The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

Student Loans:
Students Bamboozled, Banks and Investors Profit

Jun 8, 2015

The following is part of the presentation given at a Spark public meeting in Chicago about student loans, exposing how brutal this debt is while shining a light on what could be possible.

It’s no wonder why young people want to go to college today. What are the options without a degree? Take a stream of low wage jobs without prospects of being self-sufficient? Enlist in the armed forces, giving up your freedom and risking your life fighting for U.S. imperialism? Sell drugs or run some other hustle, which often leads to prison?

Young people today are constantly told that college is the way to do better, to prepare for a higher paying job, to make connections. Of course, many want the education to learn, to satisfy their intellectual curiosity, or to prove what they are capable of.

The Crushing Price Tag for College

But how much does this education cost? At Morton Community College, in Cicero, Illinois, tuition is $3,200 to go full-time for a semester. On top of that, the college estimates $1,400 a semester for books, and $3,200 for “other expenses.” So tuition and books for a two-year associates degree comes to about $16,000.

If you want a bachelor’s degree, tack on two more years at somewhere like the University of Illinois Chicago. The total bill will come to about $40,000. That’s if things go according to plan. Of course there are all sorts of ways the plan can get set back. Often, universities don’t accept all of a community college’s credits. Or students find themselves too busy working to take a full course load.

At DePaul, a private Catholic school on the North Side, just the tuition for four years comes to around $140,000. At the University of Chicago, those four years cost $184,000.

For a working family, even the community college expense is a burden, especially if they have more than one child. Grants and scholarships may provide some relief, but not enough.

It’s why students coming from the working and middle classes have to work while they go to school. They take jobs, usually for relatively low wages, just to support themselves with living expenses. But this makes it that much harder to focus on school. Students who are free to study and free from the burdens of working have the liberty to get much more out of college.

The Student Loan Trap

Working through school used to be more possible, but now the pay is too low and the cost too high. So now students and families are pushed into taking student loans to pay the cost. But the cost of the loans is enormous.

Take a student who has $40,000 in loans, which is not unusual. At interest of around 4 percent, that means an additional $1600 a year, on top of the principal. Say our new graduate finds the only jobs available are paying $10 an hour. If they pay $200 a month on their loans, it will take 27 years to pay off. And more than $20,000 additional dollars in interest will go to the lender. And that assumes the student never misses a payment, or suffers a penalty, which banks love to tack on money for. As college tuition continues to climb – these numbers will only get worse. The debt may follow a student for decades – whether they graduate or not. It’s a millstone around the neck.

A millstone they can’t take off. Because student loans cannot be discharged in bankruptcy. It wasn’t always like this but the laws were changed to protect the banks. So there is almost no way to get out from under that crushing debt. Moreover, banks garnish wages – taking the money directly out of a person’s check, before they ever get it. They can take money out of any kind of benefit – including unemployment or social security.

The banks push the idea of using the loan money for living expenses. Here is a quote from Wells Fargo, a big bank that offers private loans:

“Wells Fargo private student loans may be able to help you pay for your education … including all education related expenses such as ... housing, books, lab fees and more…. Students make no payments until 6 months after leaving school.”

Fargo then adds: “Interest continues to accrue during any deferment periods. . . .”

It sounds so innocent, when they say it like that! This is the only circumstance where a bank will give a young person without an income a huge loan. Because they know the loan will follow the student for life – that they can get their money. They bait people into what is a trap.

The banks often will lure parents into the same trap. If a student is borrowing a lot, the bank asks parents to sign onto some of the loans. They present it as a formality. Of course, if the student isn’t able to get a good job, then the parent is on the hook too. The federal government also has a type of loan directed at parents. That’s why many older people are finding their social security checks garnished today.

Modern Day Indentured Servants

Without being warned up front that THIS is the arrangement, working class students are more and more turned into indentured servants. In colonial times, indentured servants gave themselves as slaves for a number of years to landowners. Sometimes, they learned a trade. In exchange, they received their fare to come to this country and after so many years, if they survived, they gained their freedom.

Today, in exchange for an education, students find themselves working to pay off their loans for decades before they are free. For all practical purposes, they are indentured to their lender!

While this education was held out as a step into a better life, many workers find that the only jobs available even with a degree are still low paid.

Students of the upper middle class and higher graduate from college debt free. They do not need to work while in college – they have the freedom to study (or to “play”). And after they graduate, they have family connections that allow them to get good paying jobs in banking, politics, law, business or finance – a job that will pay and allow them to live.

In other words, education doesn’t allow workers to escape their social class, it reinforces it. This is how social class is expressed in our system of college education.

