Debtor's Revolution: Are Debt Strikes Another Possible Tactic in the Fight Against the Big Banks?
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“There should be debt forgiveness, but these guys--the student loan profiteers--should eat it, not the government and taxpayers,” he points out. “The banks should pay because they destroyed the economy, they sucked 18-year-olds into predatory loans they are stuck with for life.”
Banks have already, Mother Jones notes, written off some $90 billion in credit card debt since 2008, taking it off their books because it's unlikely to ever be recovered. Some nonpayment is built into the system—as Graeber notes in his book Debt: The First 5000 Years, “A lender is supposed to assume a certain degree of risk. If all loans, no matter how idiotic, were still retrievable—if there were no bankruptcy laws, for instance—the results would be disastrous. What reason would lenders have not to make a stupid loan?”
Aside from the fact, of course, that we wound up with an $8 trillion housing bubble from just those sorts of bad loans, there is in the US one type of debt that cannot be discharged in bankruptcy, that follows you for life and that has the full power of the US government behind its collection.
I'm speaking, of course, of student loans.
The $1 Trillion Problem
The student debt bubble is officially over $1 trillion, and as Lerner noted, it largely consists of loans made to 18-year-olds under the premise that education will help them earn enough money to pay off their loans. Yet the job market is terrible (and nearly twice as terrible for young people as it is for everyone else) and meanwhile cuts to public education, both ideologically motivated, from conservatives, and because of state budget crises caused by the economic crisis the banks created, have made that education much more expensive.
In the spirit of the now-famous WeAreThe99Percent Tumblr blog and inspired by Occupy Wall Street, there is now an OccupyStudentDebt Tumblr, where students and grads post their photos and stories of their debt. “The student loan bubble may not burst with a bang, but it is slowly suffocating us,” the sidebar reads.
But student debt, as Mike Konczal has noted, is literally debt you carry for life. It has no statute of limitations, cannot be discharged under bankruptcy and the government can literally deduct it from your Social Security check. ProPublica recently investigated the struggle of severely disabled borrowers, legally allowed to have their student debts forgiven, to actually get their loans discharged.
"As credit card and housing debt become unbearable, there’s a point at which they get written down. That point is too high, but because of various laws regarding debt collection that shift the strategy and potential end results between the actors, there’s a logic to it. As far as I can tell, there’s simply no equivalent chart, or even logic, for student loans. Because of legal choices we’ve made in how to set up this relationship, it stays forever, is virtually impossible to discharge under hardship, churns fees when it goes bad, and creditors can get to anything, including Social Security, to get it repaid. Meanwhile, we have a Great Depression-like event that is throwing college graduates into a labor market that is far too weak.”
And defaults are up anyway. Phil Izzo at the Wall Street Journal reported in August that 11.2 percent of student loans were more than 90 days past due—and if it kept rising, could pass credit card debt, which is at 12.2 percent but is on a decline.
Obama's new plan to help students with their loans will provide some relief, but only for current students. Those who have already graduated—the majority of the student loan bubble—are ineligible. Rep. Clarke suggested making private student loans, “particularly those written under unfair terms” dischargeable in a bankruptcy, which is a nice sentiment. But right now there's absolutely zero likelihood of this do-nothing Congress taking action, and Occupy Wall Street has proven that a sizable number of Americans are in a mood to do things for themselves rather than waiting for government action.