Yves here. We’ve never put much stock in the Democratic party hype about occasionally wanting to do Nice Things for people generally. If they were into that sort of thing, they would not have fought Sanders’ presidential runs tooth and nail.
It’s long been clear that if Biden were to provide student debt relief, it would not be a simple cancellation program (say total or up to a meaningful dollar limit) nor giving borrowers more leverage and options by making student debt dischargeable in bankruptcy, like all other consumer debt. No, it would be a means-tested monstrosity that would not work well in practice, because servicers.
A key impediment to writing down student debt that Hudson misses is that dubious government accounting treats student debt as generating a profit (not true!) and thus helping to balance the books. As we explained last month:
Silly me! Here I thought the main reason for funneling so much money into higher education via what has become lax student loan screening was patronage. Academics and administrators have a strong tendency to vote Democratic. So a debt-fueled expansion of colleges and universities could only help Team Dem.
But in finance, bad accounting regularly drives bad outcomes and that looks to the far more immediate cause for the expansion in student loans, and the resulting escalation in higher education costs….
A much less convoluted mechanism encouraged the Federal government again and again to expand its student loan programs, even when that implied extending credit to more and more marginal borrowers (remember a creditworthy borrower can be made not so but having them take on excessive debt). As the Wall Street Journal explained, a change in government accounting standards in the 1990s allowed the Federal government to book anticipated student loan profits and reduce Federal debt requirements.
By Paul Jay. Originally published at TheAnalysis.news
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Hi, I’m Paul Jay. Welcome to theAnalysis.news. Thank you to everybody who has clicked the donate button and if you haven’t, maybe you might do it this time. If you’re watching on YouTube or our website, click the share button and subscribe and we’ll be back in a second with Michael Hudson.
U.S. household debt climbed to a record high of $14.6 trillion at the end of 2020 as mortgage debt surpassed $10 trillion for the first time. Now, the GDP of the United States is only around $21 trillion. Americans owe over $1.71 trillion dollars in student loan debt spread out among 44.7 million borrowers. That’s about $739 billion more than the total U.S. credit card debt. While defaults and payments have been halted due to the pandemic, I’m talking now again about student debt, there’s no plan yet for forgiving such debt in spite of promises from Biden and many others in the Democratic Party. Biden said during a CNN town hall that he would not forgive $50,000 through executive action, as urged by Senator Schumer and Warren, Biden said, I’m prepared to write off the ten thousand dollars debt, but not the fifty thousand because I don’t think I have the authority to do it. Well, a group of 17 state attorneys general called on Biden to forgive $50,000 in student debt loans per borrower through executive action, asserting he does have the authority to do so under the Higher Education Act.
On the other hand, beginning in mid-March 2020, the Federal Reserve initiated an aggressive policy of quantitative easing, which included the purchase of corporate bonds. Billions of dollars of corporate debt has been purchased by the Fed, mostly from major companies including Apple, AT&T, General Electric, Ford, Comcast, Microsoft and around 90 others, companies that probably didn’t even need their debt purchased. So the role of the state in forgiving debt is quite OK as long as it’s a major corporation and not a student. OK, I’ll admit the Fed policy is a little more complicated than I outlined, but the principle is clear. It’s not considered a systemic risk for corporations and banks to rely on the government to bail them out of debt, but it is a danger to the system for government to forgive family and student debt. Of course, it goes further than that. The system requires high levels of debt among the population for corporations and banks to continue to rake in massive profits and engorge the fortunes of the billionaire class.
Now joining us to talk about debt is Michael Hudson. Michael’s an economist, a professor of economics at the University of Missouri, Kansas City, and a researcher at the Levy Economics Institute at Bard College. He’s also a former Wall Street analyst, political consultant, commentator and journalist. Thanks for joining us again, Michael.
Good to be here. Regarding your lead in, Sheila Bair, the head of the Federal Deposit Insurance Corporation, wrote an op-ed in The Wall Street Journal recently saying the problem with the Federal Reserve is its buying junk bonds. It’s buying the bonds, as she put it, of some big corporations that can’t pay their debts, and she’s criticizing them. She pointed out that the entire financial system rests on debt because debt is the collateral for the banks. The banks assets are the debts of the people. So the Fed policy is aimed, ever since 2008, by somehow keeping the economy’s ability to pay its largest massive debts, real estate debts, intact by lowering interest rates to support the mortgage market. If you support mortgage lending, then even if individual homeowners can’t pay their debts, they can at least sell them to somebody or a company that can afford to pay. So the whole financial system is a pyramid resting on these debts.
Let me just emphasize something you just said, because you kind of corrected me on something. The fact that these major corporations like Apple got their bonds and debt bought was a piece of it, but you’re right, the other piece, which actually developed maybe a little further after they started this program, is they’re now really buying tons of debt where the companies are practically insolvent and never could pay off this debt. As you call them, zombie corporations. Sorry, go ahead.
Well, imagine the Fed could have simply bought all the student debt from the government and then wiped it out. The Fed could have wiped it out. The fact is, if the government were to write down all the student debt, it wouldn’t cost the government a penny right now, and that wouldn’t cost the banks a penny because the debt is owed to the government and the government would simply be canceling a future source of revenue. By canceling the student debt revenue, they’d say debt is a public need. Debt is what people need to get by. It’s a basic need, and so it deserves to be public as it is in England, China and most other developed countries. Only in the United States do you have education taking off at a rate that almost is approaching the inequity of health care and medical care here. That’s what makes America so different from every other industrial country and from China. Because of this heavy debt and health care and all the other expenses that other economies don’t have, that’s exactly why the United States isn’t able to pull out of the recession that we’ve been in for the last 13 years, since 2008.
Would you say expenses they don’t have, individuals don’t have? They’re dealt with collectively, the health care and education. Yeah, I don’t think there’s an advanced capitalist country, industrialized country, in the world that doesn’t have more or less free higher education. Although I have to say that tuition rates in Canada have been going up with some seriousness. Not nearly at American levels and student debt exists in Canada too, but again, not as bad as in the U.S..
