Banks want to keep students stupid and in debt. A lesson in economics.
Image by Dan Zen via Flickr
The first lesson we learned from the current economic collapse is:
The market does not solve everything. Despite what the neo-cons like Ronald Reagan and George Dubbya told us, turning all state responsibility over to the market means that the entire country is motivated by profit and therefore operates under a value system of greed. This market-first government has not benefited most of us. In fact, it’s only really benefited the super rich, like Reagan and Dubbya.
The second lesson is that a government unduly influenced by the market, by corporations’ and banks’ lobbying and political contributions, will not be able to fulfill its responsibility as regulator of the market.
A case in point: student loans.
The banking industry is lobbying Congress (and to a lesser extent, the American public) to convince us that the current system of student loans is working just fine. Last Thursday, the House passed a bill that would stop giving money to the banks so they can no longer extract wealth from students. The House bill would give money directly to the students.
The banks are trying to convince us that this will be “bad for students” and “end competition” and “cost the US taxpayers more money.” The banks are, of course, lying through their teeth, but again, their motive is profit, not truth.
The truth about student loans is that they became, under the incredibly pro-market policies of Ronald Reagan, a way to extract profit from students. At this point, the average graduating college student is about $24,000 in debt in commercial loans to banks as well as another couple of thousand dollars in credit card debt. That’s because the government student loan subsidies started going to commercial banks (rather than being distributed through Pell grants and other state-run programs) so banks could make a profit off of students and their families.
Some will say: yes, but that college student will earn on average a million dollars more in her lifetime than someone who doesn’t have a degree and therefore it’s “worth it.” But that is, of course, a misrepresentation of what “average” means. Most college grads will not earn huge sums. Some (and probably mostly those who did not take out loans in the first place) will earn spectacular sums. Furthermore, a larger percentage of students who take on loans will drop out and never finish college. Makes sense- you take on loans because you’re poor, you also take on a job or two, have trouble finding a place to live near campus, commute long distances, etc. and not surprisingly, you drop out.
Then there’s the other lie about averages: rich students don’t go into debt for college so the $24,000 is often misleading. Many students are more than $100,000 in debt before they even get their college degree. If they even get their college degree. For some research I was doing on an unrelated topic, I interviewed college students and recent college grads at a state university. Many of them had more than $60,000 in student loan debt. When I asked them about taking on such huge debt loads, they said “I was born in debt. I’ll die in debt. What difference does it make how much debt.” Okay, they weren’t econ or accounting majors, but really? Is that the lesson we’ve taught the next generation?
And imagine starting your life out with this sort of debt burden. According to Jose Garcia of the Demos Organization,
According to the Survey of Consumer Finance, the average debt for families 35 years old and younger in 1989 was $50,000. By 2007, the average debt carried by the same age group doubled to an astounding $100,000.
The recession has certainly not helped. Recent data from the U.S. Education Department shows that the 2008-9 academic year saw a 25 percent increase in the total of student-loan disbursements to $75.1 billion, making it the largest increase in recent memory.
And what if you never even finished that degree or the degree is more or less worthless because it’s from a school with no prestige? So then you get some job that does not pay a livable wage and without health insurance so you can take on even more debt through credit cards. Or when a medical issue comes up your “friends” at the bank will now give you a medical credit loan. And then when you die, heavily in debt, your family can take out a funeral loan. That way the banks can continue to extract wealth from poor Americans though out their lives and afterlives.
Brilliant, for the banks. No wonder they want to keep Americans stupid and in debt. That way the banks keep themselves profitable and in power.
Post Your Comment
You must be logged in to post a comment
T/S Members
Log in with your True/Slant account.
I’m not sure how the federal loan program could be distributed “through Pell grants and other state-run programs”. These are mutually exclusive things.
And the banks will not be “making a profit off of students and their families” anymore- the government will. Because you see for the student borrowers, nothing has changed. Their interest rates are the same- the only difference is that they will be paying the government.
But I’m sure its a great comfort to them that their money will be going to support other students who cannot afford college (That’s what a Pell grant is for, right?) instead of greedy bankers.
