Yves here. Thomas Neuburger does a fine job of picking apart Democratic party posturing of being on the side of ordinary folk, student loan edition.
Before you harrumph that student borrowers are failed upward mobility aspirants and presumably come from middle class backgrounds, let us not forget that some of these borrowers were funding studies in community colleges and trade-school type programs. And a cohort badly afflicted is those who don’t complete their programs. From the New York Times last year:
Millions of Americans like Mr. Chaney borrowed to finance an education they didn’t complete. The reasons vary — the coursework didn’t fit their skills, illness or family circumstances foiled their academic careers — but the result is the same: debt, sometimes in the tens of thousands of dollars, but no degree….
Now, with President Biden considering a forgiveness program to lighten the load on some — or all — of the nation’s 45 million federal student loan borrowers, debate has focused on whether it is appropriate to grant relief to those who borrowed money to increase their earning power. But the many borrowers who didn’t get the professional benefits of a degree would be perhaps the biggest beneficiaries.
Exactly how many borrowers fit that description is unclear, but it appears to happen frequently. Nearly 40 percent of full-time undergraduates who enrolled in the 2011-12 academic year accumulated some debt but did not have a degree after six years, said Mark Huelsman, the director of policy and advocacy at the Hope Center for College, Community and Justice at Temple University.
About 37 percent of borrowers enrolling in four-year institutions in 2013 didn’t graduate within six years, either, according to the National Center for Education Statistics. The rate was even higher — 75 percent didn’t earn a credential — at private, for-profit institutions.
Keep in mind the for profit institutions skew towards technical training and credentialing, like licensed HVAC mechanic.1
But IMHO a key point is regularly lost in the student loan debate. Higher education fees exploded due to borrowing enabling students to pay much more. There is zero evidence that tuition increases resulted in better educational product. Instead, it funneled money to a key Democratic party constituency, which increased its ranks (adminisphere bloat) and paid themselves better (except for adjuncts and hired hands like cafeteria workers). In other words, student borrowers became a pork vehicle.
By Thomas Neuburger. Originally published at God’s Spies
For those on the left … too many of us have been interested in defending programs the way they were written in 1938.”
—Barack Obama, 2006
“I’m glad we won the race in New York, but I hope the Democrats don’t use it as an excuse to do nothing on Medicare.”
—Bill Clinton to Paul Ryan in a caught-on-tape moment, 2011
“The real market for political parties is defined by major investors, who generally have good and clear reason for investing to control the state. … Blocs of major investors define the core of political parties and are responsible for most of the signals the party sends to the electorate.”
—Thomas Ferguson, from his book Golden Rule
Student debt, a weight born by all of society, is back to burden us. Every dollar spent paying these massive loans is not spent in the economy. Every millennial who went to college seeking a better life — a life promised, despite the globalized labor economy, by Democrats for decades — must now re-shoulder the cross of life-changing, soul-crushing debt (my emphasis below).
The [debt] deal spells out when repayments resume: 60 days after June 30. If the legislation passes, that means all federal student loan borrowers will be expected to start making payments again after August 29. Their loans will accrue interest then as well.
And this time, it looks like it would really be the end: The debt deal prohibits the education secretary from extending the pause on federal student loan payments without congressional approval.
The end of this pause will affect some 43 million borrowers who, collectively, owe over a trillion in student loan debt.
But, in effect, the new rules won’t change much about the current loan landscape. Even before Biden and McCarthy reached a deal, the Department of Education was readying the return to repayment.
Julia Rock, writing for LeverNews, describes it this way (my emphasis below):
Student loan payments have been on pause for the past three years, as part of a COVID-era relief program initiated by former President Donald Trump. In one of a series of concessions to Republicans during the recent debt ceiling standoff, Biden must restart student loan payments by the end of this summer.
That means more than 40 million Americans will be once again crushed by debt, but it also strips Biden of his best tool to defend his broader student debt cancellation program: delay. His order to cancel up to $20,000 in debt for federal borrowers is expected to be struck down by the Supreme Court any day now — making it an inopportune moment for Biden to relinquish his power to extend the payment pause.