That’s right. Canada is always about three years behind the United States. That’s the perception of Canada. When I worked with the State Department in Canada in 1979, we did test questionnaires on Canadians. What do you think of the future? Almost all Canadians thought their future was going to be what the United States had, but three years behind. That’s become the basic administrative policy of prime ministers ever since.
Let’s dig into what you just talked about, because the rationale for all this buying of both corporate bonds from the Apples of this world and now junk bonds, essentially, from companies that really can’t afford to pay their debts, is that this is systemically necessary because of the pandemic, because of the deeper recession. It acts as a stimulus. It stops a greater unraveling of the economy and so on, but all of that rationale would exist for student debt exactly the same way and even more because it would give so much stimulus on the consumer side. As I say, some of these companies that they’re buying their debt from are actually cash rich, like an Apple. They have debt for convenience, but the stimulus, far more stimulus would have come from relieving systemic debt. The reason I think they don’t do it, and this is what I’m asking you, is because they don’t want people to have any notion that debt gets relieved by the government. They want people to consider that debt must always be paid.
I think there’s a simpler explanation. One person’s debt is somebody else’s asset. The government can cancel debts because its the creditor, ultimately, for student loans. So it can cancel debt and nobody’s going to complain because nobody loses any money and the government can make up what it doesn’t get in student debt interest and principal by taxing or by simply printing the money, but if you cancel corporate debt, then you’re going to hurt bond holders. If you cancel business debt you’re going to hurt someone. If you cancel mortgage debt or landlord debt right now, other than a huge increase in backlog of mortgage debt, because many not only homeowners have lost their job, but also the landlords are renting out to renters who are not paying. If they don’t pay, then the banks will lose.
The Federal Reserve’s job is to make sure that the economy is run for the banking system and for the bond holders, rather than having the banking system and bond markets run for the economy. So we’re living in an upside down economy where everything is being run in order to sustain the bond holders and the banks. The problem with this is that the mortgage debts, the student loan debts, the personal debts, the car loan debts, they’re growing at an exponentially high rate, while the economy is not growing at a high rate. All of the economy’s growth since 2008 has been only for the top five percent of the population. For 95 percent of the population since 2008, the GDP has actually shrunk. So you’re having a very sharp polarization right now. I think if you’re talking about the debt issue, the question is, do you want to sustain this polarization between creditors at the top and the indebted 95 percent or do you want to restore the kind of equality that people think usually is the hallmark of democracy, at least of economic democracy? The choice by the government is we’re going to sustain the polarization. No matter what, the creditors won’t lose a penny. The debtors will lose.
OK, so why do you think Biden, and not just Biden, but that section of finance that they represent, why don’t they want to forgive student debt?
I think partly it’s what you said. It’s the whole idea that if you admit that you should write down debts when the effect is to help the economy grow and you write down debts that impair economic growth, then people would put economic growth over the welfare of creditors. And that’s revolution. That’s not what our economy is all about. We put creditors first, not the economy. The very thought of putting the welfare of the people first over the creditors in general, well that’s totalitarianism. That’s a dictatorship. We can’t possibly have that. So it’s the greed of the creditors and the fact that the creditors are able to control politics and who gets nominated, et cetera, enables them to prevent anything that might shock the assumption that the sanctity of property is really the sanctity of creditors to evict property owners if they can’t pay. It’s really the sanctity of debt. If you talk about the sanctity of debt, it’s the sanctity of the exponential growth of debt, even when it’s beyond the ability to pay, even when it pushes the economy into a chronic depression. In fact, what we’re suffering now is debt deflation, and the debt deflation at the bottom, students are experiencing, the unemployed are experiencing, cities and states are experiencing it. The transportation systems are running at deficits. All of these deficits are the savings and the gains and the wealth of the one percent or five percent or whatever you want to call the banking and creditor class.
I saw a stat from Brookings Institute. Now, this is a few years old, maybe five, six years old, but the amount of assets in private hands after liabilities in the United States was, at that point, something like $98 trillion. It’s not like there isn’t enough wealth, there’s no reason why people have to be in such debt. It’s just as you say, it’s the polarization. Talk a little bit about this issue of debt relief, because you’ve done a lot of work on the history of debt and debt relief.
Well, the interesting thing is that people assume that the economy is going to crash if people don’t pay the debts, but as we’ve discussed before, I’ve had an archeological anthropology group at Harvard since 1984 where we’ve gone into the economic history of Mesopotamia, and for three thousand years, Sumer, Babylonia, all Near Eastern kingdoms and their rulers, normally, when they would take the throne, they would cancel the personal debts. Not the business debts, not the debts of merchants and traders, but the personal debts, and they did it because otherwise you would have the debtors falling into bondage to the creditors, and that meant if you were a small holder supporting yourself on the land, well, you’d be behind in your taxes or you’d need to borrow for some reason and you would have to work off the debt by working for the creditor. Well, then you couldn’t work on the corvée labor to build the walls and dig the irrigation ditches and the public infrastructure. If you owed the crop surplus to the creditor, then you couldn’t pay the taxes. So every new ruler who took the throne in the near east for thousands of years would simply have a clean slate. He’d say, OK, we’re wiping out the backlog of debts, and Hammurabi’s Law is one of his clean slate proclamations which said, well, if there’s sickness or if there’s a crop failure or if there is some interruption in economic activity that people can’t afford to pay, then the debts don’t have to be paid.
