Essays on the trap of US student debt

Reclamations, a journal published by University of California students, has published a special, timely pamphlet called "Generation of Debt," on the trap of student debt in America. Young people in America are bombarded with the message that they won't find meaningful employment without a degree (and sometimes a graduate degree).

Meanwhile, universities have increased their fees to astronomical levels, far ahead of inflation, and lenders (including the universities themselves) offer easy credit to students as a means of paying these sums (for all the money they're charging, universities are also slashing wages for their staff, mostly by sticking grad students and desperate "adjuncts" into positions that used to pay professorial wages; naturally, the austerity doesn't extend to the CEO-class administrators, who draw CEO-grade pay).

The loans are backed by the government, and constitute a special form of debt that can't be discharged in bankruptcy, and that can be doubled, tripled, or increased tenfold through usury penalties for missed payments (the lenders themselves have a deplorable habit of applying these penalties even when payments are made, through "bureaucratic error" that is nearly impossible to correct).

These debts are turned into securities, and represent the backbone of yet another subprime bubble in America, one that is due to explode soon, as more and more Americans find themselves drowning in student debt and faced with the prospect of having their wages garnished all the way through to social security.

"Generation of Debt" consists of five essays on the trap of student debt, analyzing the causes of the problem, marking out the beneficiaries of this bubble, and suggesting ways to break free of it.

With every tuition/fee increase, we are told that aid will rise to match for those who need it. This, claim our administrative benefactors, increases the load on those who can pay for it – one wonders that they are not accused of class warfare by the conservative press – and allows for more access to those who are most disadvantaged. However, this is only partly true. A University of California Diversity chart from 2010 shows that over 30% of UC undergrads pay for their education with Pell Grants (Merced and Riverside are above 40%).(7) The rates for Latino/Chicano and African-American students receiving Pell Grants are over 50%, while only 34% of Asian students and 17% of White students have Pell Grants. Back in 2007/08, the average loan debt for students receiving federal aid was over $24,500. Complicating the story that the increased fees/higher aid are beneficial to students are numbers showing that more Native American, African-American and Latino/Chicano students are unable to complete their education than White or Asian-American students. At the graduate and professional level, where loans are universally necessary, African-American students represent less than 2.5% of students while Chicano/Latino students make up only 7%. It should also be noted that loans for graduate students at the federal level will no longer be subsidized: that is, the government will no longer pay for the interest on these loans. Further, the percentage of education costs that these underrepresented groups – as well as all other groups – have to pay using federal and private money continues to rise. Recall that every student that pays for their education with their own or their parents’ money or other funding source – including UC initiated grants and scholarships - the UC can use all of that money to pledge on the bond market as well as use some of those funds to pay back the debt on past equity and real estate deals. For every student using federal or state funds to pay for college, the UC can do exactly the same. The difference is that, as more and more students have to take out loans and make use of Pell Grants and other scholarships, it is federal and state tax money that is being used on private bond and stock markets. It is, then, public money that UC students will be paying back for the rest of their lives that is being used to prop up the UC’s bond rating and to engage in private equity/real estate deals that have profited several Regents, several Wall Street companies and several more Silicon Valley venture capital firms (Byrne). It is high-interest student and parent loans that the UC – and other institutions, for the UC is not alone in this – uses as collateral to get loans with much lower rates of interest.

As the job market numbers and wealth gap figures show though, market competition and increased fees have benefited neither Californians nor US tax payers in general. Educational policy is, then, part of a larger shift in US policy that hews close to Milton Friedman’s neoliberal economic policy that bankrupted several Latin American countries in the 1980s and now several European countries in the last three years. At UCSC, the libraries are closed on Saturday and several tenure track positions have remained unfilled – and are likely to never be filled. As disastrous as turning universities into academic marketplaces has been for the institutions of post-secondary education, it has been a nightmare for a growing number of students who have been unable to pay back their student loans and for uncounted others who have been scraping by just to maintain their payments.