The Chronicle Review

Payback's a Bitch

Màgoz for The Chronicle Review

December 08, 2014

Everyone is talking about student debt, but almost nothing is being done about it. On the federal level, there is no debt relief in sight, as anyone can infer from the annual Congressional ritual in which lawmakers assemble to grandstand over lowering federal interest rates by a fraction. Nothing on Capitol Hill comes closer to the cliché of putting a Band-Aid on a gaping wound. Rising rates of default (half a million more last year) and delinquencies (more than 30 percent of all borrowers) are a sure sign that many student debts cannot, and never will, be repaid.

This arrangement is not only unsustainable, it is immoral. For its casualties, the grisly consequences of this mass default amount to a form of collective punishment. And the overall household student-debt burden is growing particularly for the elderly. More and more of those in their so-called golden years are seeing their Social Security benefits mercilessly garnished, often because they have felt compelled to co-sign student loans for children and grandchildren.

It is widely agreed that the cost of college is much too high, but few people know how inexpensive it would be for the federal government to cover tuition at every two- and four-year public college in the country. Several estimates are now in circulation, and Robert Samuels’s 2013 book Why Public Higher Education Should Be Free presents the most detailed proposal. According to the most-recent calculations of Strike Debt, the debt-resistance group I work with, the cost would be relatively modest. The federal loan program is propped up by a motley assortment of subsidies and tax exemptions that amount to tens of billions of dollars. Strip these away, along with some other unjustifiable subsidies (GI Bill benefits and Pell Grants that are gobbled up by fraudulent for-profit colleges) and the cost to the government of public college would be as low as $15-billion in additional annual spending. That is little more than a line item in the defense budget, and a small price to pay for meeting the challenge of the 21st-century knowledge economy.

Most other industrialized countries offer free college enrollment because it is an investment in their future, and, in some cases, because it is considered a basic citizenly right. (Germany and Chile were the most recent to commit to a tuition-free system.) In the United States, we have turned this essential social good into the cruellest of debt traps. Only those from well-heeled families are able to escape. The worst burden falls on low-income students, minorities, and those from first-generation immigrant families, whose lack of access to information and financial advice makes them easy prey for lenders and unscrupulous admissions officers. One of the most righteous demands of the civil-rights movement was that collegiate doors be fully opened to minority students who had been denied the fruits of higher education. When we look at the response, over the last half-century, we can see that the right to education has been replaced by the right to access education loans.

The summer saw the stumbling of two large, for-profit college chains, Corinthian and Anthem, both of which targeted the most-vulnerable populations for student recruitment. Corinthian aired ads, on the Jerry Springer and Maury Povich shows, that were crafted for customers described by the company as "isolated," "impatient," with "low self-esteem," and "unable to see and plan well for the future." Like its peers, the chain went after students who are overwhelmingly minority, female, and low income, including war veterans from Iraq and Afghanistan, for whom the chain can tap a rich flow of post-9/11 GI Bill funds.

Strike Debt’s innovative Rolling Jubilee project (which abolished more than $15-million worth of medical debts over the last two years) recently bought and abolished almost $4-million of debt owed by students at Everest College (part of Corinthian) at the discounted rate of 3 cents on the dollar. Large quantities of distressed debt are sold very cheaply on the secondary-debt marketplace to collection agents, who try to extract the full amount. Instead of collecting on the loan portfolios it buys, the Rolling Jubilee wipes out the debtors’ obligations.

Why the difference between the amount of medical and education debt available for purchase? Unlike the former, education debt is seldom sold at a deep discount, primarily because it cannot be discharged through bankruptcy and is therefore more lucrative than other kinds of lending. We searched for and bought the Everest debt to make a point in a high-profile way.