Well, the result was resilience. The result was not an economic collapse and this seems so radical that for almost a century, assyriologists and economic historians said they couldn’t possibly have canceled the debts because if they did, the economy would collapse. Well, the fact is the economy didn’t collapse because they canceled the debts. Once you wipe out the debts to the creditor class, you prevent an independent financial oligarchy from developing. You enable the small holders to pay their crops to the palace as they did before. They’re working on their own land, they’re able to do their corvée duties, the work duties that they did in the off-season from the plantings, and so these clean slates would not only cancel the debts, they would give back the property that had been forfeited to the creditors and they would free the debtor from bondage, that is owing the labor to the creditor. In fact, this is word for word borrowed by the Jubilee law of Judaism, Leviticus 25. So it even was built into religion, but by the time Jesus appeared and said he’d come to restore the clean slate in his first sermon, you had the Roman oligarchy taking over. Rome rewrote the whole law and completely changed the course of civilization, certainly of Western civilization, and said all the debts have to be paid. There are not going to be any debt cancelations. We’re not in a democracy. Well, for five centuries, from about the sixth century B.C. in Greece, down to the end of the republic with Augustus in Rome, you had revolts at urging debt cancelation and a land redistribution. There were constant revolts. In Rome, the secessions of the plebs, there was civil war. There was civil war in Greece. Democracy in Greece began with leaders called the tyrants who were reformers who kicked out the oligarchy and canceled the debts and redistributed the land. Well, that stopped being done and the result was a dark age.
So you have Western civilization, ever since Rome having a stop go, stop go. You’ll have the dust build up. It’ll lead to a crash, to austerity, and the whole world now is being subjected to what the International Monetary Fund subjected third world countries to. If you want to see where the U.S. economy is going look at what happened to Greece when the International Monetary Fund and Obama personally and Tim Geithner, his treasury secretary, told Europe, you can’t forgive Greeks’ debts because the American banks have written default contracts on these and we’d lose money. So to save my constituency, the banks from losing money, you have to create a permanent depression in Greece. Well, that principle of Obama is exactly the principle that Biden is following today. Biden and the Democratic Party and the Republicans say it is worth plunging America into depression. It’s worth impoverishing it just so the upper one percent of creditors and the banks will not lose and it’s why the economy is polarizing, not converging.
My memory is it wasn’t that long ago there was a bill that would allow students to declare bankruptcy and avoid student debt and then they wouldn’t do it. They exempted student debt from that.
I know, it was Biden who was the head of the committee that rewrote the bankruptcy law to prevent student debt from being written off. It was Biden who locked in student debt. You’d think that maybe he would say here’s a chance to undo the great error that I did, grinding down student debt. Basically, if he would have vocalized what he said, he would have said, I want to make students so poor that they have to pay student debts so high that they can’t afford to buy a home. They can’t afford to get a mortgage because they already owe the student debt. They can’t afford to start a family. They can’t afford to get married. That’s my policy, and that was the Democratic policy, and it was a bipartisan policy, of course, but Biden played the lead role in this awful bankruptcy law. Bankruptcy was supposed to be the one way of Western civilization’s alternative to a clean slate. They’re not going to wipe out all the debts as they did in the ancient near East, but they wipe that on a case by case basis, but thanks to Biden, he said, well, you can’t wipe out that student debt. We’re not going to let you do that. We’re going to tighten the rules so that it’s very hard for individuals to declare bankruptcy. Only our constituency, the banks and the corporations are allowed to wipe down their debts, as you point out, which is why Obama was willing to bail out General Motors and the car companies, but not the debtors who were subject to the junk mortgages and all the bank fraud that you had Bill Black explain on your program.
Well, I was just about to say, Bill Black’s point is that it’s the bankers, not the banks. The bankers loot their own banks as well as looting their customers and society. When it comes to bankruptcy, the way the law works, the management of these companies, who have been paid bonuses and millions of dollars in salary, if the company goes down the toilet, they don’t lose any of their personal wealth. It’s all been separated through the bankruptcy laws and incorporation laws. So those individuals walk away, they may lose some stock or whatever, but they usually walk away rich. Whereas when it comes to student debt and individual family debt, there’s no such mechanism. You can go bankrupt, but you lose everything you’ve got. You don’t just walk away scot free from your company.
And the amazing thing is that nobody is suggesting any alternative. Nobody is pointing that the debt really is a problem. Certainly if you take an economics course, it doesn’t appear in the economics courses and it doesn’t appear in the political discussion. You don’t have anyone, sort of a counterpart to Bernie Sanders talking about socialized medicine. You don’t have anyone talking about socialization of debt or writing down the debt or the fact that it’s debt that is grinding our economic growth to a halt. Also, because people have to spend so much money on debt, not only are they not able to buy the goods and services they produce, but they’re not able to get jobs exporting because their cost of living is so high because they have to pay so much debt.
Why in the United States, as compared to the other industrialized countries, has the cost of higher education so been put on the shoulders of students. There’s Nordic countries in Europe. I can’t remember exactly, I think Norway is one, but there’s a few others. Not only do they provide free education at the highest levels, they’ll even give it to anyone from around the world who goes there. They’ll give them free education. I believe in Germany, foreign students even get a stipend to go to school. Why did it develop so differently in the U.S.?
Well, think of education as being like buying a house. If you buy a house, the price is however much a bank is going to lend you to buy a house, and the banks have loosened their mortgage terms and they’ve lent more and more debt to value ratio. Same thing in education. Once you privatize the educational system and once you provide a market for banks to finance it, banks are going to compete to lend more and more money to students and students will all take it on. The student that initially created a huge market to the banks would essentially appear on every campus and they would lend more and more for the education. So obviously, universities thought this was wonderful. If the bank will lend our students more, we’ll make more and more money. So the schools turned into profit centers. New York University is a profit center, Columbia University, a profit center here in New York. You can just look at the huge rise of endowments at Harvard, Yale, all over the country. Now schools are run as if they’re for profit. Quite apart from the actual for-profit colleges, which don’t really provide education. They are only markets for banks to make debt or for the government to make loans to students that go directly to the universities regardless of what they do.
