Debt sentences

Almost 50 million people in the U.S. are carrying student debt. The level of debt is vast, now over $1 trillion, and is a drag on the entire economy.

Some of the students of Corinthian Colleges who decided to refuse to pay back their student debt, in Washington on March 30.

IN FEBRUARY, 15 students of Corinthian Colleges, a private education company in the United States, decided to refuse to pay back their student debt. Within a month, the students on debt strike swelled to 100. These are among the 400 students who took out predatory loans to attend the for-profit Corinthian Colleges—part of a landscape of moneymaking private institutions. The U.S. government is not unsympathetic to the plight of these students. In 2010, the Government Accountability Office found that in 15 private for-profit schools, their financial officers used “deceptive and questionable” means to get students to take out loans at terrible rates. At a Senate hearing at that time, Senator Tom Harkin made it clear that the entire ensemble of private for-profit colleges posed a serious problem. “Critics say it’s only a few bad apples,” Harkin noted, “but again, I ask: Is the entire orchard contaminated? Does something need to be done systematically to make the for-profit institutions viable and an asset to society, rather than a debit to these students?”

Despite the report and the hearings, little reform occurred in the for-profit college sector. The Consumer Financial Protection Bureau sued Corinthian for its predatory lending in 2014, four years after the report. In those four years, students continued to take out loans, often with the encouragement of government policy. Who were the people to continue to take out these loans and attend Corinthian and other for-profit colleges? California’s Attorney General Kamala Harris described them as “isolated, impatient individuals with low self-esteem” who have “few people in their lives who care about them” and who cannot “plan well for their future”. What Kamala Harris seemed to have said was that these private for-profit schools often preyed on working-class students who cannot afford private non-profit elite colleges. Nor do these students have the guidance of teachers to lead them to cheaper (and less financially dangerous) options. This is why President Barack Obama proposed that government-run community colleges be made free and therefore able to attract students who would otherwise be driven to the for-profit sector. Corinthian, meanwhile, shut its doors in 2014.

Creditocracy

Professor Andrew Ross of New York University (NYU), who has played a leading part in the campaign against student debt, wrote a full-scale jeremiad against the debt system, Creditocracy and the Case for Debt Refusal (OR Books, 2014). Ross suggests that growth rates in the U.S. since the financial crisis of 2008 have been substantially debt-driven. This is why the democracy of the U.S. is built on its citizens living on credit—hence, the U.S., for Ross, is a creditocracy. “Financiers seek to wrap debt around every possible asset and income stream,” Ross writes. “A creditocracy emerges,” Ross suggests, “when the cost of accessing these goods, no matter how staple, has to be debt-financed. For most people, that means borrowing simply to get by.” College tuition and health-care costs are financed by debt. “Indebtedness becomes the precondition not just for material improvements in the quality of life, but for the basic requirements of life.”

No wonder, then, that almost 50 million people in the U.S. are carrying student debt. These are not simply students in the for-profit sector but also students in the private non-profit, public university and community college sectors. The level of debt is vast, now over $1 trillion, second only to home mortgage debt in the ever-expanding world of consumer debt. Economists at the New York Federal Reserve Bank found that five years after graduating from college less than a fifth of the students had paid down their debt. Ten years after graduation, only a third of the students were debt-free. Student debt also has the highest delinquency rate amongst all consumer debt. This means that the debt hangs over the students long beyond their time in college. Student debt has become a part of the lifestyle of young Americans.

The problem of debt is not merely one that is borne by individual graduates. It has an impact on the economy at large. In March, the New York Federal Reserve held a conference on student loan data. Its President, William Dudley, opened the conference with remarks that should give students pause before they go into debt. Dudley, who had been the chief economist at Goldman Sachs for 10 years before joining the central bank, said that student loans “are used to finance human capital investment projects with returns that are highly uncertain”. Even though aggregate data suggest that college education increases salaries, there are very large numbers of people for whom this is not the case, more so, Dudley pointed out, in the vocational sector and for those who earn degrees at for-profit private colleges. “We have gained an increasing understanding that how we finance post-secondary education has significant effects on a variety of critical economic outcomes, including economic growth and inequality,” Dudley said. “For example, our research suggests that higher student debt and delinquencies reduce household formation and depress homeownership.” Student debt, in other words, is a drag on the entire economy.

Strike Debt

In 2011, large numbers of young people joined the Occupy Wall Street (OWS) movement. Walking through the OWS encampments, I met many students who spoke about the debts that they carried and their lack of confidence that they would find decent work. The weight of the debt had paralysed their college education, pushing them to internships and to majors (such as economics) that people told them would ensure lucrative jobs. Neither internships nor these majors guaranteed them employment. What they had was debt and an education that did not fully prepare them for the complexity of the world.

As the OWS disbanded owing to police pressure and a lack of focus, many of the people involved with it gravitated to practical politics. Most of them went into political work against the social consequences of the debt crisis. The most obvious arena was in anti-eviction work, to prevent the housing crisis from throwing out tens of thousands of people from their homes. Less visible initially were the OWS veterans who went to tackle the question of student debt. Many of them were in New York City, some students of Ross at NYU. In 2012, their group, called Strike Debt, produced a pamphlet called “The Debt Resistors’ Operations Manual”. It contained “practical information, resources and insider tips for individuals dealing with the dilemma of indebtedness in the United States today”. Clearly written and dense with information, the manual takes you through the mysterious work of credit scores and fringe finance. It provides a round-up of the kinds of debt (credit card, medical, student, housing, municipal) and offers specific suggestions for defaults and bankruptcy. The manual oscillates between offering tips for individuals who are underwater (there is a superb set of sample letters for procedural requests and to sue credit agencies) and offering suggestions to break out of the shame of debt and into the pride of a social movement (“You are Not Alone/You are Not a Loan”).

Students go into debt not only through college loans but also through the use of their credit card to finance their education. No longer is the credit card only a convenience for purchases. It is now the “plastic safety net”. A 2012 study by Demos, a public policy organisation, showed that 40 per cent of U.S. households used their credit cards to pay for basic living expenses (including food, rent, medical care and insurance). As Demos’ Amy Traub put it, “Americans are using credit cards to make up for the inadequacy of the public safety net, and to give themselves a raise at a time when unemployment remains high and real wages are in decline”. This is, as Strike Debt puts it, “history in reverse”.

The Strike Debt manual ends with several ways to deepen the resistance. Strike Debt developed a campaign called Rolling Jubilee, a mutual-aid project to buy debt at steeply discounted prices in the secondary debt market and then abolish this debt. Over the past year, Strike Debt paid off $3.85 million of the private debt held by students at Corinthian Colleges. A debtors’ union was to follow. It would be a way to organise indebted individuals into a union so that they could then negotiate their debt together rather than as powerless individuals. The Corinthian strike comes out of the Strike Debt movement.

Afraid of the implications of the strike and appalled by the conditions of the loans, officials from the U.S. government’s Department of Education and Consumer Financial Protection Bureau met with the Corinthian students. Nothing came out of the meeting. The government asked for time to study the claims made by the students, who wanted their loans annulled immediately. Who are these students? As Astra Taylor, one of the Strike Debt organisers put it, these are single mothers who are “choosing between buying diapers or paying student loans, fearing homelessness, considering suicide”. The striker Pamela Hunt said that she and her six children might be homeless because her student debt had had an adverse impact on her credit score. Her fellow striker Ann Bowers told the government officials that she “might have to take my dog and go live in a box on the street”. Natasha Hornes asked Department of Education Under Secretary Ted Mitchell the clearest question: “Why is Corinthian allowed to get out of its financial obligations but students aren’t?”