Wall Street-Inflated Student Debt Bubble Hits $1 Trillion; Debtors Rally for Relief
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Konczal pointed out that the government makes a profit somewhere around 13 percent for each dollar of loans, and because the loans are not dischargeable in bankruptcy and Social Security payments can even be garnished to make them up, default may even be more profitable for lenders than borrowers making payments on time. There's almost no risk of losses, which are the reason for high interest in the first place. Keeping interest rates low won't cost the government money, it will simply cut into its profit margin a little bit. While the big banks that crashed the economy continue to enjoy ultra-low interest rates, there's no reason to let the rates get any higher.
With Romney saying that temporarily extending the low interest rate is a good idea, it's past time for Obama to start calling for permanent low rates. But too many of Obama's solutions simply kick the can down the road. Income-based repayment might make it easier for students to meet their monthly bill, but as they pay smaller amounts each month, interest continues to accumulate and the overall bill gets higher. A one-year fix on interest rates isn't enough, and even the permanent fix does nothing to shrink the size of the overall debt burden—it simply prevents it from getting even bigger.
It may be time for more drastic fixes. Rep. Hansen Clarke, a Michigan Democrat, introduced a bill that would forgive up to $45,000 in student debt after a borrower makes 10 years of income-based payments (no more than 10 percent of income). A petition in support of Clarke's bill has nearly 900,000 signatures. And of course, the Occupy Student Debt campaign is calling for free public higher education, interest-free loans and a write-off of existing debt.
It's important to remember that the spike in student debt is caused by a spike in tuition rates—often at state schools, which have borne the brunt of austerity-induced budget cuts as well as years of ideological slicing and dicing. As a recent report from think-tank Demos noted, as state support for public universities has declined, institutions have picked up the slack by charging students more—which becomes more debt.
Biola Jeje, a member of the Brooklyn College Student Union who recently traveled to Montreal to meet with Canadian student strikers fighting their own tuition increases (over 165,000 students on strike), pointed out that the tuition hikes are ideological both in Quebec and in the US. Students around the world have protested tuition and school fee hikes that governments claim to be necessary in the “age of austerity,” but that students are well aware are ideologically driven. Students and recent graduates with heavy debt loads are at the base of the Occupy movement, and Paul Mason of the BBC has pointed out that the “ graduates with no future” were at the base of Egypt's revolution and the global fight against austerity.
Here in the States, our particular partisan political system makes organizing around student debt difficult, Brown noted. Political arguments, she pointed out, tend to swing one way or the other—either the Republican brand of anti-government populism that attacks the schools and government spending, or the liberal side, that targets the banks. Yet in the case of student debt, they're all responsible.
“There is an overlapping relationship between the schools who have raised their tuition enormously, between the government which has lowered its spending and has subsidized this debt, and the banks who are profiting from it still. Most of the student loans are still on their books and they've securitized them, or they're getting paid to service them and they're collecting fees,” Brown said.