So it’s the privatization of education. In America, we do not believe that education is a human right or a social right. Everybody is free to get whatever education they can pay for. They’re free to get whatever medical care they can pay for. Other countries say, wait a minute, you don’t have to pay for human rights, but America has turned everything into a commodity. Education is a commodity to be bought and sold. Health care is a commodity sold and not only privatized, but it’s been financialized. This is presented as capitalism, but it’s finance capitalism. It’s not industrial capitalism, which is why Norway and England and Germany are capitalist countries, but they haven’t financialized human needs and basic rights to the extent that the United States has.
Well, I think that’s the key word, to the extent, because they’re certainly on the way there.
Yes, that’s the trend in the West and it’s pulling the whole Western world into a full debt pyramid.
So can you have the kind of debt relief you’re talking about? Wipe out student debt to start with. That seems to have more support than other kinds of debt, but can you have this kind of modern capitalism without this kind of debt? Isn’t it kind of inherent in financialization that they actually need large sections of the population in debt? And not only in the U.S., I mean, household debt is pretty high in most industrialized countries.
Well, it’s inherent in financialization, but not in capitalism. The German economic miracle of 1947 might well be based on a debt cancelation. All domestic debts were canceled except for the debts that employers owed their employees for the monthly payment and except for a minimum of bank accounts. In Germany they wrote down the debts and the result is that this made Germany a debt free economy and was able to take off and become Europe’s dominant industrial power as it is today. So, of course, you could have under capitalism a debt write-down just as you had in ancient Babylonia, a debt write-down and you had a thriving economy. If you don’t write-down the debts, you’re not going to have an economy of any form. You’re going to have austerity and you’re going to have, in Rome’s case, a dark age.
You had a lot of financialization in the 1920s. You had the big crash in the 30s, depression, but right after World War Two, financialization takes place throughout the capitalist world and it takes off like a rocket in the 1980s, but that horse has left the barn, hasn’t it? I don’t think you go back to capitalism that’s not financialized. In a sense I think it’s inevitable with modern capitalism.
That certainly is the trend now, but if you do not de-financialize the economy, then you’re going to have economic growth concentrated in countries that are not financialized, such as China, where finance is a public utility. The real key to make capitalism effective would be to keep money and bank and the credit and debt system as a public utility. China can afford to write down the debts and it doesn’t have a constituency to lose because the debts ultimately are owed to the People’s Bank of China, the central bank or the Bank of China. Capitalism can only succeed, certainly industrial capitalism, can only succeed if you don’t have finance crowding out industries. If you don’t have finance just absorbing the whole economy and making it really into an economy like ancient Rome.
And of course, the irony of banking as a public utility and the finance sector’s opposition to that is they can’t exist without government subsidy and bailouts and all the rest. Actually, it kind of is a public utility, except for the people that owe the banks.
It’s an unregulated public utility, because, again, as Bill Black has explained, there’s been regulatory capture. The problem in the United States is the creation of the Federal Reserve by banks. The Federal Reserve was created in 1913 to make banking a private enterprise, not a public utility, and very explicitly to shift the center of money creation and credit and credit rules away from Washington, towards Wall Street and Philadelphia and Boston, and to decentralize it, to get the government out of the credit and debt system and let the creditors run wild over the economy. That was what they said the result was. They even removed the Secretary of the Treasury from membership on the Federal Reserve Board at that time. This was a new class war, and it wasn’t the kind of class war that Marx warned about. It was a class war of finance against the rest of the economy. It was a resurgence of the rentier economy, except the rentiers in the 20th century and the 21st century are the creditors and the bankers and the financial institutions, not the landlords.
So we’ll have to see if there’s a people’s movement that can make this demand of banking as a public utility because it seems to me, among other things, hard to imagine a climate change policy that’s going to actually be effective without weakening the power of the finance sector.
Well, right now, I don’t see how you can have a meaningful climate change policy if the largest market for banks are the oil industry and the mining industry and they intend to keep it that way. You have the interest of the banks and the financial sector diametrically opposed to doing anything about global warming or about any kind of social or environmental reform. That’s why when President Obama was pushing for the TPP, the Trans-Pacific Partnership, and the TTIP with Europe [Transatlantic Trade and Investment Partnership], an element of that was the private ports. The government lost any authority to enforce environmental rules against any foreign investor. So the whole world would have turned out to be Chevron versus Ecuador. Any government that would impose an environmental rule about pollution or global warming could be sued for damages so that the company would have made as much money as it would have made if it would have continued to pollute and destroy the environment. That was Obama’s great thrust, hoping to finally drive a nail into American democracy. Rhat was largely why he was voted out, because people were so appalled at the hypocrisy and the support of corporations against government, against civilization. That was what the TPP and the TTIP were.
All right, well, this is just the beginning of the conversation, Michael. Thank you. And also for people that want to see more of Bill Black, Michael’s mentioned him a couple of times, I’ve just started publishing a series of interviews with Bill on the history of American financial fraud, starting with the S&L crisis in the 80s and we’re taking it up to today.
I was hosting, when Ralph Nader wrote a study of Citibank, the group all met at my backyard in New York, and the lawyers working on fraud got very disappointed in what Nader was doing at that time with Citibank because they all realized the problem wasn’t at that time fraud. It was that it was all legal. So the worst thing about the financial system is it’s legal. It’s not fraud. In other words, when the banks do it, it’s not fraud, to paraphrase Richard Nixon. Now, obviously, Ralph Nader subsequently has moved toward more reform and meanwhile, real fraud has taken place because of the regulatory capture, but the real problem is the structuring of the financial system itself. Even without fraud, the system is headed towards economic polarization, austerity, and disaster.
Thanks very much, Michael. And thank you for joining us on theAnalysis.news. Please don’t forget the donate button and all of that and we’ll see you again soon.
Biden continues to disappoint with climb downs from climb downs. Never mind control of the legislature, it makes me wonder if he even wants to be president next term. Team dem really banking on “vote for us or orange man comes back, or worse!” since they aren’t doing anything else to make people want to vote.
it makes me wonder if he even wants to be president next term.
Don’t underestimate the “End of History” on this crowd. Its business as usual in the hopefully waning days of a once in a century pandemic. How many positive stories about Biden’s time in the Senate are out there? His Presidency will be the same.