So Biden and Democrat leaders gave away the last tool they had for helping these people. What else did they give away?
Democrats could have avoided this scenario. But they refused to get rid of the debt ceiling, an arbitrary limit on government borrowing, when they controlled the House and Senate during the first two years of Biden’s term. Then, instead of bypassing it unilaterally using executive authority, Biden chose to negotiate with Republicans, making major concessions — including his own power to keep the student loan payment pause in place — to raise the ceiling for just two years. In doing so, Biden may be cementing his decades-long legacy as a defender of student debt.
Note the sentence “But they refused to get rid of the debt ceiling … when they controlled the House and Senate during the first two years of Biden’s term.”
Not only did they refuse to do eliminate this threat when they controlled both Congress and the White House, they refused to eliminate it yesterday, or the day before, or any day since announcing “no-negotiations” with Speaker McCarthy, when either of two (or more) routes to ending the blackmail forever were available.
Route One: The Fourteenth Amendment
One route for ending the Republican blackmail uses the much-discussed Fourteenth Amendment. That Amendment states in part:
Section 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.
For many analysts, this means that any default on federal debt is unconstitutional. But that interpretation is in dispute. From Adam Levitin(courtesy Yves Smith):
The Public Debt Clause is a prohibition on disputing the validity of US debt obligations–that is[,] disputing whether they are legitimately owed. There’s not a word in the 14th Amendment about default. … It’s not a prohibition on defaulting because such a prohibition would be meaningless. …[P]rohibiting default doesn’t get creditors anything. Prohibiting disavowal does because it means that creditors retain their right to be paid.
Two points to make about this. First, questioning the “validity” of federal debt does indeed have this common sense meaning. So this interpretation could be entirely right on its face.
Second, even if this interpretation is wrong, why would a Republican judge or a right-wing Supreme Court not use it to force Biden to accede to Republican demands? That side uses every tool it has. This argument is an excellent tool.
Route Two: Articles I and II
Levitin instead argues that a case based on Article 1 (and Article II) is much more airtight. In a piece for The American Prospect, Levitin writes:
The Constitution gives Congress the power to make contracts. It does not give Congress the power to renege on these contracts. Once Congress has committed the United States to perform a promise, the president’s duty to “take Care that the Laws be faithfully executed” requires the executive branch to perform. If performance requires payment and Congress has appropriated the funds, Treasury is bound to pay. If Congress does not raise enough revenue to pay for appropriated commitments, then the president’s only choice is to borrow to fill the gap. Each time Congress authorizes a contract and appropriates funds to perform it, it necessarily authorizes borrowing to the extent that Treasury funds fall short. (emphasis added)
To put it more succinctly, “The Constitution [in Article I] gives Congress the power to make contracts. It does not give Congress the power to renege on these contracts.”
In a related piece, Levitin writes:
[Various commentators] are right to argue that the debt limit is unconstitutional, but the constitutional problem isn’t the 14th Amendment. Instead, it’s Article I of the Constitution, namely Congress’s power to enter into contracts. … Congress has a power to make binding commitments for the United States and the President is constitutionally obligated to perform those commitments. If the Treasury lacks the funds, then the President must borrow. No specific authorization is needed. Instead, it is implicit every time Congress appropriates funds to perform a binding commitment. (emphasis added)
As for the president, his duty to “take Care that the Laws be faithfully executed” is enshrined in Article II, which contains exactly that text in Section 3.
As I wrote above, this seems an airtight argument. Yet each of these routes is a road not taken. Why?
‘A Very Poor Negotiator’
During the early Obama years, Democratic Party voters and supporters, appalled at the multiple surrenders by Obama to Republicans, asked, in essence, “Why is Obama so bad at negotiating?”
