The National Disgrace of Student Debt Peonage

The National Disgrace of Student Debt Peonage  

Student loan debt has now reached $1.6 trillion and continues to grow. The average student loan debt obligation is now around $35,000, a record high. While there seems to be no end in sight to this madness, it is finally getting the attention of the political class. There have been some proposals by Democratic candidates to reduce or cancel entirely this monumental debt load. That is a positive development. 

But how did we get here in the first place?  

It is important to consider the factors that have contributed to this situation because they have broader socio-economic implications and are not confined to simply borrowing money to pay for a college education. Like most of the socio-economic horrors in the US, this one can be traced back to the 1980’s, when the neoliberal economic policy regime was being imposed and instituted under Reagan.

There were two simultaneous developments that would inevitably fuel a student loan debt crisis.  

First, you had a growing gap between the college and non-college educated population in terms of average earnings. This itself was a product of the neoliberal policies that accelerated outsourcing and offshoring of manufacturing (aka deindustrialization) while also launching an attack on labor and the ability of workers to form unions.   As well-paying union jobs in manufacturing disappeared, replaced by non-union service sector jobs, so too did a critical avenue to a middle-class, economically secure, life among those with a high school degree. Between 1979 and 2005 average hourly wage for those with a college degree went up 22%; for those with just a high school degree it declined by 2%. 

At the very same time, the ideology underpinning neoliberalism emphasized market rather than government solutions, private rather than public investments, and a rollback of social welfare programs. Students receiving public support for higher education through Pell grants and similar sources were lumped in with the so-called welfare freeloaders, leeches, and “tax eaters”. Rather than viewing higher education as a public good that warranted public investment, it was instead regarded as a private individual investment in one’s human capital and, therefore, the responsibility of the individual to finance on their own.  

For parents interested in their children’s future economic well-being, the human capital ideology informed a central feature of the parent-to-child socialization process. Every child was told at the earliest age that they must get a college education, without a college degree they would be losers in the game of life and would suffer from perpetual economic insecurity.  

And, thus, the higher education bubble was formed. Like the housing bubble where everyone was encouraged into home ownership, everyone should own at least a college degree. Just as the home is paid for with a home mortgage loan, one can pay for this indispensable college degree with a financial loan; just as home buyers were told that the home would increase in value and be a great investment, so too were students told that a college degree was the best investment for which there would be a healthy labor market return; just as home prices continued to rise, so too has tuition increased steadily over this period. When the value of homes collapsed, homeowners were under water and millions foreclosed; when college-graduate labor market opportunities collapsed, student borrowers were financially pinched, and are now defaulting on their loans in large numbers. And the two financial crises are related. A recent study found that that families assuming the financial burden and borrowing to pay for college, are also more prone to face home foreclosure.

There are also a broader range of negative consequences as a result of the combination of student loan debt alongside a labor market that provides far too few well-paying jobs. In the past, a student graduating with a college degree would find a job that allowed for independent economic security, the ability to rent or buy a home, and purchase all the amenities associated with a new residence. This provided an enormous stimulus to the macroeconomy through the demand for a wide range of goods and services. But under the current situation, we see far less positive macroeconomic benefit from college graduates. This is because today, among the population 18 to 34, 43% are living with parents or relatives, the highest percent since 1945.

As a logical consequence, the millennial generation is also the least geographically mobile compared to prior generations. Geographic immobility among members of younger generations was usually the result of three factors -- marriage, home ownership, and having children. What is significant today is that millennials are less likely than prior generations to meet any of these criteria. Again, we can attribute this demographic anomaly to the accumulation of student loan debt coupled with poor employment prospects.

More generally, every dollar used to pay off a student loan is a dollar that is not used to purchase goods and services in our larger consumer capitalist economy. So, what would happen if we cancelled all student loan debt? If we had a good old-fashioned debt jubilee?

A group of economists at the Levy Economics Institute conducted an econometric analysis to answer this question in their report titled “The Macroeconomic Effects of Student Debt Cancellation.”  Here is their conclusion: “the current policy of encouraging the expansion of debt-financed higher education has been a failure, and therefore a radical departure is in order….Student debt cancellation results in positive macroeconomic feedback effects as average households’ net worth and disposable income increase, driving new consumption and investment spending.” 

Of course, cancellation of student debt would only make sense alongside free tuition to prevent the next generation from ending up in the same debt-ridden hole. If everyone today requires a college degree, it is no different than a high school degree 50 years ago. Just as primary and secondary education has been viewed as a public good for which we all benefit as a society, and should therefore be provided cost-free to all citizens, so too today for a college degree.   

At the same time, we should ask: why should a college degree be the singular avenue to an economically secure, middle-class, life? It was not always this way. There are many high school graduates who might prefer a different path, and who have no interest in going to university. There should be economically viable options through apprenticeships and vocational training that provide students with an alternative career path, if they so desire. The key is to ensure that such careers are economically rewarding, and this will require, for these and all workers, the right to organize, and negotiate the terms and conditions of employment.

The current student debt crisis should stimulate some creative thinking about debt relief, universal free-tuition, and alternative career paths for young adults.

When the most highly educated generation in history is also the most economically insecure, there is obviously a serious structural problem with our socio-economic system. It can no longer be ignored.

David Jaffee is Professor of Sociology at University of North Florida.