When does “Democratic party hype” become outright deception and lies? When will lessor-evilism lose the day and real change become possible?. Student debt cries out for gov’t action and discussion of a public option or lowering M4A age eligibility evaporates into nothing, along with other unmet promises, I keep asking myself “why do you even care?” I guess it must be some personality disorder.
Of the Democrats who’ve won competitive or Republican-leaning districts and states, how many of them have progressives versus more centrist Democrats? Why is that?
Student loan forgiveness that doesn’t include mean-testing or a service but rather is simply across the board is not a popular idea outside of progressive circles.
Many people agree the U.S. healthcare system is too expensive and inequitable but not everyone is onboard with single-payer.
Deny it all you want but it’s the truth–the country is not as far-left as progressives think.
Do you know? You challenged the person. So how many? I mean Claire McCaskill jumps out as someone who was ousted despite the same voters passing a minimum wage increase which she opposed.
I know The West Wing has a good score, but do you know the rate? Or is it just one of those “every knows” kind of things?
Even if, emphasize if, many Americans have been convinced by elite propaganda that the deficit is important and universal programs benefit the unworthy, if the Democrats continue to be the party of ineffective, wasteful, means-tested window-dressing for which most people don’t meet the eligibility requirements, they are doomed to be the safety valve occasionally opened between increasingly horrific Republican reigns.
“I keep asking myself “why do you even care?” I guess it must be some personality disorder.”
This encapsulates my current experience and conclusion perfectly.
Biden should not cancel debt, it is a terrible idea that only encourages immorality by believers of free lunch theory.
Instead he should unchain free market by:
1. Stop subsidizing student loans immediately
2. Make student debt dischargeable in bankruptcy.
3. Create and accredit a free online centralized college system accessible to anyone willing to attend from the comfort of their home and attend only for nationwide end of the year exams to graduate.
4. Let the private education system compete on their own.
I agree with your first two suggestions and I only support student debt discharge when paired with them. Cancelling student loans without altering the system that fueled it only makes things worse. Discharging student loans in bankruptcy is a good thing but you have to recognize that only the most desperate will take it. It kills your credit score, a barrier for many employers. It also means you will not get a security clearance and possibly bar you from practicing law or some other professions.
If you increase funding to public universities then it will drive down the cost of education overall. The private universities will either become less bloated or close. Many are zombie colleges at this stage anyways. I don’t think we need a centralized online college. Better trade programs would be a better solution.
Education costs are a scam, I think its a reasonable statement to make.
The financiers found a way to expropriate the future earnings of the uninformed youth by loading them with debt. That should be illegal.
You can find on youtube videos that explain things way better than the best professors in our best colleges.
Its possible to have online courses structured much better than any college can do by combining the power of the best people who know how to explain things and the available knowledge.
The person who would manage to reputably accredit and promote such a feat will do to the current education system what amazon did to retail. Its long overdue.
I am not big fan of the government but if we want to provide cheap and quality education to whoever its motivated, this could be the way, the government’s role being rather limited in accreditation and promotion.
Such a system would do miracles not only for motivated youth in US but for all motivated kids in the world if anyone taking the courses and exams can get a accredited degree, its the best investment one could make.
You might enjoy reading Ivan Illich’s “Deschooling Society” from many years ago, which along with “Tools for Conviviality”, and to some extent “Medical Nemesis”, provides a pretty detailed version of one possible alternative to the paths we have taken. Sadly, it didn’t fit comfortably with ANY of the main duelling schools of ideology of the era, and sort of fell between chairs.
A friend of mine had him as a teacher when Illich was teaching at PennState in State College, in PA. I also just read Illich’s essay “Guarding the eye in the age of the Show” which set me off to a study of Hugh of Saint Victor and the Didascalicon; all of which make me appreciate how prescient Illich was.
So we just leave education up to our tech overlords and hope for the best? Video-only learning is a great way to dumb down the population even further. If I have a question, I can’t ask the recording for help. I remember a teacher who used to play videos during class and let them do the “teaching” while he nodded off for a nap. Everybody learns differently and that is not my cup of tea.
As far as encouraging immorality goes, does that only work with debtors, or is it perhaps immoral on the side of creditors to be roping people into loans they can’t afford? I’m really sick of this moral hazard argument – I had student loans and they’ve been paid back but I still support erasing student debt even if it won’t directly benefit me, because it will indirectly benefit a whole lot of other people. Instead of paying thousands of dollars in interest per annum to some rentier, people will be free to spend that on other things which keeps the money circulating and boosts the overall economy.
Creditors didn’t put a gun to the borrower’s head to take a loan.
Why not erase hospital debt incurred by people with health issues? That has more merit imho.
Then where stop next, mortgages, car loans?
“Creditors didn’t put a gun to the borrower’s head to take a loan.”
No, society did by making it near impossible to live a comfortable life without a college degree. It has only gotten worse since I was young in the nineties. Now you need a specific type of degree from a handful of specific institutions, and even if you get through all that you are in no way guaranteed a job in your field (which was much more the case in the past), let alone a job that remotely comes close to sustaining you while paying down that debt.
“No, society did by making it near impossible to live a comfortable life without a college degree.”
Let me introduce you to my plumber.
They may not have put a gun to their head, but many definitely used deceptive practices, and many of the worst offenders were loans for BS “colleges” whose degrees aren’t worth the paper they’re printed on. But in good ol’ capitalist US of A, there aren’t too many scams that aren’t legal, so it’s free rein to fleece the rubes. When I was looking for a house, I got all kinds off offers telling me I was pre-approved for way more of a loan than I could realistically afford. I didn’t take it, but plenty of others did – some were probably greedy, others just not financially savvy.
So get rid of places like Trump “University” and whatever “university” system Clinton was shilling for, outlaw exotic loans like ALT-A mortgages, etc., and sure, then maybe I’ll change my mind. But until we rein in the grifting, I’m all for debt forgiveness as a remedy to the excess of the rentier class, many of whom would be in the slammer if we actually had a just society.
