Student Debt Crisis

This essay may be reproduced.
Reprinted in the St. Petersburg Times, Nov. 18, 2011, 13A.

For Sale: One Kidney. $30,000 plus all expenses. White, male, BS with dual major in physics and mathematics.

I personally know this student. He is serious, not crazy.

As an honors student, he worked part-time for 4 years. He has been entirely self-supporting and has graduated with a $30,000 student loan debt.

In his words: “I only need one kidney, and I want to start out even.”

In the US this past year, the total amount of outstanding student loan debt reached one trillion dollars. This exceeds the total amount of outstand credit card debt. The average college student in the class of 2010 at a public non-profit university will graduate with a student loan debt of $25,500. It is even higher for those attending for-profit educational institutions.

It did not always use to be this way.

Historically, the US made investments in education as the way to secure the future of the nation, and to provide the equality of opportunity that defined the “American Dream.” All of that started to change in 1980s with the political philosophy of reducing the size and the social responsibilities of government.

Since 1982 college fees and tuition have increased over four times the rate of the consumer price index and nearly twice the cost of medical care. After the financial crisis of 2008, every other form of debt has decreased as people made adjustments to harder times. The exception is student loans that have grown larger as college tuition and fees increased to compensate for loss of government support for education.

When too many students owe more than their degree is worth, or lose their ability to pay the debt, this financial bubble will burst -- as it surely will with suppressed wages and a 9.1% unemployment rate. Similar to the housing bubble, we will be asking all over again, how could this be?

The answer is the same for student loans as it was for mortgages.

The college loan industry is following the same path as the mortgage lenders by recruiting students who have small chance of success. They end up with debt and no degree. These loans are similar to the toxic mortgages. Other students take out loans on the promise that economic growth will make the loan affordable in the future. The grim reality is that this is no longer true, for student loans as well as mortgages. The illusion of economic growth by financing the present through debt is over, for individuals as well as for governments.

The student loan bubble is an even a more dangerous symptom of the failure of our national political process than was the mortgage bubble and the resulting financial crisis of 2008.

Education, science, health, roads and all of the other things that have made the American Dream possible, and made our country the envy of the world, are not commodities, they are public investments in the common welfare. My student’s kidney, and all that it symbolizes, is not, cannot and should not become a commodity.

Student loans are the only type of debt that cannot be discharged in a bankruptcy, except under rare and unusual circumstances. The financial industry that created the student load bubble has successfully lobbied for laws that exempt such loans from the capacity to be discharged. With accumulated late payment fees and interest charges they are a more toxic financial “product” then the mortgage crisis.

It is not an individual’s responsibility to have to choose between debt and one kidney, or between forgoing education to avoid debt. It is, however, the responsibility of government to be a buffer between the public good and predatory Wall Street practices of creating artificial financial “products” to make money at tax payer’s expense, or as cumulative debts to be paid for by our children.

Protecting the quality of public life is the primary responsibility of government. That is why we pay our taxes. We are not going to solve our social issues of public education, health and human welfare by reducing government. It is our government, and it is our civic responsibility to have it have it serve the end of human progress; this is the definition of a democracy.

It is not the primary function of government to further the accumulation of power and wealth by corporations, and the control of government by the wealthy; this is the definition of a plutocracy.

The choice between the two is ours to make. It will be the defining choice of our lifetime.

This is what the “Occupy” movements around the world are about.

Professor Renner teaches in the Honors College at the University of South Florida. This blog is based on his podcast series “Forums for a Future” at www.kerenner.com