The origins of student debt

In a capitalist society, your debt is someone else's asset. Student debt is owned by private equity firms, not the federal government. Why is the current proposal to forgive student loans so controversial? When did student and parent loans replace student grants as the dominant student aid form? Who makes money off of your debt?

Before Ronald Reagan was elected governor of California in 1966, for example, attending college did not automatically mean massive debt. One difference between and grant and a loan is that the latter is the monetization of the former. The grant money comes from a redistribution of the social wage. The changing function of student aid – from access and opportunity to competition and high-stakes testing – was not happenstance; it was ideological.

Consider that the social wage "is that amount of deferred wages that goes toward creating various publicly available goods, such as public transportation, health services, schools, parks, postal delivery, safety, and so forth. Public services are available to all, regardless of income and social standing, even as a progressive tax pays for them." The deferred wage funded public infrastructure, from bridges, highways, and dams, to roads, public K-12 schools, and higher education.

What happened between the late 1960s and 1970s to the will to spend public resources on the public? Why was it that when more groups of people had been historically disallowed access to these social rights through de jure and de facto laws, policies, and cultures, the rhetoric of "smaller government" and undeserving minorities became dominant? What were conservative and liberal elites afraid of?

Depending on the Gallup Poll, questions from the late 1960s focused on young people – between 40-60%- who were against the Vietnam war, supported Civil Rights, and thought a revolution was necessary for the United States. Check out Seymour M. Lipset's "Polls and Protest," from a 1971 edition of Foreign Affairs journal.

Trafficking in the false assumption that the United States is a meritocracy, while ignoring the massive amounts of the social wage shifted to corporate tax breaks as part of a regressive taxing system, Reagan and the subsequent neoliberal ideologues on both sides of the isle cut off access for working-class people to relatively debt-free education. This system was replaced by a loan system that monetized the right to learn.

For ideologues like Barry Goldwater and Ronald Reagan, and more, the advisors that surrounded them, from Donald Rumsfeld and Dick Cheney to Lee Atwater and education advisor Robert K. Freeman, the terms of the economic order were at stake during the "long civil rights movement."

While capitalists decried FDR's New Deal as socialism, the redistributive element of Keynesianism, "a universal concept in abstraction, the social wage during this period remained highly gendered and racialized." The redistribution of social wealth disproportionately favored specific groups of people while intentionally leaving out others.

Reagan had made his attack on public education, specifically the University of California at Berkeley, the organized resistance to the Vietnam War, the support for free speech, and civil and human rights, a centerpiece of his gubernatorial candidacy in 1966. While elevating private enterprise and the individualistic culture of capitalist consumption in public speeches and through policies and laws, this attack on the public swept Reagan into the national arena of power. These attacks targeted the attempts to equally redistribute the social wage through policies that invested directly in people rather than the supply-side economics of Reagan's trickle-down theories.

Consider Republican Party strategist Lee Atwater's position on taxes and the use of policies to engineer the populace socially:

"You start out in 1954 by saying, "N——, n——, n——." By 1968 you can't say "n——"—that hurts you, backfires. So, you say stuff like, uh, forced busing, states' rights, and all that stuff, and you're getting so abstract. Now, you're talking about cutting taxes, and all these things you're talking about are totally economic things and a byproduct of them is, blacks get hurt worse than whites.… "We want to cut this," is much more abstract than even the busing thing, uh, and a hell of a lot more abstract than "N——, n——."

The abstract language of taxes could be used to undo the gains of the civil rights movements, including organized labor, and particularly economic progress through the GI Bill and the Federal Housing guaranteed loan subsidy.

Like housing aid after 1968, Federal student aid had three goals: equalizing educational opportunity, access, and freedom of choice in programs and institutions that met their needs. It was broader of a broader set of policies intended to address economic inequality.

Now, consider Robert K. Freeman's position on student aid. According to a San Francisco Chronicle article, cited in this Intercept report, Freeman said, "We are in danger of producing an educated proletariat. … That's dynamite! We must be selective on who we allow [to go to college]. If not," Freeman continued, "we will have a large number of highly trained and unemployed people."

As reported by the New York Times, during a press conference in Barbados on April 10, 1982, Reagan clarified his perspective on student financial aid, "Mr. Reagan asserted that students had been deliberately misled to believe that the Government was ''snatching away'' their loans and that they had been 'incited to stage protest demonstrations against what has been called Draconian cuts in student aid…. We haven't cut loans, we have cut to cost to taxpayers of making these loans available." This splitting of hairs is deceptive. First off, the "proverbial" tax payer is coded language. Second, as a coded language, it assumes that the people benefitting from student grants do not pay into the social wage.

To summarize the impact of Reagan's state and federal level changes, Alfred D. Sumberg wrote in 1981, "The administration would limit Guaranteed Student Loans…, eliminate the in-school interest subsidy, and the subsidy to lenders on Parent Loans…. In effect, the administration's proposal would gut the Guaranteed Student Loan Program. Along with the changed proposals for the Pell grants, the administration would sharply reverse the goals of access and choice."

Consider other capitalist ideologues on the function of public education. In 1971, soon to become a Chief Justice of the Supreme court, Louis Powell Jr. made his opinion clear on the importance of capitalism, and mainly corporate personhood, in the curriculum and culture of the United States. In the Powel Memorandum, a confidential report for the U.S. Chamber of Commerce titled "Attack on American Free Enterprise System," Powell makes clear a war plan to defend against "the broad, shotgun attack on the system itself."

Essentially, the Powell Memorandum was a corporate blueprint of strategies and tactics to dominate democracy and socially engineer society, "We are not dealing with sporadic or isolated attacks from a relatively few extremists or even from the minority socialist cadre. Rather, the assault on the enterprise system is broadly based and consistently pursued. It is gaining momentum and converts."

For Powell and others of his ilk, the enemies were and are clear, "The most disquieting voices joining the chorus of criticism come from perfectly respectable elements of society: from the college campus, the pulpit, the media, the intellectual and literary journals, the arts and sciences, and from politicians. In most of these groups the movement against the system is participated in only by minorities. Yet, these often are the most articulate, the most vocal, the most prolific in their writing and speaking."

Powell was not some neutral observing judge; he was a former executive and counsel for the global tobacco company Phillip Morris. Before his appointment, Powell was battling accusations from scientists and politicians that the tobacco industry knew cigarettes caused cancer.

The political controversy over student loans, repayment, and their impact on production, consumption, and inflation is not new. Knowing more of the ideological histories that contextualize the current state of affairs is paramount. This ideological battle might help explain how the lender Mohela, identified as the only lender to process loans that might be eligible for forgiveness or reduced payment, are litigants in legal action against Biden's debt cancellation.

The company argues, "MOHELA faces the imminent loss of revenue in its role as a servicer of DLP (Direct Loan Program) loans," the lawsuit says. "MOHELA's revenue as a servicer of DLP loans is a function of the number of accounts it services. So when student loan balances go to zero, as they will en masse under the Mass Debt Cancellation, MOHELA will lose the revenue from servicing those loans."

At its heart, this is a 14th Amendment case of equal protection – of corporate profits. The Powell Memorandum argues: that corporate personhood, and therefore the safety of the capacity and right to make a profit, is a Constitutional Right.

For a deeply researched and expertly written account of Reagan's regime, see Rick Perlstein, Reaganland: America's Right Turn 1976-1980. Check out the podcast, "Student Loan ForgiveMESS," for an overview of these issues.