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OpEdNews Op Eds    H1'ed 7/17/15

Privately Owned Students

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Message Seymour Patterson

Debtors' Prisons
Debtors' Prisons
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Marco Rubio has a plan for students. Since the 1980s, the student loan-debt burden has risen to $1.2 trillion, which is nondischargable, meaning that the debt could follow you for the rest of your life. States have cut education funding and in response, universities raised tuition. And it does not seem that politicians are taking any meaningful action to ameliorate this debt burden. Rubio wants businesses to invest in individual students and after graduation; the student "will pay a percentage of my salary over a defined period of time in return for that investment." (The Wire)

There are several problems with this arrangement not the least of which: It smacks of indentured servitude. The arrangement puts the student in the same financial place as traded securities: i.e. bought and sold. In addition, investing in an individual student would be on its face a more risky "investment" if the student were from low-income families. This plan might work for student from high-income families: Students from high-income families can use their family income, and assets as tangible collaterals; and goodwill, namely, family name and reputation as intangible "collaterals." So in institutions of higher learning, the poor would be underrepresented in the student population if the Marco Rubio model is deployed.

According to an article in (USA Today), in 2013, the government's profit from student loans was $41.3 billion: It was $49.9 billion in the previous years. But should the government be making money on a public good such as education? Students who borrowed money from the government pay (based on 10-year U.S. Treasure rate) on Stafford loans: the Treasure rate plus 2.05 percent, capped at 8.25 percent. Graduate student loans pay Treasure rate plus 3.6 percent, capped at 9.5 percent. Parent loans are the Treasure plus 4.6 percent capped at 10.5 percent. (Ibid.) Rubio's plan is ersatz. Senator Warren's and President Obama's plans were better than Rubio's (they do not put a student in hock to a benefactor) although Congress made short shrift of their plans. Perhaps a better way to proceed would be to use the profits the government stands to make in the coming decade on students: more Pell grants and fewer Stafford loans. But a superior (uber) policy is one Obama suggests for community colleges: free tuition! With the caveat that the student is "responsible." This is an unneeded demand, which could be in some ways discriminatory.

Since students aren't allowed to default on their loans, the business investor resort to legal action against the student to recoup her investment. Yet, another, though perhaps remote possible outcome for the delinquent student is prison: in some states, debtors' prisons are back.

The government profits from this debt as does bankers. Billions of dollars go into the coffers of the Department of Education, and so there is some resistance to the idea of killing this cash cow. Every attempt to fix this before Congress failed. Elizabeth Warren wanted 25 million debtors to refinance their loans at lower interest rates. That bill failed in Congress because republicans believed it was infested with the Buffet Rule, i.e. loss in revenue resulting from the implementation of the bill had to be made up from higher taxes on the wealthy. (Mint Press News) But invidious eyes on the trillion-dollar debt mean, to some businesspersons and their minions on Capitol Hill, that some of the money could be shifted from the government into the pockets of the affluent. It is estimated that the debt will generate upwards of $120 billion over the coming decade.

Bankers benefit for student debt loans, too. The same ones guilty of tanking the U.S. economy (leading to the Great Depression), illegally manipulating interest rates for profit, benefiting from foreclosures, and turning banking into a casino with repeal of Glass-Steagall. Nobody went to jail. Instead, for their chicanery, the bankers were handsomely rewarded--bailed out by the tune of billions of dollars of taxpayers' money. Bankers used the billions in bailout money, not to help homeowners with under-water mortgages or loans to businesses, but to pad CEOs' pockets with million dollar bonuses. Nobody went to jail! But the idea of too big to fail conveys a perverse incentive on bankers in as much as they can gamble with your money and if they lose, you pay. If they win, they keep the money. Bankers socialize the cost of their bad behavior (with impunity) and privatize their gains from it. As I believe I said in the previous post if you steal a load of bread and got caught, chances are you'd go to jail. And if you have demonstrably broken the law as many times as bankers have, in a "three-strikes-you're-out state" you could, hypothetically speaking, spend the rest of your life in jail or at a very minimum an unwarrantedly long time in jail. This is a commentary on the disparate effects of inequality that the Supreme Court abetted through its Citizen United (vs. FEC) and the McCutcheon decisions, on people and money (money is speech), (unlimited contributions to candidates through 'joint funding committees") that enable the 1 percent to co-opt politicians--via well-funded super PACs and lobbyists--to move legislations favoring them.

Not only does the pursuit of education (among other things) help to mollify the problem of inequality in this country (and globally) since there's evidence of a positive correlation between education and income, but it also exacerbates inequality through billions of dollars in student indebtedness. Students graduate owing on average $40,885 (undergrads, $25,000; repayment $150 a month) and they can't find jobs. And when they work, about a 10 percent of their annual income goes to servicing their aggregate trillion-dollar student debt, which reduces income and purchasing power.

What is the solution to the education problem--indentured servitude? Hardly! That's the ersatz Rubio plan. Dare I say the "uber" plan--total student debt forgiveness. Anything else transitions a public good to a private good, profits shift from government coffers to private pockets, with no debt relief for students.

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Seymour Patterson received a Ph.D. in economics from the University of Oklahoma in 1980. He has taught courses and done research in international economics and economic development. He has been the recipient of two Fulbright awards--the first in (more...)
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