Here for example is the 2011 version of Krystal Ball writing in The Atlantic:
As the dust settles on the debt-ceiling fiasco, liberals are left scratching their heads and wondering what the heck happened. Public opinion is overwhelmingly in favor of a balanced approach to deficit reduction and 67 percent of Americans believe we should be focusing on the economy rather than the deficit. With public opinion in our favor and a few fail-safe constitutional options in our back pocket, how did this showdown end in complete and utter surrender?
And on that year’s debt ceiling crisis:
First the president offered a plan that included $4 trillion in deficit reduction, with cuts to Medicare, Medicaid, and Social Security all on the table in exchange for a few hundred billion in revenue from closing corporate tax loopholes. This initial proposal was far to the right of what his own Bipartisan Fiscal Commission proposed. When this “grand bargain” was shot down and the president ruled out using the 14th Amendment of the Constitution to unilaterally increase the debt ceiling, there was nothing to do but surrender.
Need more examples? Krystal Ball described how Obama caved on the health care debate, the Bush Tax Cuts negotiation and the government shutdown crisis. She concludes that “the president’s idealism has made him a very poor negotiator” and credits his “lack of cynicism” for this failure.
We now know, however, that President Obama wanted a “Grand Bargain” all along, with cuts to social programs as part of the package. He wasn’t a poor negotiator at all. His “idealism” wasn’t holding him back. He simply had goals we wouldn’t admit he had. (Krystal Ball has long since learned this lesson.)
Even Bill Black, in a 2012 Huffington Post piece that’s heavily critical of Obama’s “grand bargain,” makes similar excuses for him:
Republicans, however, have now found a fifth column within the Democratic Party who they hope will open the door to attacking the safety net. This would provide the political cover that Republicans could use to unravel fully the safety net.
The Republican Party’s approach to convincing Obama to commit the Great Betrayal cleverly exploits three human weaknesses. First, Obama wants to be considered a “centrist.” Second, Obama yearns to be considered “bipartisan.” These first two weaknesses are forms of vanity.
The third weakness that the Republicans seek to exploit is fear … The Great Betrayal can only occur if Obama succumbs to mindless (and innumerate) panic.
Black agrees that the 2012 Obama wants his “grand bargain” going forward, but not with having wanted it all along. Yet listen (again) to the video at the top, in which Senator Obama talks to a roomful of Robert Rubins in 2006.
There he says plainly:
Both sides of the political spectrum have tended to cling to outdated policies and tired ideologies. For those on the left … too many of us have been interested in defending programs the way they were written in 1938.
He wasn’t a bad negotiator, nor was he tragically idealistic. He just had different goals than we believed him to have, and he failed only because Tea Party Republicans, not progressive Democrats, stopped him. Just as Monica Lewinsky did, by the way, during the Clinton administration.
Yes, Clinton wanted to cut Medicare just as badly as Obama wanted to cut Social Security.
Note in the clip above, how Cenk Uygur soft-pedaled Clinton’s betrayal — “That’s pretty disappointing,” he said. Soft-pedaling these “disappointments” provides cover for doing more of the same. (A version of the conversation without the Young Turks wrapper is here.)
‘Squaring Big Money Politics with Folk Appeal’
Is it possible that Democratic Party leaders want to fail in their negotiations with Republicans? Do they lose, not because they’re bad at it, but because these failures give them what they actually want?
Here’s Thomas Ferguson, he of the “investment theory of party competition,” to say yes. In a piece for the Institute for New Economic Thinking called “No Bargain: Big Money and the Debt Ceiling Deal,” Ferguson and his co-authors ask, “What is the real reason Democratic party leaders go along with the debt ceiling ritual?”
Their answer is painful, but obvious — unless you think Party leaders are children or fools. The authors repeat an exculpating question posed by Paul Krugman:
“More and more it looks as if there never was a strategy beyond wishful thinking. I hope that I’m wrong about this…But right now I have a sick feeling about all of this. What were they thinking? How can they have been caught so off-guard by something that everyone who’s paying attention saw coming?” (emphasis added)
They answer him this way:
The White House was not caught off guard. Like climate disaster, the crypto meltdowns, and the tremors now coursing through the American financial system, the high noon showdown between Republicans and Democrats over the debt ceiling was pre-programmed from the start.
