The Average 25-Year Old's Debt Has Grown 91% in the Last Decade -- Will Borrowers Learn to Push Back?

Back in September, the U.S. Department Education announced its two-year and three-year federal student loan default rates. The rates were 10 percent and 14.7 percent respectively, both record highs. At the time the report was released, Secretary of Education Arne Duncan called these numbers “troubling.”

NYU professor of social and cultural analysis and Occupy activist Andrew Ross would likely call these figures extortionist. Also, not at all unexpected.

“Creditors have their foot on the throat of the global economy,” said Ross on a panel last month at The Brecht Forum in New York. The panel—which included writers, professors, and activists—was there to discuss debt resistance, and Ross’s new book Creditocracy And The Case For Debt Refusal. Resisting one’s debts is a tactic rarely if ever discussed by the American media’s talking heads. Ross’s book humanizes the cryptic problem of a society funded on credit, offering a political voice to those whose economic power has been throttled.

Ross digs into the injustice of the main kinds of American debt—medical, municipal, student, and housing—but his biggest ax to grind is with student loans, a contract that so easily binds teenagers and their cosigners to decades of indebtedness to the banks. Students across the nation are being turned into what credit financiers call “revolvers”, the most desirable customer out there, the kind that month after month pays off their interest without making a dent in their principal balance (those that are able to pay this off as well are termed “deadbeats”).

The Student Debt Crisis and Government Action

Ross’s sharp, morally charged language in his talks and throughout the book in many ways mirrors that of senator Elizabeth Warren, who back in May 2013 introduced the Bank on Student Loans Fairness Act, which proposed that student debts be refinanced at the same .75% rate that banks get. It doesn’t seem like this will be happening anytime soon, though the bill did spread awareness about the problem of student debt, and may have helped pull Congress from the brink of allowing student loan interest rates to double on June 1.

Just days ago Warren spoke at the launch of the “Higher Ed Not Debt” campaign, created by a coalition of unions, think tanks, and progressive organizations to educate citizens about their debts and put pressure on legislators to enact laws that will ease Americans’ 1.2 billion trillion in student loans. “It’s about values,” said Warren. “Where, as a country, do we believe we should make our investments?.... Invest in billionaires or invest in students?”

Warren is right, the urgency of the student debt crisis and the ideological shift required to dig us out of it cannot be stressed enough. The average loan to a 25-year-old American student has risen 91 percent over the past decade. 7 million borrowers of the existing 40 million are currently in default.

Penalties for not paying one’s student debts are harsh, even more so than other forms of debt.

Rohit Chopra, student loans ombudsman at the Consumer Finance Protections Bureau, recently told Business Insider, "Unlike other consumer credit, borrowers in default on a federal student loan might see their tax refund taken and their wages garnished without a court order." Since its creation as a provision of Dodd-Frank in 2010, the CFPB, which set as one of its earliest goals curbing the “unfair, deceptive, or abusive, practices” of debt collectors, has had little success in administering anything more than a few wrist-slaps to the multi-billion dollar industry, comprised of more than 4,500 collection agencies.

But Creditocracy is no clarion call to get borrowers excited about supporting good legislation or penning letters to their representatives. Instead, Ross points to the toothlessness of the federal government in their delusional partnership with the banks, “Central banks increasingly act to ensure the solvency of banks, and not sovereign governments trying to cope with public deficits.”

Debt as a Psycho-Social Problem  

As Ross points out, it’s actually kind of amazing that “Given the battering that bankers have taken over the past five years...they still command even a fraction of their standing as indispensable members of society.” This has something to do with the “self-projected mystique” of the banking community and the magical dark art of wealth production in which they deal daily. Even if most Americans agree that the ethical standards of bankers are low, the seduction of the American success story still dumps on them a huge burden of guilt for becoming mired in their loans.

So strong is the narrative that to be in debt reflects some personal failing, that average Americans, who needs to go into debt to pay for the bare necessities—food, housing, education, medical expenses—enforce the payback morality of the big banks. Study after study find that borrowers feel shame about being in the red, resulting in an unwillingness to share their story with others. One study conducted by the Royal College of Psychiatrists, which reviewed thousands articles on debt and mental health published between 1980 and 2008, found that people with housing debt experience, “heightened levels of uncertainty; and feelings of stigma, shame and biographical disruption.” It also found that in general, “People with debt and mental health problems often do not seek help for financial difficulties.”

A 2013 study out of Northwestern found that young adults ages 24-32 in debt had higher diastolic blood pressure and rates of self-reported physical and mental health issues. Debt grinds on the American psyche, yet speaking out against debt, or even speaking about one’s debts, is discouraged.

David Graeber, perhaps the most famous critic of today’s debtor economy, summarized the mechanism for debt-shaming well in his essay “After The Jubilee”: “The last thing the 1% wants, as the world economy continues to teeter from crisis, is to give up on one of their most powerful moral weapons: the idea that decent people always pay their debts.”

Another misconception about student debt that helps keep borrowers isolated and silent is the idea that it is mainly a middle-class white-person problem. Not so. A staggering 81 percent of black students have student debt, more than white students, and their default rates are much higher, about four times those of white students’. College costs are rising faster for low-income students than for the wealthy. “As with every other form of personal debt,” writes Ross, “the overall impact of student debt is magnified among low-income families.”

Debt is also a major concern among LGBTQ students whose families, according to Ross, are often financially unsupportive, refusing to co-sign for federal PLUS loans. In 2012 the Occupy Student Debt Campaign played on these twin hurdles of shame and discrimination by promoting the slogan “Silence = Debt”, a nod to Act Up’s famous rallying cry from the 1980s “Silence = Death”.