Student Loans: A Movement Diverted

The modern student loan system was introduced in the 1960's, as a response to the black movement’s demand for “open enrollment” and education available to all. Many countries have had free college education for a long time. But the Johnson administration came up with a program of “guaranteed” loans for students into which working class and poor families were funneled, under the heading of “Financial Aid.” So education was made “available,” but not affordable, and certainly not free. Students and their families still paid for their education themselves and the government arranged for banks to profit off the money they were guaranteed to be able to borrow!

This society certainly has the means to provide an education to everyone who wants one. But the capitalist class in this country has no interest in this. One recent estimate said that making college free would require about 60 billion dollars more than what is currently spent.

Instead, what does this country spend money on? This country spends 70 billion dollars a year to imprison 2.5 million people. A big proportion are held on minor drug charges. Every prisoner they lock up costs $28,000 per year.

Why? This society has no place for more people to have more education. The number of unemployed college graduates is proof. But imagine if this society did educate many more doctors, engineers, computer programmers? Everyone could have access to a doctor, perhaps bringing down spiraling medical costs. We’d have many more engineers and technicians, who could work on solving society’s problems – like our crumbling infrastructure. But they have no interest in that. They only put in the money for the professionals they need, in work that allows them to make a profit.

Students as Cash Cows for the Banks

When the federal government set up the student loan system, it did not guarantee an education for anyone, but they DID guarantee that the banks profited from these loans no matter what. If the former student defaulted, the government reimbursed the lenders for all of the unpaid principal and interest, making the student loans 100 percent risk-free for the banks. Of course, if the feds take over the loan, they still hunt down the student to the ends of the earth to make them pay.

When the student loan system was set up, the cost of an education was still low – especially at public colleges. Less than one per cent of all student loans taken out in the 1970's were defaulted on. Today that number is close to 14 percent, with over half having missed at least one payment. It’s a function of the rise in college and university tuition.

During the 1980’s, funding for all kinds of public services was cut. These cuts hit public colleges, universities, and community colleges. To make up for cuts, tuition at all these schools has risen steadily, much faster than the rate of inflation.

The financial crisis of 2008 exacerbated the situation. The price of a college education has risen even faster ever since. As a result, dependence on loans has grown rapidly. The average college graduate in 2011 came out with $26,600 in debt. By 2013 it was up to $28,400; last year it was over $30,000 in some states. And for many working class students, the figures are higher.

Like With Mortgages, a Student Loan “Bubble”

The cuts left a gap in public education. A profitable solution was to start for-profit colleges, which fill some of the demand for technical or general education.

For-profit colleges and universities often provide an inferior education at inflated prices. Their “financial aid” departments are often in cahoots with the banks, pushing loans on students in a way similar to how overpriced mortgages were pushed on home owners before the 2008 economic collapse.

In this case, students pay dearly for courses of study that often do not lead to a job. Many graduates default on these loans. So the government basically shovels money to the for-profit schools’ bottom line, with nothing socially useful coming out of it.

Some investigative reporters have found for-profit schools going to homeless shelters, getting residents there to take out federal student loans to attend school. Few of the people saddled with this debt could ever pay it back, but since the federal government guaranteed the loans, the schools stood to profit.

One of these for-profit schools, Corinthian Colleges, just went bankrupt. It shows how crazy this system is.

Free Education: A Basic Human Right

Our system denies what should be free as a basic human need: education. Instead, education is provided on condition that people indenture themselves to the banks. Or the education provided is an inferior one, with much of the money going to “investors,” as in the case of for-profit schools.

Student loans, at 1.2 trillion dollars, are now the largest form of debt for ordinary people besides home mortgages. One out of every five households is paying on student loans.

Hedge funds now buy up student loan debt in the same way banks and hedge funds previously bought up, bundled and resold mortgages. Trading mortgage debts led to the collapse in 2008. The expansion of student loan debt could itself lead to a collapse in a similar way.

One hedge fund, or set of funds, National Collegiate Trust, has been buying up private student loans left and right. The trust is a subsidiary set up by a bank: First Marblehead. It has been aggressive about taking former students to court. Sometimes it has sued to collect on loans after the student has died. Sometime funds like National Collegiate Trust will try to sue without even being able to prove they own the student’s loan.

Young working people have every right to demand an education. It’s a symptom of the disease of the current system, that it doesn’t provide the education for free that people need.

Access to higher education came out of the last big wave of working class struggle. In the next wave of struggle, young people have every right to demand free education for all and the right to a job that allows for living comfortably.