The reason is simple: The dominating fact about American politics is its money-driven character. In our world, both major political parties are first of all bank accounts, which have to be filled for anything to happen.
Which leads to this conclusion:
[T]he President is running for a second term. His fundraisers openly declare that the campaign intends to raise more than a billion dollars. In recent presidential elections, contributions from labor union amount to about 6 or 7% of total political spending. Money in the amounts the Biden campaign seeks can come only from one place: from the superrich and very affluent Americans. And in a Congress so dependent on money flows, relatively few representatives in either party are likely to do much more than posture when it comes to raising taxes.
And the kicker, or punch to the face if you will:
For Democrats in particular, the advantages of first actually passing programs, then standing back and reluctantly sustaining votes to take them back are a dream come true for squaring big money politics with folk appeal. That is the real reason Democratic party leaders go along with the debt ceiling ritual. (emphasis added)
In other words, they’re not children; nor are they fools. They do it because they want to. It’s disrespectful to think otherwise.
I said above this was “Republican blackmail.” In fact, it’s donor class blackmail, they who always want more for themselves and less for everyone else. They who win when we lose. They whose control of government far exceeds ours.
Our Political World Needs a Primary
That’s the painful truth of our political world. And unlike the messages sent by their in-house media (looking at you, MSNBC), our leaders seem happy to risk handing power to Republicans, so long as it pleases their donors.
Yes, Republicans mean to do horrible things. Why won’t “our” Democrats stop them? The answer’s above.
The solution? If the Democratic Party can’t be disrupted or changed, I don’t think much else can. We should start with a primary, soon.
_____
1 In Alabama, for instance, you don’t have to possess a license to do HVAC work, but technicians are supposed to be supervised by a licensed mechanic.
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Reading about the betrayals of Obama and Biden makes we wonder if we really understand how our Presidents are paid. Yes, there’s the Presidential salary paid by the taxpayers, but it seems highly possible that Presidents are receiving remuneration in a way similar to pro athletes. Just as a quarterback may have a contract that pays him extra if he exceeds 40 touchdowns in a season, so may Presidents receive future compensation by various means if they achieve certain benchmarks:
Cut SS — $50 million
Cut Medicare — $50 million
Increase Defense budget — $25 million
Start a new war — $100 million
The sums are paid by the billionaires through various sources, for example, a streaming company paying for the ex-President producing movies no one watches.
Obama did pretty well, but he did miss out on that Grand Bargain. Biden is working hard to pick up all the bonus money.
Some nice reading to go along with my insomnia.
This article just strengthened my decision not to vote Democratic from now on. From reading the linked article from the writer’s substack, it also shows just how weak both parties are. If both major political parties combined membership is less than the total of the independents and decreasing, the only real base of support is the vast sums of cash and the tiny base of true believers.
Despite the appearance of permanence that both parties and the system they represent, it can be described as an increasingly fragile, even rickety, political system. Money in American politics has always been a major determinant for what happens, but the mass political participation of the American population and through mass movements was also extremely important and effective. Even the Republican Party had an extensive political structure down to the county and town. The Democratic Party had its organizing down to individual blocks with block captains tasked with getting members out to vote. Who Will Tell the People by William Greider has a good chapter on this.
What this all means is that both parties are like leaky ships that could flip over and sink at any time or their diseased, corrupted vessels could stay up. I would like to think that they could be reformed from within and below, but between the NGOs that are often just a part of the party, the grifters only wanted money, and the zombie cultists, I just don’t see it happening. And I include both parties.
Even if someone does succeed, with the security state also increasingly corrupt and violent, just as in the past, politicians and organizers will likely get lead poisoning or the police will find child porn on their phone. I say this seriously and without hyperbole.
So, since I will not be voting Democratic and forty million Americans just got the shiv after being lied to again, what is the chance for Donald Trump to become president?