Bring on the debt jubilee.
jeez, next thing you know they’ll be bailing out the banks and buying worthless bonds at face value…it’s a slippery slope right? I mean when does it stop! Personally I want it to crash so “it’s all good” as they say. I’d love to see the rent history of your tiny 24 unit slum. $1600/mo must be pretty ratty. How much did those units rent for 10 years ago? Maybe someone bought it in the downturn during the last bailout of the scoundrels? But I’m sure it’s just a mom and pop operation….
Definitely not a slum, rather high end 1bd units fully renovated and the owners, yes mom and pop, take a lot of pride and spend a lot of money and time in maintaining it rents about 30% higher than 10 years ago. They not asking for a bailout from the government, rather would like to see government off their backs and let courts enforce individual contracts made by free and consenting adults, as it should be in a civilized and democratic society.
Nobody put a gun to lenders’ heads and said lend either.
Where’s the risk in uncancellable debt with high interest rates that snowball into infinity?
That can be bought on debt exchanges for a penny to the dollar and forgiven?
It has been done. By a media celebrity to make a point. By some charities.
When you owe the bank a thousand dollars,
it’s your problem.
When you owe the bank a million (Ten/Hundred/Lots of?) dollars,
it’s no longer your problem.
It is the bank’s problem.
Asking an 18 year old to borrow hundreds of thousands to only be finally paid off 30 years later at usurious interest rates(3x? 5x? Original loan quantum?) is a significant wealth transfer from the youth to the old. Serfdom? Indentured servitude?
Where do you stop? Why do you need to stop? Who is the sinner for excessive lending? The lender or the lendee?
I disagree. It would take longer for a student with over, say, 30k dollars in student loan debt to pay that off than it would to outlast the penalties until the bankruptcy drops off of their credit report.
Bankruptcies soared after the 2008 housing crash, and people who had just declared bankruptcy were soon peppered with credit card offers that ignored their recent filing, so anyone who filed for their student loans would still be able to book a flight or rent a car even with a bankruptcy on their record. Sure, they probably wouldn’t be able to get a mortgage, but if they had over 30k in student loans they probably weren’t applying for one anytime soon, anyway. In fact, more likely that they’ll be able to after they declare bankruptcy if they can save what would have been the next seven years of student loan payments for a down payment.
I just looked it up and the average student loan debt in the US is now $35,000, so I think if bankruptcy was allowed again we would see a wave of people declaring it to escape the shackles of their student loans.
I also think the commonness of bankruptcy after 2008 did a lot to erase the social stigma of bankruptcy, and if it was allowed for student loans that stigma would drop to ZERO. People already know that the system is rigged and their loans are a scam, and if it was allowed, there would be a flood of people taking advantage of it.
The problem is that most people have to go on a payment plan set by the Bankruptcy court. This is not a generous plan, by any means. It is likely to be onerous. I worked on bankruptcy matters for awhile and people don’t get off easily. The system is heavily weighted in favor of creditors.
The social stigma did not go down for professional jobs or for anyone seeking a government security clearance. Many people lost their clearances after the 2008 crash that worked for the federal government as an employee or contractor. Most will do everything they can to avoid bankruptcy if they have a clearance. I can say the same for lawyers. The Character and Fitness Committee will not look past people that try to discharge their student loans in bankruptcy.
The Character and Fitness Committee
John Cleese et al, where are you?
Not correct. Chapter 13 bankruptcies are for those with over median income in their states. Otherwise the filing is under Chapter 7, where they take all your assets and apply them to the debts and anything left over is wiped out.
Charter Schools aka Market based certification [not to be confused with education] has been a train wreak due to profit incentivization along with competition between schools in a race to the bottom. That is without bringing in the fact that Gates entire reason for pushing CORE was to IP the curriculum along with income streams from the computational devices that would be used. Additionally I don’t think the Khan was anything like it was promised too be, just the opposite in application.
Lastly I think Prof Wheeler’s paper back in the 70s is fairly concise in why the market is not and can not be used to deliver this social good. As such anyone that has issues with the state of education today, if not over the last few decades, should first reconcile the increased privatization and application of market dynamics to education during the neoliberal era.
I think Science-Mart: Privatizing American Science –
by Philip Mirowski sums up the effects some are now using to call for increased privatization premised on some notion of EHM.
This trenchant study analyzes the rise and decline in the quality and format of science in America since World War II.
During the Cold War, the U.S. government amply funded basic research in science and medicine. Starting in the 1980s, however, this support began to decline and for-profit corporations became the largest funders of research. Philip Mirowski argues that a powerful neoliberal ideology promoted a radically different view of knowledge and discovery: the fruits of scientific investigation are not a public good that should be freely available to all, but are commodities that could be monetized.
Consequently, patent and intellectual property laws were greatly strengthened, universities demanded patents on the discoveries of their faculty, information sharing among researchers was impeded, and the line between universities and corporations began to blur. At the same time, corporations shed their in-house research laboratories, contracting with independent firms both in the States and abroad to supply new products. Among such firms were AT&T and IBM, whose outstanding research laboratories during much of the twentieth century produced Nobel Prize-winning work in chemistry and physics, ranging from the transistor to superconductivity.
Science-Mart offers a provocative, learned, and timely critique, of interest to anyone concerned that American science–once the envy of the world–must be more than just another way to make money. – snip
So in ending its hard to accept some arguments based on some morality plea, when the same sort were used to forward what has created the mess in the first place.
Make state colleges and universities free virtually free, like they used to be. This moral hazard stuff is bunk. College costs are way up. The loan system is designed to create a whole new caste of peons, trapped into coughing up monthly payments until they die. It’s neoliberalism in a nutshell.
My uncle used to complain about the rising costs of education in that when he went to college (in the late 60s) it was almost free and that he could cover both the fees and living costs just by working during the summer. No loans needed. As was true for all my older relatives.