One thing that’s puzzling, though. Does that mean that students who take out student loans (instead of getting Pell grants) can afford college?
It’s obscene. How much is tuition at McGill?
I think it’s about 20% of what it is at my academic home- Middlebury College. So the money is going where? And to whom? Banks… and upper level administration in the US (i.e. the president, the provost, the deans). These people make huge salaries in the US compared to their Canadian counterparts, but we professors all make more or less the same. And the reason college presidents and other admin sorts can take in such huge salaries is because they have raised tuition something like 400% since 1980 because they can because banks keep upping the amount they will give to students. In other words, our universities are now run along corporate principles of profit first, people second.
Yes, one of the things the banks will/would miss most is this virginal opportunity for establishing a life-long, er, relationship with the coming crop of consumers.
This is all consistent with the intentional destruction of the middle class for the development of a super-rich ruling class. They want to financially enslave us, and hang the guillotine of legal action and jail over our heads. I just graduated with a BS in Environmental Science and I’ve had no significant job leads. I’m living at home. If people like me end up working is a gas station for five years then we really are screwed. That would mean the education has little or no perceived societal benefit, so I stay poor, and no one benefits from my skills. There’s no one to vote for either. They’ve all been bought out by the banking and insurance lobbies, who likely received large stimulus funds from the tax payer’s money, which they use to pay off politicians. These people are the 21st century Oligarchs, who are 1) going to do nothing about the impending and inevitable climate, food and water crisis (means a lot of people are going to die) and 2) Will do nothing to re-build our dilapidated economy. As long as they get their fat bonuses and siphon it off into an offshore tax-free subsidiary they’ll laugh and eat the finest food on earth. The rest of us will revert back to living in an early 20th century industrial age society (without the industry) where there’s no civil rights, no labor unions or protection, no living wage, and no education. Religious zealots will call it a return of religious values to society, and the fascists will call it freedom and democracy.
Are you serious about “the intentional destruction of the middle class for the development of a super-rich ruling class”? Do you not understand that the essence of capitalism is competition? It’s naive to think that companies, across a huge spectrum of industries, could/would actually cahoot in some sort of conspiracy to destroy the middle class. The middle class buys their consumer goods anyway, and it comprises their workforce!
I’ll admit that there is a concentration of wealth happening right now, but it is explicitly being caused by the government. Our economy is not, in any meaningful sense, capitalist. What we have is Corporate Welfare. A true laissez-faire capitalist system would have allowed the huge banks that screwed up to fail, which would have prevented further excess risk, since an implicit government guarantee would no longer exist.
Also, you complain about working in a gas station for five years… how elitist!? What’s wrong with that. Just because you went to college, you DESERVE a good job? Do you just expect that, if no one is willing to pay you for your services (because they’re worthless), that the government should create a job for you?! Maybe you can’t find a job because your field of “expertise” doesn’t add any value to the economy.
In response to another comment. See in context »In mere months, I will graduate from a private university in the U.S. with a journalism degree and about $30,000 in debt. Understandably, I’m a little worried. But what makes me steaming, red-in-the-face mad is when I hear bankers and politicians alike in the current debate over SAFRA refer to loans as “financial aid” for funding an education. Loans are NOT aid, but a necessary evil and stopgap solution that most college students must now swallow since colleges are full-throttle in a facilities arms race — increasing tuition at a rate that’s constantly and rapidly outpacing inflation just to aquire the biggest and the best of everything.
And Laurie, it’s totally true what you write about young people being duped into this myth. Everybody told me the same story when I signed a $9500 private loan for freshman year– “Don’t worry, everybody does it, you’ll earn the money to pay it back some day.” But what I think most “grown-ups” hammering out SAFRA are missing is that whether I send my checks to a Boardroom Fat Cat or to Uncle Sam himself, I and millions of other college students are still going to be struggling under massive debts precisely at the moment when our “adult” lives are beginning. Congratulations, graduates!! We’re already screwed.