Maybe, the question to be ask is what is the chance that a political faction like the ultra conservative Christian Nationalists in the Republican Party wins? I do not see the Democratic Party putting together a cohesive and effective faction because the leaders including the financial backers are in with President Biden. This could change; I do see the possibility of the sane remnant of the Republican Party allying with the now economically conservative Democratic Party along with the security agencies and the financial institutions creating another party. They would be keep the name of the Democratic Party as a façade.
It is very likely that a movement, a new party, a new political faction, or just some charismatic individuals will suddenly gain power. The system is just that brittle. However, do to the rot and the pressures added by the collapsing of everything including the climate, just what we get will be a crapshoot despite the best efforts of everyone. This includes the elites. The next two decades are going to be spiraling out of control and we just going for the ride. I just hope that we will not have a controlled flight into the terrain.
Reminds me of a post on interfluidity, which I can’t find, but I found this from part of a presentation:
https://www.interfluidity.com/uploads/2020/08/seminar-weakness-is-provocative-first-draft.pdf
The elite need only move a small subset of those that still choose to vote in our system, to achieve their aims.
It is probably only by creating a nationwide, community based, as in to individual blocks, apartments, and homes, political party, or even a very large reform moment like that of the Progressives, would positive change occur.
The increasing amounts of money-is-speech corruption married to the now insane level of wealth and income disparity allowed both the political parties and the establishment they work for to create a political economy that could safely ignore the population. Add the destruction of not only any industries not financial or tech and the slightly earlier destruction of all the regional centers of cultural and political power that countered the centralization of the wealth, political power, education, and culture into a handful of locations such as Washington, D.C. and NYC.
A greater part of the country every year becomes discarded, which is why I think that a new political movement or party might have a real chance as long as it remains focused on economics and corruption, perhaps education and healthcare as well. The economic and political center of the United States really is rotten, meaning that the elites control is in danger to any population based organization that does not get bogged down in social BS.
When I went to collage it was free here in the US. College is still free in Europe. The hyper-monetization of education is one of the greatest crimes committed on the public in recent decades. The idea that you need to be rich to get an education, or go into unending debt as you are starting out, is despicable. Only a society in which capitalism had become unmoored from virtue and ethics would you get such savage treatment of young people and their families. Both parties are to blame, and voting for either party will just perpetuate the status quo. I predict that Biden will make a lot of noise about this, and just when it comes time to do something, the Democrats will fail again. The pressure on the Democrats to not do anything is enormous and they always cave to that kind of elite pressure.
The Democrats don’t cave in to the elite, they represent the elite.
This is such depressing news. I’m stuggling to pay all the bills now, with a general inflation rate of 10% and food inflation of 20%. Now, I get to deduct an addition $200 a month from my paycheck. What really gripes me is that it’s for a loan that I’ve technically off years ago because I’ve already paid back the amount of the principle. Unfortunately, the interest rate ensures I’ll be paying until I retire. Had I known when I was 18 that student loans were such a scam; I would have chosen not to go to university. Sure, I’ve helped countless people in my 25 years as a social worker, but I wouldn’t have chosen this field had I known I would pay my entire career for the “priviledge”.
And before anyone starts with helpful suggestions, when I worked in the US, I worked for a private company as a social worker because the state I lived in had privatized most social services. My salary was no different, but, because my company was for profit, my loans didn’t qualify for forgiveness. I’ll never understand the logic behind that rule. I guess there are still some who would place the blame on me for not moving to another state. lol. Now, I work for the government as a social worker, but the “wrong” government. I no longer work in the US. Therefore my loans still don’t qualify for forgiveness.
If you don’t live in the US, what would happen if you simply refused to pay back the interest, and stop making payments?