If the President, or anyone else, is not serious about eliminated college debt, they are pimping for debt peonage.
One could call that a case of previous generations pulling the ladder up behind them as they rose in society.
Yesterday, one could pay for college working summers?
Today? One cannot.
Biden is probably getting pressure both from creditors and universities not to cancel student debt. Creditors don’t like it because they want to collect more interest from outstanding student loans. But universities also have reason to not be thrilled with the idea of canceling student debt. If student debt needs to be forgiven then this will acknowledge that university fees have become unreasonably high, and too frequently create an unmanageable burden which cannot be repaid. These university fees have mostly ballooned because they are financed by federally guaranteed student loans, which make no evaluation of a students ability to repay, and as a consequence can lead to a university mispricing the cost of its services.
Forgiving some portion of past student debt is a good start to helping currently indebted students. But if nothing is done to manage university fees, then future student debt will just end up with the same problems. So canceling student debt is not just a question of past debts, but also managing the future cost of a university education. And that is a very difficult conversation to have.
Yes, though the decision by most states to reduce the percentage of cost funded by the state over and over for several decades has also been a major contributor. The rising reliance on the loans was in itself partly a response to that clear trend in governmental support.
University fees are high because the state as a principle has been bullied by the psychopathic neoliberal dispensation to not pay for public goods. Neither WSJ nor Bloomberg speak for anyone other than the elite creditor class, in particular NOT the public good except insofar as an impoverished precarious working class is a “public good”, and therefore their opinions are of no value.
Forgiving all past student debt also has the benefit of reminding them that their narratives of self-madeness are unacceptable BS.
President Biden probably also understands that a lot of people, including within his own party, are not real enamored with the idea of cancelling student debt, especially if it doesn’t include means testing or some other way to determine necessity–unconditional student loan forgiveness is nowhere nearly as popular as lot of commenters on here to seem to think.
A year or so ago I was in a conversation on this topic with my baby sister’s husband Kevin. Like me, he had attended Wichita State University in the 80s. Initially, he was going on and on about how he would never have accumulated such debt, and when he needed money while going to school he just worked part-time. (He’s a good meat chef, so his part-time work at the country club on the east side of town paid a bit better than a lot of college part time work.)
Since it seemed to have slipped his mind, I had to remind him that he, like I, was going to college on the OLD GI bill, so Uncle Sam was paying his tuition and fees plus a $425 a month stipend. And he had still needed to work since living at home was not an option.
I also mentioned that the cost even of in-state tuition for that school was pretty radically different than it was in our day. He was sure it couldn’t be all that much more, so we went to the school’s website and checked. And the combo of tuition and fees that had still been a hair under a grand a year when we finished up was now $8,400. Say what one will about inflation, but he agreed pretty quickly that the wages of potential students, and the wages and salaries of the parents proposing to send their kids to school there had hardly gone up by anything resembling an equivalent amount.
Secondary education in some ways mirrored similar changes in the economy, in which wage repression and rising costs destroyed people’s ability to pay for things as they went and the seemingly limitless extension of ever greater credit pretended to be a solution. We smacked up against the upper limit of consumer credit as a pretend solution some years back, and are now hitting the upper limit of a similar strategy in education.
Apropos of everything.
In 1980 tuition (called a matriculation fee) at my undergraduate institution (the flagship state university) accounted for 8.3% of total university revenues. The direct state contribution was 53.1% of total revenues. in 2019, students contributed 31.2% of total revenues and the state contribution had dropped 26.1% of the total.
My first tuition bill for fall quarter of 1973 was $179.50; I remember because I wrote the check on my own checking account. My dorm cost $135.00 (air conditioning had raised the cost $10 over the dorms without AC) for 12 weeks. For Fall 2021, in-state tuition is $4027, adjusted to the quarter system instead of the current semester system.
According to the handy BLS Inflation Calculator, $179.50 in September 2023 had the buying power of $1,060.54 in April 2021. Quibble all you want about the utility of the Bureau of Labor Statistics handling of inflation, but their numbers are not off by 280%. Is the institution better? Absolutely! But not that much better by any metric known to humankind.
One of these days my alma mater will figure out these data should not be on the interwebs where troublemakers can find them ;-)
September 1973! Jeebus.
Students are going to keep going to college at higher rates as long as the pay gap between college educated and non college educated stays as high as it is in the US. As long as that is the case it’s going to end up as debt on someone’s books, either the public or on individuals.
My wife, who is a Japanese citizen, and I are seriously thinking about sending my son to school in Japan. He can live with relatives in Nara and attend a decent school in Osaka or Kyoto for his undergrad. The most expensive schools in Japan are about 15k year and that’s for pre-med or pre-law. Engineering and other are around 10k or less.. The best schools in Japan are about 7k to 10k. Of course one could argue as to whether or not Japanese universities are even worth a damn.. but then again…
The National Association of Realtors should be all over this because student loan debt is the biggest obstacle many have in getting a Mortgage.
They aren’t which is either an example of class solidarity or stupidity.
When California was in a recession post Vietnam I took a job at a collection Agency collecting delinquent student loans and learned a good deal about them.
My proposal would be to
1) Pay off all outstanding student loans with public monies.
2) Do not allow ANY guaranteed student loans.
It will cause a bit of disruption at the College level, some football coaches might have their pay cut to a measly few Million dollars but it would settle out in 2-3 years.
The cost of College would go down or governments could simply support them directly rather than through all the middlemen in the student loan biz…replacing them with on campus middlepersons of diveristy.
And we’d have a LOT more people who qualified for a death pledge with 3% down.
Sometimes what’s good for the Nation is also good for Realtors, as unlikely as that might seem..
I’ve recently written a white paper on student debt. You have to combine a few dept of educ tables, but over half of the current fed student loan portfolio is distressed in some way (defaulted, 31-360 days in arrears, in forbearance for economic reasons, on an income based repayment plan, or otherwise modified). If they are not going to forgive, the default should be an income based plan with forgiveness after 15-20 years and at a lower interest rate.
