Student debt: the next bubble? Let's confront this class war.

by Richard Mellor
Afscme Local 444 retired

Iran has been downgraded for a minute or two as North Korea offers US capitalism’s spin doctors a better option for keeping its population focused on imaginary external enemies.  The intention in the Korean Peninsula is regime change which would open up new territory and a new source of cheap Labor power. US capitalism presents North Korea as a serious threat (see previous post) as it wages a domestic war on all aspects of our lives and the misery and death that is a result of this war far outweighs anything foreign.  The details of this war on its own people, this class war, are available if you look for them, if you ignore the propaganda and the absurd War on Terror.

Leaving aside the more brutal forms of oppression here in the US, the prison industrial complex that houses more than 2 million souls, more than any other country, the homelessness or the miserable health care system that leads to thousands of deaths and is the leading cause of bankruptcy, we should consider debt.  Millions of people are enslaved by debt.  People use credit cards to buy food, purchase health care and other necessities.

As we saw with the onset of the Great Recession when poor and low income people, desperate for shelter and keen to avoid the clutches of the landlords and rent payments where your rent pays the mortgage on someone else’s home, were conned in to loans that they would inevitably default on. The consequences of not paying the moneylenders are dire:

"I just wanted to be able to eat and sleep in my house and have a roof over my head…” one 89 year old woman still working told the Wall Street Journal*,  "Every day at midnight when I go to sleep, I think maybe when I wake in the morning they'll tell me to get out."

This is how capitalism treats older workers; this wasn’t a foreign plot. Then we should consider the human and financial cost to society of all the illnesses caused by the stress brought on through living in a perpetual state of fear and insecurity in modern day debt bondage.  A bad credit rating in the US can keep you from getting a roof over your head, a car, and other important needs.

The new potential debt bubble is the student loan market.  I have written about this in the past and that there shouldn’t even be such a thing as a student loan market. Education, like health care, a job, housing, would be a right in any society that claims the mantle civilization.  The cost of a university education has risen more than 40% in the last ten years and student loans with some $1 trillion in outstanding debt have surpassed credit cards and auto and are now second only to home mortgages as a source of consumer debt according to the US Federal Reserve. As recently as nine years ago, outstanding student debt was around $250 billion.

Some economists are alarmed at what they see as a debt bubble that will equal the housing bubble that led to the 2007 meltdown.  Their concern as always, is the damage to the system, an economic disruption that halts profit taking and creates the potential for social unrest.  Others say the figures are not so bad, “….average debt for graduates with debt is around $27,000, which is small compared to mortgage debt,” saysNeal P. McCluskey of the Cato Institute, "For students going to good schools and pursuing in-demand degrees, it should not be hard to pay off.” Oh, I have lots of friends at Harvard and Brown and that’s just what we need, more MBA’s.

In the wake of the austerity war on wages and working conditions, in particular public sector jobs, leaving college owing $27,000 (this is the average) is a considerable burden even if you find employment.  There are hundreds of thousands of young people with college degrees that cannot find work in their field. “If a college student takes a $25,000-a-year job, as many are, the debt to income ratio is very high,”, says Richard Vedder, an economics professor at Ohio University. He adds that there are thousands of students that owe way above the average.

And total student debt is not just in the form of official public or private loans.  Parents are loaning their children money either through their savings or through taking out lines of credit or second mortgages. Meanwhile, not only is the delinquency rate on student debt climbing, the amount of debt is increasing even faster. In 2005 average student loan debt was $17,233 rising to $27, 000 by 2012, an increase of 58% in seven years according to MAINST. COM.   Credit card and auto loan balances decreased during that period.

Professor Vedder says he is opposed to forgiving the debt because the taxpayer will not be able to absorb it.  The bankers, auto bosses and other coupon clippers got to our pocket books first but there is still plenty of money in society, I have shared those sources on these pages many times.  There is the more than $26 trillion the super rich stash away in offshore accounts, an amount equal to the combined GDP of the US and Japan.  "Studies have estimated that cross-border flows of global proceeds of financial crimes total between $1 trillion and $1.6 trillion a year," says the International Consortium of Investigative Journalists after receiving leaked information about tax havens and offshore accounts where the 1% hide the money they have stolen from us.

And what does it cost to fly stealth bombers and B52’ around the Korean Penninsula?  The cost to the US taxpayer of these predatory incursions and occupations and the bases that go with them is extensive. And these ventures are not defensive measures, they are to protect and expand the influence of US capitalism.  These are not our wars.  The policies coming out of Washington and the Pentagon do us far more harm than some 7^th century Mullah in Pakistan.

The psychological, physical and inevitably financial costs to us brought about by market forces are huge. This is a domestic war being waged on us day in day out.  As their policies deprive so many Americans of health care, education, a roof over our head a job, and certainly a vacation abroad, we night consider a nice camping trips to one of the beautiful state and national parks we have in this country but they’ve blocked what was once a cheap alternative to Paris as they close our natural wonders in order to place the burden of their crisis on to our backs.  This will not continue unchallenged forever.