Based on my limited knowledge, I would be fine as long as I never tried to enter the US again. I’ve heard faint rumors that I would risk running into legal problems if I tried to enter the country. Secondly, the bulk of my “retirement” will be based on social security. The country I live in caps how much I can receive in their form of SS to 40%, regardless of how many years I work since I’m an immigrant. Therefore 60% will be in the form of SS. If I default on my loans, the US can take my SS until the loan is repaid in full. Of course, during the years the loan is in default it will be accruing ginormous interest. I would essentially be kissing my social security goodbye. “No matter which way you turn, you get f**ked”- That’s the US motto. And that’s why I left.
They can’t take more than 15% off your SS payment. Let ‘em twist in the wind.
Also, you may know this, but if you are no longer living in the US, you can pay zero federal taxes. Check out Form 2555.
Biden comes from the State of Delaware, the credit card capital of the United States. Biden voted in favor of making Student Loan debt non-dischargeable in bankruptcy. You can’t fail to negotiate with the other side when you are part of the other “side”. Both parties beholden to the same interests, and we still write articles pretending there are sides.
Yep, I have no idea why anyone is surprised the “The Senator from MBNA” doesn’t want debts actually forgiven.
I am interested to see how many people actually start to repay them, and how many go into default.
The Elites are making a major mistake with this resumption of the “The whippings will continue until morale improves” policy. Roughly speaking; “When you have nothing, you have nothing to lose.”
Politics in America will slowly but surely become more and more violent. The PMC Elites think the Jan.6 riot was bad? They ain’t seen nothing yet.
The PMC and corporate/political elites also assume, perhaps rightly so, that they can use the tools of surveillance to preemptively arrest the people involved in any movement before it gets off the ground, and then use the militarized police and armed forces to frighten or quell any sort of real insurrection into submission. I am sure that our leadership would not hesitate to start sending drone bombing runs into areas that it deems to be full of troublemakers.
Eventually, our populace will be so beaten down and demoralized that any idea of staging a revolt would be a foreign concept if we have not arrived at this point already. I know I am being a doomer on this, but the US is now a country where populist movements go to die and has been for the past few decades.
The likely goal of the more intelligent and ruthless PMC, really their managers in the elites, is to violently suppress the population. This assumes that there is a functional, supportive, and effective police or gendarmerie and military that will be able to use enough force to do so. What is likely to happen as the central government loses its capabilities to at all govern entire states will go away. First by counties, then by state. It could go the way of Burma with the increasingly desperate central government slaughtering the increasingly recalcitrant population, but still gradually losing control of the country.
In 2008, I called him status quObama, change you can pretend in, and that was being kind. Adoph Reed had clocked him in 1996. Didn’t we all clock Biden in 1991? Clinton in 1992? This is not your grandfather’s Democrat Party, maybe it never was. In Upton Sinclair’s 1934 bid for governor of CA (as a Democrat), the national Democrats supported the Republican.
People who read did. TV and radio infotainment consumers didn’t. Anecdotally, Biden supporters (Hillary ones too) simply applied foxnews descriptions of Democrats to Biden etc. Team Blue elites aren’t real people but emblems of Team Blue, and if it’s not on Maddow, it’s not real. She on TV.
My advice to my Children was Join the Military or Emigrate.
finally a article that does not blame its all reagans fault. don’t get me wrong, reagan was as worse as jimmy carter, both dunces unleashed a lot of bad on america.
but what they did was reversible. i am glad the article started out with two names, clinton and obama, both were the worst presidents america ever had, just edging out woodrew wilson.
both are criminals and war criminals, that should be perped walked.
clinton made every problem facing america worse, and created whole new sets of problems that are dragging america into the ground. obama simply bailed out those disastrous policies, and made sure they could not be addressed.
there is no getting out of this mess now, america is being drained of just about every single penny left.
the future is plainly slavery of all sorts. so when ever you hear someone say its all reagans fault. try to educate them if possible.
Don’t worry, Joe’s going to “finish the job.”
But IMHO a key point is regularly lost in the student loan debate. Higher education fees exploded due to borrowing enabling students to pay much more. There is zero evidence that tuition increases resulted in better educational product.
