Student Loan Debt--A Symptom of the Conservative Welfare State Shift

by: Paul Rosenberg

Sat Mar 14, 2009 at 13:20

JUAN GONZALEZ: As the Obama administration continues to spend hundreds of billions of dollars to bail out the nation's banking system, a growing movement is calling on the government to do more to help students struggling to pay for college.

According to the College Board, the average cost of four years at a private college is now a staggering $136,000. Four years at a public university, on average, will set you back $57,000. In order to pay for the rapidly increasing tuitions, students were forced to borrow a total of $85 billion during the last school year, up from $41 billion ten years ago. The average student now leaves college with $20,000 in debt.

Long story short:  The Student Loan Marketing Association (Sallie Mae) was established as a government-sponsored enterprise in 1972, and was privatized as part the bipartisan neoliberalism of Clinton's second term, starting in 1997, and concluding with full privatization in 2004, and whopping bonuses all around. It's a perfect example of how a program conceived within the liberal welfare state model was repurposed to serve conservative welfare state ends.

Mass education as a means to social mobility and equality, as well as enhanced autonomy and informed self-government is one of the oldest liberal policy ideas.  Thus the origins of student loans, and the eventual creation of Salie Mae in 1972, as part ofthe liberal welfare state project.  By dramatically raising the cost of student loans--particularly with added penalties, fees, and intrest rate boosts--students often end up more like indetured servants than free citizens, while producing vst fortunes for the state-sponsed special interests that grow fat off them, the student loan industry has been effectively repurposed to serve conservative welfare state ends.

FORMER STUDENT 1: The Citibank Student Loan Corporation would send me these notices, and they'd say, "This is just to notify you of your interest rates." And then they started sending me ones saying, "This is just to notify you of a change in your interest rates." And it was like-it was like watching the odometer on a car.

FORMER STUDENT 2: I remember thinking, "What happened to the nine percent? Where did this 17 percent come from?" and seeing the number, something like $900-something a month for my private student loan and immediately realizing that was more than I make in a month.

ALAN COLLINGE: The most recent estimate is that the amount of outstanding student loan debt in the country is approaching $40 billion, with a "b." And that is only the federally guaranteed student-defaulted student loan debt that is out there. We're not counting the private loans in that, which is probably another $5 billion to $10 billion, and growing quickly.

FORMER STUDENT 2: The original loan amount was $45,974. And this last statement I received on December 16, 2007, indicates that the outstanding balance is $73,789. So it has accrued just shy of $30,000 in interest.

FORMER STUDENT 1: If you look at it in the roundhouse figures, OK, it was $30,000 to go to UNR for three years. They now say that I owe about $90,000. So it's tripled. They can seize Social Security. They can seize tax refunds. They can garnish your wages. Like if I get hit crossing the street by a bus and I end up in a wheelchair, they can seize my disability.

In the segment itself, Alan Collinge tells his own story that was starting point of his own activitism:

ALAN COLLINGE: Yeah, it's good to be with you, Amy. I originally borrowed $38,000 for my undergraduate and graduate education at the University of Southern California. Upon graduation, I got a fairly prestigious but fairly low-paying job at California Institute of Technology. Well, I left that job just prior to September 11, 2001. I found myself briefly sort of unemployed, underemployed, about a year or so, and I applied for what's known as a "hardship forbearance" through my lender, by which I would be able to withhold payments for six months or a year while I got on my feet financially. Well, unfortunately, instead of granting my forbearance, my lender, who happened to be Sallie Mae, put my loan into default. And so, very quickly, within a little over a year, my loans had ballooned to $80,000 with penalties and fees. And by 2005, I was being billed for well over $100,000.

And this is despite my best efforts through every step in the process to negotiate what I considered to be a fair and reasonable payment plan for the debt. And, I mean, this really caused me to wonder why I had such little power, as compared to other forms of consumer debt. And so, in researching the topic, I found out that, you know, nearly every standard consumer protection that we take for granted with every other type of loan in the nation is simply nonexistent for student loans.