As you mull over whether or not this poverty stricken little country called North Korea that suffered almost total annihilation in an imperialist war will take away your rights or the crazed Mullahs of Tehran will destroy your freedoms, remember the WMD’s in Iraq---remember Powell telling the world how dangerous they were and how they could destroy us all.  Remember the Gulf of Tonkin.

Most of all consider that more and more parents are taking out life insurance policies on their children because they have taken out loans to pay for their education. They don’t want to lose their own homes if they are saddled with a student debt if their child dies. This is what happened to one woman who told her story to the Financial Times:

“The loans company calls two or three times a day. They’re just coming after me like sharks to repay loans that funded an education my son will never get to use…..I’m worried that my home will be taken away if I don’t pay. They will not forgive the loans. Had I known the severity, I would not have let my child go to college. It’s a nightmare,”

It’s not some foreign terrorist creating this nightmare; it’s a domestic one.

“Clearly we are in a tipping point and there will be repercussions,” says the above quoted Professor Vedder.  He is right about that. But it’s quite clear if we take the time to think about it that it is not the little man in Iran, or the rather youthful leader of the Stalinist regime in North Korea we need fear.  The most devastating war we are facing is the domestic one, the class war and it’s time we took the offensive in it.

From our previous blog on this issue:

No to austerity, money is everywhere:

* Cancel all student debt, make the rich pay
* Federally funded education at all levels
*Corporations out of education
* Reduce class sizes K thru 12 to 15
*student, parent teacher control of curriculum
* Take the banks and finance houses under public ownership and control
* Allocation of capital on the basis of social
*Build an independent working people's political party based on our organizations and communities
*For a democratic socialist society--production for social need not profit

* WSJ 3-12-07

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Students mired in a sea of debt

Reprinted from Naked Capitalism

Student Loan Bubble So Big It’s Trumping Credit Cards as a Spending Driver

by Yves Smith
It turns out Lambert’s mother-in-law research is pretty good. A February 27 report from Orono, Maine:

Long conversation between the driver of the municipal shuttle bus, a chatty type, and a passenger. She’s going to back to school to become a nurse (“those will be the last jobs to go”) he’s an older engineering student also working grocery bagging and doing internships.
They both think:
The economy is never going to get better
The next crash will be student loans
Not excited or angered about, just the way it is. And they’re both going into debt over student loans anyhow (she $40K worth but “a job for the rest of my life”).
Neither of them from the country, as it were. Both pretty cosmopolitan.
Word from the hinterlands…

On February 28, the New York Fed released a study on student loans. Much blogosphere chatter, of the “it’s a bird, it’s a plane, it’s a bubble” based on charts like this…

….pointing out that student debt outstanding is nearly three times as large as the total as of 2004, and more scary charts like this:

This is even uglier than you might think, since 30-49 are peak earning years. Oh wait, that was the old normal.
And when you integrate this with the just-released New York Fed quarterly household credit survey, you reach some not pretty conclusions. Student debt is now a bigger source of consumer borrowing than credit cards (we are speaking in terms of macroecomoic impact):

And it’s now the loan category where borrowers are in most distress (hat tip Russell H):

This level is particularly ugly given that student loans cannot be discharged in bankruptcy. It’s more rational to get in arrears on anything else, since you have some hope of negotiating for a restructuring.
As Warren Mosler said via e-mail:

Student loans have been making a meaningful contribution to aggregate demand.
If origination slows it’s another negative for growth and output to add to the tax hikes and spending cuts.
This is not to say I favor the student loan channel for education. Quite the contrary, in fact.
But just like the savings and loan credit expansion leg propelled the Reagan years, the .com and y2k credit expansion the Clinton years, and the sub prime credit expansion the Bush years, to a much lesser extent the student loan credit expansion has supported the current modest recovery.
And when they end the support ends.

So Lambert’s bus sources were spot on: student loans are not only looking bubbly, but the level of borrower stress is saying something has got to give. One sign is that law school enrollment has fallen 15% since 2010. Students are correctly worried about borrowing heavily in a weak job market. But so far, enough people believe in the value of education as a workplace credential that the student loans outstanding are still rising. It’s hard to discern how this plays out, but the endgame might not be that far off.

Read more at http://www.nakedcapitalism.com/2013/03/student-loan-bubble-so-big-its-trumping-credit-cards-as-a-spending-driver.html#60U1KIdmsXR4D8du.99

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Support Garfield High (Seattle) Boycott of High Stakes Tests

By Jack Gerson

A boycott of standardized tests -- launched earlier this month when teachers at Seattle's Garfield High voted unanimously to refuse to administer the districtwide Measures of Academic Progress (MAP) test -- has attracted national attention as well as support from parent and teacher groups locally and nationally.  Teachers at some other Seattle schools have joined the boycott, while many others have sent letters of support.  The Seattle Parent Teacher Student Association, the Seattle Student Senate, and many leading education activists and researchers have also issued support statements.