Aye. This is hugely important. The government lent out a trillion-plus dollars without evaluating students’ ability to repay. This was surely an invitation to abuse by colleges and universities. Modern campuses are starting to resemble vacation resorts, but I don’t sense that recent graduates are any better prepared for post-college life than those who graduated before them. They’re just deeper in debt.
And regarding that debt, the question naturally arises: What do we do about it? Neuburger doesn’t explicitly say, but he seems to be advocating suspending payments indefinitely. Perhaps permanently. But this would invite even more abuse.
One thing that would happen is that pretty much all current students would start borrowing the max, even if their parents had a loaded 529 plan that could cover things in full. And why not? They wouldn’t have to repay it. And colleges would stop offering scholarships and other discounts, as they could simply ask the students to borrow more. And why not? They wouldn’t have to repay it. And the number of those crappy for-profit colleges would explode, as the repayment statistics used to identify and cut off those bad schools would no longer exist. I could even see for-profit schools offering kickbacks to students to ensure that their seats remained full. Without controls on spending, our post-secondary education sector could end up more bloated and wasteful than our military sector.
So from this standpoint, I think that the loan repayments had to resume, even though I have considerable sympathy for the plight of recent graduates. [Our colleges and universities took advantage of them, and it was truly unjust.] But to fix this we need a real plan. Something comprehensive that keeps future spending under control and offers students who end up with excessive debt a path out.
How about simply do away with charging interest on student loans? If even that simple change were made, it would alleviate a huge burden on borrowers. Or would that also invite “more abuse”? Why is everyone so concerned about the average person “abusing the system”, but not the ungodly amount of billions being scammed from the taxpayer by the MIC and the FIRE sector every year?
Setting student loan rates to zero would indeed invite “more abuse”, but not by the average person. One group that would abuse it would be the wealthy. For example, suppose that a rich couple has $200k in a 529 plan intended for their child’s education. Normally it would be spent directly on education, but with zero-interest loans available, they would instead borrow the money and invest their $200k elsewhere. Even if invested in a CD earning 5%, they’d have 200*(1.05**4) = $255k at the end of four years, which means they’d get to keep $55k after paying off the $200k loan.
But the bigger concern (by far) is the colleges and universities abusing it. Many would look at the improved borrowing environment and say to themselves, “Wow. Students can borrow more than ever. Let’s raise tuition.” And given that this has been the relentless trend for decades, I don’t think I’m being overly cynical here. Tuition hikes would likely gobble up the savings from zero-interest loans in just a few short years.
Indeed, I’ve developed a particular contempt for the EIC (educational industrial complex) over the past decade because they (with the aid and consent of the federal government) have routinely encouraged young students to borrow more than they could reasonably repay, destroying the financial futures of literally millions of people in the process.
Now please don’t misunderstand me. I believe greatly in education. But today’s setup is terribly corrupt, and it’s entirely reasonable to use the word “scam” and to make comparisons to the MIC and FIRE sectors. For a true fix to the student loan program going forward, loan sizes must be limited based on likely ability to repay, and bankruptcy protection must be restored. [Or bag it all and have the government directly fund post-secondary education. But that would be trickier than is generally realized.]
Well, tuition-free public universities used to work real well. Produced a lot of primary care doctors, social workers, (real) Nobel prize winners, etc. Until college presidents discovered they could get paid like Jamie Dimon.
Not one mention that “the bargain” kept and continues to keep funding for the military and the security apparatus off the table.
Student loan debt, household debt, corporate debt. The Debt Bubble is still growing. “Debts that cannot be repaid, won’t be”
In many other countries this is a not even an issue: colleges and universities are free or nearly free. When I taught at a university in Europe, students complained when they had to start paying 800 euro per year tuition. I told them that on the bright side, at least they didn’t have to pay 10s of thousands and go into debt. The students could not wrap their heads around tuition costs and debt for US students. Debt for education is unheard of and culturally unacceptable in many countries.
Only in ‘merka: education is means to create whole generations of debt peons.