Until universities curb spending and lawmakers realize that students need less debt and more actual AID (i.e. grants, scholarships, and other things that won’t haunt you in bankruptcy court), the cycle is just going to get worse and worse. We can’t afford any longer to continue confusing being able to pay for college with being able to borrow for college.
How sad that your (presumed) future wealth started to be extracted from you at 18 by a system that is so unethical and so counter to any sense of democracy (which would grant access to higher ed to all who qualify– NOT all who can pay). The entire system is broken… maybe it’s time to start an alternative system of higher ed- one without perfect campuses and overpaid administrators and NO banks- one that’s just about professors and students and learning? I’ve often thought “university in my living room” would create a better outcome than what’s happening now.
In response to another comment. See in context »Tuition is just as much a bubble as Real Estate was, and it led to the same results: much more dollars chasing a slowly-growing pool of resources. Subsidies and tax benefits for tuition result in (you guessed it) higher tuition.
Difference is, in some states at least, real estate mortgages are non-recourse: you leave the keys on the kitchen table, walk away, take a hit on your credit for a few years, and you’re free. Student loans are as lampreysome as taxes: they’ll garnish you for the rest of your life to claw that money back.
You wanna see tuition prices come down? Get all the funny money out of the system. I won’t hold my breath.
Amen to your criticism of banks, they are gross financial predators no matter how you look at it.
But, you fail to point out that tuition increases have been skyrocketing all out of proportion to other costs – much in the manner of health care costs. Same problem; a product you feel you must have at almost any cost and lots of money (or credit) available for it.
College education is becoming another bubble. We don’t have jobs for all these college graduates. We have lots of unemployed degree-holders already. The Philippines tried this 30 years ago (educating your way out of the mess)and now they have a much better educated populace – but almost everyone is still underemployed or and wages are severely depressed because too much educated labor is available (its called supply and demand).
There are way too many people pursuing degrees for too few jobs that may not materialize and those jobs that materialize will be paying significantly less due to the marked labor glut that we already have.
How will those graduates ever pay these kinds of loans without jobs? In addition, there is too much tax money given to universities as it is. Too much of that money gets siphoned off by absurd administrative salaries and benefits, so they just raise tuition to keep themselves fat & happy.
Just another example of government employees living better than the private sector at roughly twice the cumulative compensation packages of private sector work. But, that will change as the private sector continues buckling under the tax loads that have been already placed on it, thereby wiping out tax revenues.
These loans must be taken by students because higher education has become over-priced. It has become way too high – just like houses got ridiculously over-priced when mortgages were given out like candy. It creates artificially high prices (tuition cost)and a glut of supply (degreed fast food workers).
Same thing will eventually happen with student loans as happened to mortgages. They will be going bad left and right. The government’s ratinale in pulling them back probably includes the reasoning that this gives them the ability to kick the can further down the road as far as repayment, when defaults go wild.
If you expect this to happen, wouldn’t you want to get the banks out of the picture so you could introduce a plethora of giveaways, accommodations, and forbearances by the government – financed by taxpayers – for all of these loans that will be going bad too. But, it will allow them to spread the losses out further over time, so the public doesn’t notice it as much.
But, not to worry, because we just need to keep printing more money and the drop in the value of the currency will make your $50,000 loan equivalent to a $5,000 loan, and all will be better – if you can find a job that is…
Church!
Here speaks a 31 yo unemployed writer with $35k of debt from wholly worthless schooling. I cannot tell you how many times I regretted signing up for university rather than buying a plane ticket destining me as far away as possible.
6 months ago I finally gave up. I quit my MBA program half way through and full time job as I was just indebting myself through the rest of my life and got the fuck out. I put the loans on forbearance. Went to live in a non-extradition country where almost no one has debt and the economy runs on cash. Life is much happier here.
One comment here gave me a good strategy I had not yet considered which bears further research: if student loans will follow one around like tax debt, perhaps I can use my avail credit to pay them off. It’s close to the same amount and although difficult it’d not as difficult to default.
Default…I’m starting to like this word….