For the two years of its existence, the chief goal of the Rolling Jubilee has been to highlight the injustice of having to go into debt for access to vital goods, like education and health care, that should be publicly provided. As a result of the most recent Rolling Jubilee relief effort, almost 3,000 students are now off the hook, but many more of their peers are in a deep hole, carefully and deliberately prepared for them. Elected officials who allow higher education to be used as a vehicle for profit ignored all the warning signs that a sordid scam was afoot in the Corinthian network. In truth, these students should owe nothing. It is we who owe them a decent education, which predatory schools like Corinthian are simply not set up to provide.

The Rolling Jubilee was a short-term project, never intended as a solution to the household debt burden, and so we closed the fund a year ago to move on to direct organizing. For the past few months, we have been helping Everest College students to organize, offering legal services, IT and media support, and financial advice aimed at having all of their debts discharged. This is a pilot for our debtors’ union project, called the Debt Collective, which was launched along with the September announcement of the Everest student-debt buy.

Why are debtors’ unions necessary? Because our elected officials are no longer able to check the power of the creditor class. They have failed to protect citizens from economic harms, and in many cases, have enabled the most deceitful lenders. Corinthian is only the most recent, egregious example. The Consumer Financial Protection Bureau is suing the college chain, pressing it to forgive more than $500-million in student loans—in effect, trying to stop its predatory conduct. At the same time, the Department of Education is still extending federal loans to students, encouraging them to enroll. And it recently approved the sale of 56 Corinthian campuses to the Education Credit Management Corporation—affording the operation a new lease on life—so that students would not be able to claim complete discharge of their debts. How warped is that? One arm of the government is trying to shut the operation down while the other is feeding the beast and protecting its investors. It’s no wonder that people take a cool look at the federal program for funding higher education through personal loans and conclude that it is entirely irrational.

The students recruited by colleges like Corinthian are the most callously duped. But institutional abuse of the federal loan program extends far beyond the for-profit sector. More reputable universities are no less complicit in the tight nexus between the Education Department and Wall Street banks that has delivered a generation or two of our students into a condition that some see as akin to indenture. That is a strong word but, insofar as it describes the need to go into debt in order to labor, it may be an accurate one.

The reference to labor is far from rhetorical. For most borrowers, debts are the wages of the future, to which creditors lay claim far in advance. Education debt, in particular, can be viewed as a form of premature wage theft, and debtors who organize to defend their common interests are in a position to engage in a form of collective bargaining. The debtors’ movement that so many want to join will require new forms of organizing and action. But, in some respects, it will also be a 21st-century variant of the labor movement.

I have been active in the debt movement for several years, including as a founder of the Occupy Student Debt campaign. Occupy, in its boisterous heyday, was the signal moment for student debtors to come out publicly, to throw off the personal shame and trauma that envelops those who cannot repay what they owe. But the time was not ripe for organizing around debt—not that it is ever easy to do so. Yet the three years since then have only seen the student debt crisis deepen and spread. Inaction at the top has hardened around the perception that political solutions are simply unattainable, even though the cost of starting a tuition-free system is eminently affordable.

In response to the paralysis of the political class, solutions from below are more and more warranted. Under these circumstances, debtors are surely justified in taking relief for themselves, by any means necessary, through forms of economic disobedience. Creditors, private or public, who issue loans in the full knowledge they cannot be repaid are the true delinquents. Repayment will simply compound the moral hazard by encouraging their continued misconduct.

In a creditocracy, the goal is to keep debtors on the hook for as long as possible, wrapping debt around every possible asset and income stream to generate profit. Figuring out which debts we can legitimately refuse may turn out to be the only way of salvaging popular democracy. Education is the best place to start. Though it is supposed to serve as the incubator for a free-thinking, active citizenry, it is fast becoming its opposite—a chop shop where the life choices and optional political imagination of young people are downsized to fit the lifelong demands of financial contracts.

Student debtors, among all classes of borrowers, are the most likely to step forward and exercise the right to reclaim their futures. They are now 40 million strong, and the Debt Collective is building a platform and gathering resources to help them organize.

Andrew Ross is a professor of social and cultural analysis at New York University. His most recent book is Creditocracy and the Case for Debt Refusal (OR Books, 2014).