The main issue is that we have no free markets. No private investor will lend money to 17 year olds with no strings attached. Debt without collateral is a very dubious promise to pay that is rarely honored.
Most of my friends got student loans with the initial intention to use the money for smth else not to go to school. I am betting thousands did the same thing. It’s the kind of abuse that always happens with other people’s money.
It takes a lot of discipline not to yield to the attraction of free money now with a vague promise to pay in the future.
Capitalism ( free market capitalism) has a very nice and effective way of dealing with unpaid debt , it’s called bankruptcy. Use it.
Your comment reveals considerable ignorance. First, as we have discussed long form in ECONNED, there can never be a “free market”. You need government enforcers, as in contract law and courts, as well as laws about product quality. Otherwise the cost of due diligence on product quality and contracting costs become so high no one can trade with people they do not previously know very very well and fear reputational costs if they start cheating.
Second, student debt cannot be discharged in bankruptcy since the 2005 bankruptcy reform act, which Biden supported. We’ve pointed out repeatedly the cleanest solution ot the student loan mess is to allow student loans to be dischargeable in bankruptcy, and have criticized top bankruptcy low expert Elizabeth Warren for not forcefully advocating for it (she has finally started but not very loudly).
If we ever want to properly fix the U.S. student debt crisis, then we need to understand exactly how it was created.
Students borrow money to pay universities, which are the main beneficiary of the $1.7 trillion in outstanding student debt. How much students borrow has ballooned exponentially over the last 15 years. This was during a period of record low borrowing costs (see Fed ZIRP – Zero Interest Rate Policy), and a drop in college enrollment.
Our federal government loans trillions of dollars to a universities students, so these students can pay whatever education related costs the university decides is reasonable. And this cost is non-negotiable. The trillions in federal student loans that universities get is in addition to their exemption from all federal and state income taxes, their exemption from paying property taxes on university land, and their right to issue tax exempt bonds to fund construction, renovation, and operational costs. This does not include the $50 billion per year the U.S. government pays to universities in federal contracts and research grants. These institutions are eligible for almost every government subsidy and tax loophole imaginable.
If nothing is done to reign in and reduce how much universities charge their students, then future student debt is just going to keep ballooning. Forgiving student debt won’t fix this problem, it can only delay a much needed reckoning.
To give you an idea of what to expect if we let this situation continue please imagine this same historic chart of university student borrowing, where the lower or left side of the chart starts at $1.7 trillion. If we magically find some way to forgive $1 trillion in student debt then imagine the same chart of university student borrowing, where its lower or left side starts at $700 billion.
The ballooning of this debt that started a student loan crisis did not slowly develop over the course of decades. Most of it occurred after the 2008 Great Financial Crisis. Mainstream media has been extremely hesitant to point this out, as well as that universities are the most responsible for creating and perpetuating our student debt crisis.
One reason not yet mentioned is Cruelty.
Joe Biden has never missed a chance to abuse the weak or powerless, his treatment of Anita Hill is but one example.
I made my living collecting 2nd,3rd and 4th placement student loans for a number of years ( I got out when Governor Peukmejian deregulated the Biz in California, about the time the 486 chip was being introduced)
My take is that roughly 1/2 the defaulted student loans were from “:Student Loan Mills” like ITT Technical, Universal Beauty School, Bible Colleges and the like.
VERY profitable scams, ask Bill Clinton about it….he made $10MM a year fronting for one.
The failed Bible students were a hoot, one sent me an almost yard long curse in Aramaic on scraped sheepskin.
I sold one heck of a lot of copies of the NOLO press “do it yourself BK” book over the years, long before “Scranton Joe, the working man’s friend” pushed through the 2005 “Bankruptcy reform” Bill.
Either refunds to those of us who DID struggle to get our student loans paid, despite not completing programs (initially – I went back and fisnished after some time) or, more realistically given exploding costs and lack of oversight on loan packages, make student loans able to be discharged in bankruptcy again.