Today -- Wednesday, January 30 -- is a national call/phone/fax day to tell Seattle Public Schools that you, your organization and / or your union stand with the Garfield test boycotters. Send your message to Seattle Schools Superintendent José Banda:

Phone: (206) 252-0180
Fax: (206) 252-0209
Email: superintendent@seattleschools.org

 The MAP tests were created by the Northwest Evaluation Association (NWEA), a non-profit corporation with ties to Bill Gates and Eli Broad, billionaire architects of the corporate assault on education.  They were brought to Seattle by former schools superintendent Maria Goodloe-Johnson, herself a graduation of Eli Broad’s Urban Superintendents Academy, who spent more than $4 million of public school funds for them. This was a blatant conflict of interest: Goodloe-Johnson never even bothered to disclose that she was on the board of NWEA before, during, and after she contracted to buy the MAP tests. 

Far worse, though, are the tests themselves.  Teachers and schools are held accountable for student test scores on MAP – in fact, the district wants to use MAP scores in teacher evaluations – but Garfield teachers say that these tests don’t test what they’re supposed to – they are not aligned to curricula.  They penalize low-income and special education students:  the tests are administered on computers; low-income students in under-resourced schools have far less access to computers than students from affluent families, while MAP testing denies special education students the accommodations they often need to effectively interact with computers.

This is an old story:  deny resources to those who need them the most, increasing inequality. Then use poorly designed and arbitrarily applied tests to “measure” student achievement, and blame students, teachers, and "low-achieving" schools for their “failure”.  Naturally, the students who score lowest are those who suffer most from social inequality – children from low-income families, and especially those from black and Latino families. And, of course, the overtesting mania rewards rote learning and spitting out the “right” answer – blind obedience --over concepts, creativity, and independent thinking.

Rather than provide what’s really needed -- more resources for schools and, most importantly, massive public programs to combat the effects of poverty and reduce social inequality – schools are told to “do more with less” while essential public services are cut or eliminated.  And then schools are closed, experienced teachers are laid off, destabilizing neighborhoods and increasing social inequality.  More schools closed, more neighborhoods destabilized, more young people consigned to the streets, the military, or prison. In this way, high stakes testing reproduces and deepens the class and racial divisions and inequality that are at the heart of the problem.

Teachers, parents, and education activists have come out strongly in support of the Garfield teachers and their test boycott.  What about the leaders of the two huge national teacher unions, the 3 million member National Education Association (NEA) and the 1.7 million member American Federation of Teachers (AFT)?  Well, in fact, the presidents of the NEA (Dennis van Roekel) and the AFT (Randi Weingarten) have each said that they support the teachers boycott. But they haven’t lifted a finger to demonstrate real support. Teachers – and parents – across the country are fed up with overtesting. With an investment of some of their massive resources, NEA and AFT could spread the boycott to thousands of schools, organize mass support rallies, and make the simple and direct connections between the fight against high stakes testing and the fight against the cuts to education and other essential public programs. In other words: they could use the fight against high stakes testing as a springboard to kick off a national campaign against austerity. But they’re not about to do that – at least not on their own initiative. They’re not about to break with Barack Obama and the Democrats. They’re not about to clash with “responsible business leaders”. Instead, they’re going to continue to embrace the “team concept” of labor / corporate / government collaboration – the same policy that accelerated the decimation of U.S. private sector unions.

But that doesn’t mean that these fights aren’t coming.  Parents and community can now see the corporate “reform” for what it is: shutting down schools and overall downsizing of public education; charter schools, test prep mills, consultants and contractors and overall privatization; forcing out experienced teachers and overall union-busting.  And in many communities, it’s understood that the corporate assault on education is an integral part of “shared sacrifice” austerity, and that the only ones sacrificing are working and unemployed families.  And we’re fighting back: three years ago, in the California movement against cuts to education; two years ago, in the massive struggle in Wisconsin against cuts and union-busting, kicked off by students and teachers in Madison high schools; last year, in the massive and groundshaking Occupy movement; and just four months ago, in the powerful teacher and  community alliance manifested in the Chicago teacher strike.

So, let’s make those phone calls, send those faxes, post those emails to let Seattle Schools Superintendent José Banda know that there’s massive support out here for the Garfield teachers and their boycott of Seattle’s high stakes MAP tests. Here’s Banda’s contact info:

Phone:  (206) 252-0180

Fax:       (206)  252-0209

Email:   superintendent@seattleschools.org

It’s a start. It can lead to more. 

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