare system was introduced.
After the destruction of much of Europe in World War II, the United States found itself the industrial center of the capitalist world. Because of a strong union movement, industrial workers were making more in this country than any proletariat in history. Some workers became so privileged that they started sending their children to college. But college was still out of reach for most workers.
The socialist countries provided free higher education to their populations and when the Soviets launched Sputnik, the first man-made object to orbit the Earth, in October of 1957, some in the American political establishment began to fear that the United States was falling behind the Soviet Union in its educational system, particularly in the fields of science and engineering. The result was the National Defense Education Act of 1958, which introduced the low-interest federal loans today known as Perkins loans. The higher-interest Stafford loans were introduced later.
However, most student-aid initially took the form of grants. Grants are not loans. They do not need to be paid off. The government awarded them to people based on academic merit, and the aptitude the student showed for fields of interest to the government, such as nuclear physics. Grants usually rewarded students from “prestigious”—mostly white and middle class—schools, and in this way reinforced the entrenched racial and class stratification of U.S. society. But they did allow a significant number of working people to earn college degrees with minimal to no debt.
Furthermore, the federal government worked with the states to assure that state and city universities offered education to the residents of the state or city almost for free. In the 1960s, 1970s and into the 1980s, college attendance rose in this country at an unprecedented rate. The United States continued to be the industrial hub of the capitalist world, and many workers enjoyed high salaries and union benefits. Tuition to all but the most prestigious schools was something a lot of working parents could actually afford to pay for their children. For a lot of workers, at least white workers, the future seemed bright.
While all workers continued to be exploited, the capitalists were able to make at least a significant sector of workers feel as if they had reasonably pleasant lives and some control over their fate through the negotiations of organized labor. Capitalism had to do this to make sure workers didn’t rebel and join the socialist challenge.
High-tech, low-paying service jobs
However, this changed with the advent of de-industrialization and the so-called high-tech revolution, which resulted in the loss of high-paying industrial jobs and an increase in low-paying service jobs. In addition, in 1991, we saw the overthrow of the Soviet Union and the collapse of the socialist camp.
No longer facing the socialist challenge, capitalism quickly reverted to its natural form of unvarnished exploitation. The working-class gains were quickly done away with. The welfare state was destroyed in just a few years. Industry was outsourced to foreign markets where labor was unorganized and would accept lower wages than U.S. workers, thus gutting the unions. Most U.S. workers were thus no longer needed as industrial producers.
As for education, the grant system was largely abandoned. Almost all government student aid now came in the form of loans. Spending for public universities was cut, which meant they had to increase their tuition rates. In 1993, the federal government increased the borrowing limit and introduced new, unsubsidized loans with higher interest rates.
With fewer well-paid manual labor jobs, higher education seemed like the answer to a generation of young people in the 1990s. They took out loans and headed into universities in droves. The increase in demand for college, along with decreased government funding, naturally created an increase in cost. Tuition skyrocketed past the rate of inflation and the average family income. Thus, larger and larger loans had to be taken out.
In 2005, George W. Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act, which made it essentially impossible to shed federal or private student loan debt through bankruptcy. The seeds of the education debt crisis were sown.
De-industrialization of the U.S. capitalist economy has contributed to the exacerbation of the debt burden. In a report released in the last week of August, the National Employment Law Project found that the majority of jobs created since the supposed “recovery” from the 2007-09 Great Recession have been in food preparation and retail sales. Since 2010, 58 percent of the jobs created pay between $7.69 and $13.83 an hour. I work in the service sector, so let me describe in a general way my working conditions.
I don’t make much more than minimum wage. Most retail workers in the U.S. are trying to survive on around $8 an hour or less. Unlike me, the majority of service sector workers do not get any kind of paid sick leave. Even I get no paid vacation time. Since you are only paid for the hours you work you have to make your schedule as open as possible to maximize the number of hours they will give you. That makes going to school or looking for a better job very difficult. And you are completely at the mercy of the manager in terms of the number of hours you get. If you do anything that makes them unhappy, they do not have to fire you, they just take you off the schedule, schedule you for four or fewer hours a week, until you quit. I have seen this happen to several co-workers at different jobs.
Many of us who went into severe student debt have ended up in jobs that pay us too little to live on. Therefore, we end up falling into further debt—credit card debt or mortgage debt—because it is the only way we can afford the necessities of life.
The relationship between lender and debtor is an exploitative one. And in the case of debt, there is no opportunity for negotiation between the exploiter and the exploited. I have not been on the clock during the time I’ve been giving this talk, but since I’ve been speaking to you I have provided value for the banks. How? Because in just the last few minutes, interest on my student loans has accrued. The fact that my loans are constantly accruing interest makes me a valuable asset to capitalism. The only way I can stop providing value for the banks under capitalism is to die.
Is there a solution to this bleak scenario?
In the past year, we have started seeing workers in capitalist societies rising up. In the last week, tens of thousands of protesters shut down major cities in Spain and Portugal to protest debt bailouts that demand austerity measures that negatively affect workers. Rebellions against austerity are rocking Greece.
And of course, we know firsthand about the Occupy movement. Recently, the movement marked its one-year anniversary, and in cities across the country protesters came out to express anger against the banks and show fidelity to the movement. Uprisings against capitalist inequality are sweeping the most advanced capitalist countries, and they’re not going anywhere. They will continue and they will mature.
This is not by itself a cause for celebration. We don’t know yet if these struggles will ultimately result in victory or defeat.
History does show us that every once in a while a political organization is able to assert its leadership during an uprising and overthrow capitalism—as happened in the Russian Revolution of 1917, the Chinese Revolution of 1949, and the Cuban Revolution of 1959. That is what we’re trying to build with the Party for Socialism and Liberation—a political organization capable of not just participating in an uprising but in leading a victorious revolution against capitalism.
