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,” says Neal 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