The loans used to be far more subsidized. Interest rates were often below inflation, sometimes substantially, until the mid to late 90s. There used to be no interest during matriculation, now that subsidy only applies to part of undergraduate loan amounts and not at all to graduate loans.
When I attended an extremely expensive school in the early 80s I had NDSL loans at 3, 4, and 5% when 30 yr mortgages were 15-18%. No interest accrued until after the 9 month grace period. It was pretty much the same for my graduate school years. Loan terms today are nowhere near as good.
Increase in college costs is not just because the feds wave loan money around. There are lots of reasons. States don’t support public colleges like they used to, administrative bloat, the battle of amenities, colleges chasing higher US News rankings, etc all work to increase college budgets or the % that students are expected to shoulder.
Colleges also haven’t raised enough money for financial aid and have mismatched aid giving strategies that leave out much of the middle class and poor students without stellar high school grades. I’ll have two in college next year and both schools couldn’t give a damn about the expected family contribution result of the FAFSA (actually true of all the aid offers received). For the younger the gap is $27,000 between aid offer and EFC. Luckily we have dedicated savings and one new higher paying job. But I won’t let my kids get loans, even though both parents had them, because it’s now a scam.
Michael Franks, in ‘What’s The Matter With Kansas’ posited that
the reason the elites were so down on the middle class was that the middle
class had money to support a liberal party (Democrats, at the time) and
therefore had to be eliminated as a financial force. Recall that during Obama’s first election Wall Street shunned him, but after the small donors
showed their muscle, the Wallthieves had a change of heart. So he’s
black? We needed a houseboy anyway!
Why can’t they see the problem with debt?
The economics of globalisation has always had an Achilles’ heel.
The 1920s roared with debt based consumption and speculation until it all tipped over into the debt deflation of the Great Depression. No one realised the problems that were building up in the economy as they used an economics that doesn’t look at debt, neoclassical economics.
Not considering private debt is the Achilles’ heel of neoclassical economics.
We’ve got an economics that ignores private debt and our policymakers think banks are financial intermediaries.
How did Ben Bernanke convince himself debt doesn’t matter?
He thinks banks are financial intermediaries.
Ben Bernanke is famous for his study of the Great Depression and here it is discussed in the Wall Street Journal.
“Theoretically, neither deflation nor inflation ought to affect long-run growth or employment. After a while, people and businesses get used to changing prices. If prices fall, eventually so will wages, and the impact on profits, employment and purchasing power will be neutral. Borrowers suffer during deflation because their debts are fixed in value, but creditors benefit because the dollars they get back will buy more. For the economy as a whole, deflation ought to be a wash.”
This is how our policymakers convince themselves debt doesn’t matter.
Banks are not financial intermediaries.
This is how banks really work.
Now we can see why debt does matter.
Not considering private debt is the Achilles’ heel of neoclassical economics.
1929 and 2008 stick out like sore thumbs.
At 18 mins.
No one realised the problems that were building up in the economy as they used an economics that doesn’t look at private debt, neoclassical economics.
2008 was a “black swan” because they didn’t look at private debt, where the problems were building up.
So, we’ve had a financial crisis, and are now facing a Great Depression again.
Japan had done this at the end of the 1980s.
Japan could study the Great Depression to avoid this fate.
How did Japan avoid a Great Depression?
They saved the banks
How did Japan kill growth and inflation for the next thirty years?
They left the debt in place and the repayments on that debt killed growth and inflation (Japanification)
Our experts put Japan’s problems down to demographics.
Not considering private debt is the Achilles’ heel of neoclassical economics.
They couldn’t see the real problem.
We leave the debt in place after 2008, and wonder why the economy hasn’t been the same since 2008.
No one can see what the problem is because they use an economics that doesn’t consider private debt.
They use monetary to policy to try and cure a private debt problem with more private debt.
There is no way out this way.
Japan used fiscal policy to maintain the money supply as they deleveraged.
The money supply ≈ public debt + private debt
They took it on the chin and paid back the debt, even though it knocked their economy out for thirty years.
It’s a painful solution, but it does address the problem, unlike the Western solution.
The globalists found just the economics they were looking for.
The USP of neoclassical economics – It concentrates wealth.
Let’s use it for globalisation.
Mariner Eccles, FED chair 1934 – 48, observed what the capital accumulation of neoclassical economics did to the US economy in the 1920s.
“a giant suction pump had by 1929 to 1930 drawn into a few hands an increasing proportion of currently produced wealth. This served then as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied themselves the kind of effective demand for their products which would justify reinvestment of the capital accumulation in new plants. In consequence as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When the credit ran out, the game stopped”
This is what it’s supposed to be like.
A few people have all the money and everyone else gets by on debt.
“The other fellows could stay in the game only by borrowing.” Mariner Eccles, FED chair 1934 – 48
Your wages aren’t high enough, have a Payday loan.
You need a house, have a sub-prime mortgage.
You need a car, have a sub-prime auto loan.
You need a good education, have a student loan.
Still not getting by?
Load up on credit cards.
“When the credit ran out, the game stopped” Mariner Eccles, FED chair 1934 – 48
Thus may sound off-topic, but my family & I moved from an upper-middle-class neighborhood in the midwest to a city in the deep south in 1971 when I was 11. I ended up in the first year of court-ordered desegregation, going to a school in what we called the ghetto. Prior to age 11, I was a straight A student. That year in the predominantly black school changed me. My parents were very naive. We never had a political or cultural conversation about race. I knew my dad was a Nixon man. My eyes were opened to cultural genocide, and yet I had no vocabulary to talk about it, either to myself or others. I stopped trying at my studies & became a B student. I saw and see education as a rigged game, even though my brother says my dad valued education very highly.
I’m saying that this student loan situation is going to turn a lot of people toward radical thinking about the nature of money. They didn’t know they were walking into a trap. I welcome it.