U.S. student debt at all-time high

Some 200,000 students in Montreal protested tuition increase on March 22.

Can students fight the rising costs of education? Young people in Quebec say yes.

Some 164 student associations there, representing 155,000 university students, have been on an open-ended general strike against tuition hikes. On March 22, more than 200,000 of them packed into the narrow canyons of downtown Montreal for the largest demonstration ever held there.

A Quebec government proposal on raising tuition has been rejected by 115 associations, representing 342,000 students. (bloquonslahausse.com) Tens of thousands of young people occupied banks in Montreal and Quebec City on April 11.

These pro-active students are saying that tuition should be free. Their demands sound revolutionary at a time when budgets for everything but repression are being slashed throughout the capitalist world.

The media in the United States have virtually ignored this uprising of youth in our neighbor to the north. What they are reporting is the meteoric rise here in tuition rates in recent years — and with it the accumulation of student debt.

A generation of debtors

Millions of young people dared to believe a higher education would lead to the kind of job that would let them repay their student loans. Those hopes have been dashed.

U.S. student debt now exceeds $1 trillion, surpassing credit card debt. Some 27 percent of these loans are past due.

This surge in unpayable debt is the other shoe dropping in the prolonged capitalist economic crisis, which first became visible when the bottom fell out of the housing market. That, too, was a debt crisis. Ballooning mortgage rates caught up with homeowners just as better-paying jobs were disappearing. The result: millions of defaults on mortgage payments, followed by illegal mass robo-signing of foreclosure notices.

Student debt has been ballooning ever since the unemployment crisis hit.

On March 5, the Federal Reserve Bank of New York released a report saying student debt had reached $867 billion by the end of the third quarter of 2011. At that time, 37 million people had outstanding student loans; 5.4 million of them had missed enough payments to be declared delinquent. (Bloomberg, March 5)

But two weeks later, officials of the Consumer Financial Protection Bureau, a federal agency, said at a banking conference held in Austin, Texas, that this was vastly understated — student debt had already surpassed the $1 trillion mark. (Wall Street Journal, March 22) The average debt of a student leaving college had risen to more than $25,000. Even with a college degree, many young workers in the present economy make less than that — if they are lucky enough to find a job.

Capitalist jobs crisis the culprit

Now the corporate media have got hold of the story and are reporting the great difficulties students and universities are having because of the debt problem. What they fail to mention, however, is what underlies this sorry state: the persistent crisis of capitalism, from Europe to the United States to everywhere else in the world where the profit motive is what drives the economy.

This is not just a cyclical crisis to be soon overcome. It reflects the fact that productivity has become so high in the developed capitalist countries, and the expanding world market has made it possible to outsource so many millions of labor-intensive jobs to low-wage countries, that the permanent army of unemployed here has soared.

This is falling like a ton of bricks on the younger generation. Raised to believe that most people in the U.S. could lead a “middle-class” existence, they have found that capitalism doesn’t work that way. Higher productivity doesn’t mean more leisure or easier jobs; it means eliminating jobs and cutting the wages of those still lucky enough to find work. For young people — and their parents — who went deeply into debt as a way out of the rat race, the awful truth is unavoidable.

Milking student debt

While the general public reads stories sympathizing with the plight of students and university officials, the financial pages and blogs tell another story. Their concern can be seen in headlines like “Will Student Loans Hurt Your Stocks?” (fool.com, April 16) and “Student Loan Delinquency Reached $85 Billion in Third Quarter.” (Bloomberg, March 5)

The federal government holds the lion’s share of outstanding student debt. Its stated purpose is to make higher education affordable for those who can’t pay high tuition without some help. Even the government’s main lending instrument, however, has been turning a profit for private investors. Traded on the Nasdaq stock exchange as SLM Corp., Sallie Mae’s first-quarter core earnings “came in at $284 million or 55 cents per share” this year. (community.nasdaq.com, April 19)

Various private financial institutions have been issuing student loans at an even heftier price. With the rise in loan defaults, however, big private banks are now getting out of the business.

U.S. Bancorp pulled out of student loans in April. Until then it had claimed that it was “committed to giving students every opportunity to realize their potential. Education changes lives.” But once it was clear there might not be much profit in doing this, the bank’s commitment to education vanished.

JPMorgan Chase recently announced it would stop issuing new student loans in July. Other banks will surely follow and interest rates on new loans will only go up further.

At the same time that job opportunities are shrinking, tuition costs are rising, some exponentially. The budget crisis in California, for example, means that tuition in the state university system may soon be double what it was just five years ago — this in a state where a university education was once free.

Double whammy on July 1

The interest rate that students pay for subsidized loans from the federal government is scheduled to double — from 3.4 percent to 6.8 percent — on July 1. The Obama administration’s budget request for fiscal year 2013 would keep the 3.4 percent rate, but the Federal Student Aid website is already warning prospective borrowers that they will be paying the higher rate as of July 1.

By contrast, if a student’s family has been able to scrape together some money and put it into a bank savings account toward their child’s education, these accounts now typically earn less than 1 percent interest.

The amount of federal aid available to students is based on their family income. That is also changing as of July 1. To receive the maximum aid available, families used to be eligible if they earned up to $32,000 a year — not much by any account. But now even that amount will be lowered to $23,000.

If the family earns more than that, they will have to pay out in advance a portion of the money for their child’s education. This effectively bars low-income families from being able to send their kids to any kind of college without a full scholarship. (studentaid.ed.gov)

Time to change the game rules

In the media, the student debt crisis is now eclipsing other areas of the economy as the “number one threat.” However, this is confusing cause with result. Student debt is not the cause of what could be another downturn in the economy. It is the result of the complete economic instability that characterizes this period: the endgame of the capitalist system.

Is there plenty of wealth in the United States? If you doubt it, just look into what waterfront mansions and private jets are selling for. Look into the billions — nay, trillions — of dollars in private and corporate hands that are not being invested in production because there aren’t enough buyers for all the current goods and services out there.

Yet, with all this wealth, the capitalist class won’t willingly give up a nickel an hour to a worker at Walmart or cover health insurance or pensions for millions of workers.

The Quebec students, and the people in this country who have flooded into Occupy Wall Street, have it right: Organized struggle is the only way to fight this system.

It’s the only way to force concessions out of the lords of capital. And it’s the only way to change the rules of the game so capitalism itself is made obsolete. Then — as youth and workers build a socialist society — education, along with jobs, medical care and all the necessities of life, will be guaranteed for everyone.