Those protections used to exist, but thanks to the lobying efforts of Sallie Mae, Citibank and others, they no longer do.

ALAN COLLINGE: Well, in the absence of bankruptcy protections, for example, statutes of limitations, truth in lending requirements, refinancing rights, fair debt collection practices, in many cases, and also state usury laws, the industry finds that it can be far more profitable when a loan defaults rather than a loan remaining in good stead. And this is also due to congressionally mandated collection powers that, in the words of Harvard Professor Elizabeth Warren, would make a mobster envious.

This sort of massive, systemic rewriting of the rules to deprive students of financial protects, shift all power to the lending institutions, and effectively transfer vast sums of money upward is a perfect example of the workings and purpose of the conservative welfare state.

Also in the segment, Jesse Jackson lays out the arument, not just for a return to the liberal welfare state model, but for the bottom-up, social-solidarity logic of the social democratic welfare state model:

REV. JESSE JACKSON: Well, really we have made a fundamental shift from grants to loans. And these are very oppressive loans. The more you go to school, the worse off you are. Talking about students who are in $150,000 in debt, they marry a classmate, $300,000 in debt, and so you have the combined burden of the loan, and then you have compounded interest. If you don't start paying back after six months, then you're facing default and garnishment. If 20 percent of your school cannot pay back, it can face the loss of accreditation. It only gets worse.

And so, we feel that students should get the same deal banks are getting. If they can get, on the top, zero to one percent loans, students should get zero to one percent loans, and it is a transparent flow of the moneys. When you, in that sense, restructure the student loan process-more grants and less loans-it helps the student, it helps their parents, it helps the school, it helps community. I mean, the help just never stops coming.

And so, we have launched a website, reducetherate.org. Students should begin rebelling and marching across the country. Students have accepted this as like normal. It's normal, but it is not right. And it is a point of rebellion. So we're urging students across America who want to reduce the rate and have more grants and less loans, let's begin to have marches, use last year's energy in the presidential campaign, demand a new deal.

As a perfect counterpoint to all this, showing how no-nothing "free market" ideologues lay down  covering fire to utterly suppress a reality-based discussion of what's going on here, here's a brief comment from National Review Online:

Tuesday, February 24, 2009

The Student Loan Scam   [George Leef]

In today's Wall Street Journal, Jacob Sullum reviews The Student Loan Scam: The Most Oppressive Debt in U.S. History by Alan Michael Collinge and finds it to be rather hyperbolic.

The story of people who borrowed a lot to go to college in pursuit of degrees that aren't worth much is very much like that of the unfortunate people who borrowed big to buy houses they couldn't afford. All the more so when you factor in the government's responsibility for the escalation of college costs and the fact that it has had a big hand in pushing student loans. Just as we'd be better off if the feds had never gotten involved in the housing market, we'd be better off if they had never gotten involved in college financing.

Back in the real world, government doesn't push student loans so much as conservative tax cutting and tirades against government spending have drastically eroded student grants, increased costs of even "low-cost" public colleges, and slashed the pay of jobs students once used to help work their ways through college, leaving loans as increasingly the only option available to most students.

Even more to the point, however is this: If the feds had never gotten involved in the housing market--which they did back in the midst of the Great Depression--there never would have been a mass American middle class in the first place.  And that goes even moreso for involvement in college financing.  Anyone remember the 1944 GI Bill?

In short, the NRO's ahistorical babbling simply has no place in an informed public policy debate.  They are the functional equivalent of the mean loud-mouthed drunk at the end of the bar.

What's really going here is simply an conservative elite takeover of every aspect of our society.  And the folks at NRO and their ideological kin are either useful idiots, or deliberate deceivers in on the con, doing everything possible to distract attention from what's actually going down.

p.s. A couple of resources on the history of student loans can be found here and
here. The latter is a timeline whose earliest entry is:

1643 First scholarship established by Lady Anne Radcliffe Mowlson at Harvard University