The Case For Debt Refusal

The problem of student debt, which began with moneyed interests and is perpetuated by myths of privileged borrowers, social obligation toward the banks, and the shame of indebtedness, can be combated, without government aid, if borrowers tap into their collective political power. Ross’s tenets of debt refusal can be boiled down to a few key points:

1. “The banks, and their beneficiaries, awash in profit, have done very well; they have been paid enough already, and do not need to be additionally reimbursed.”

2. “Obliging debtors to forfeit future income is a form of wage theft, and, if the debts were incurred simply to prepare ourselves, in mind and body, for employment, they should be resisted.”

3. “Economic disobedience is justified as a protective deed on behalf of democracy.”

Ross encourages his readers to reconceptualize debt as a form of wage theft or a tax on the poor, hoping to organize borrowers in the same way that labor unions have been able to do with workers.

Recently, this tactic was put to practice, with disappointing results. In November 2011 Ross joined with several other activists to launch OSDC, an offshoot of Occupy Wall Street. The movement asked people with student debt to sign a petition saying that they would refuse to pay their student debt if a million others signed alongside them, the idea being to harness the power of default to energize the growing debt resistors movement. In Ross’s words, the goal of the campaign was, “to offer a more self-empowering way of taking action and focusing public attention on the issue.”

Other demands of the campaign included free public high education (cost estimated at $70 billion); interest-free student loans; full fiscal transparency from public universities; all existing debt canceled. The ploy flopped, with only a couple thousand financial saboteurs pledging their support, though nearly a million people ended up defaulting on their loans that year anyway. These astounding problems in American higher education have yet to be redressed. Ross mentions several potential reasons for the campaign’s failure: not enough funding, the difficulty of getting people to identify as debtors, subversion from the financial sectors, and the risks of default (of which more shortly).

Debt Refusal In Action

Recently, however, a few very exciting projects have been undertaken by debt refusal activists. Most successful has been the Rolling Jubilee, a project of Strike Debt, which the OSDC had a hand in founding. On November 13, 2013 the Rolling Jubilee announced that it had raised, without any corporate donations, more than $600,000, which it used to abolish $13.5 million worth of medical debt. It did so by descending into the Hades of the predatory lending scene—the secondary debt market, where banks who figure it’s time to cut their losses on loans that aren’t yielding returns sell their customers’ debts for pennies on the dollar. These debts are bundled into packages and sold as debt portfolios to collectors who think they can make a scavengers’ profit off the borrower. Rolling Jubilee went through the same process, buying up these secondary debts on the cheap, then, rather than cashing in on them, simply canceling them. Ross quips that the campaign was, “like a going-out-of-business sale at the ‘Fuck Capitalism” store.”

Student loans are federally guaranteed, meaning that in the case of default, the government picks up the tab, another side of this multifaceted issue for debt refusal campaigns to contend with. Since student loans are the safest bet out there for predatory lenders it’s unlikely that the Rolling Jubilee could be replicated to pay off these debts, as there is no secondary market. According to their website, Rolling Jubilee is in the process of researching a way to buy off private tuition debt that is not federally backed.

Refusing to pay one’s debts comes with harsh consequences. The reality is that there is virtually no end to the havoc credit collection agencies can wreak on the lives of borrowers and their loved ones. Student loans are the only kind of debt that cannot be cancelled by filing for bankruptcy. If borrowers refuse to pay or can’t, lenders, as Chopra suggested, can garnish their wages while bypassing the courts; they can require cosigners to pay in their stead; they can revoke the borrower’s professional license; they can send the borrower to debtor’s prison. Women, LGBTQ people, people of color, and people from low-income backgrounds are, in general, more exposed to these risks.

It also seems that in its financial handling of the Rolling Jubilee Strike Debt may have exposed itself to tax risks, which the IRS can go after up through 2017, though the group has been consulting with a financial and legal team since the summer of 2012. Naked Capitalism editor Yves Smith wrote a great post back in December 2012 about how these potential pitfalls could land those that the Jubilee was trying to help with yet more debt.

One idea that’s been tossed around by activists who work on the issue of debt refusal, such as Strike Debt, is to focus on getting people who know they will be defaulting on their loans anyway to do so collectively. At the end of March, Strike Debt will release the second edition of its Debt Resistors Operations Manual (DROM). The new DROM, published by Common Notions (the original existed in pdf and pamphlet form), will feature new chapters, most notably a chapter on climate debt, and expansion of existing chapters, particularly the last chapter about organizing around debt. Launch events will take place in Oakland and New York in the coming weeks.

It is also important to note that, while the debt resistors movement in the U.S. is relatively weak, there are ally organizations worldwide including the International Citizens Debt Audit Network (ICAN) throughout Europe, Egypt, and Tunisia; CAC in France; ELE in Greece; IAC in Portugal. The most recent Rolling Jubilee was inspired by the Jubilee South movement of the 90s and early 2000s, widely acknowledged to be one of the most important and effective social justice campaigns ever undertaken, and particularly Jubilee 2000 where more than 40 countries collaborated in cancelling third-world debt, organizing peaceful protests all around the world. “Much of the white middle-class indignation,” writes Ross “is a response to being treated like the indebted brown peoples of the South, or minority populations in the North with long experience of disenfranchisement and bad debt.”

Hopefully these movements will manage to unite the debtors of the world in collective action. Until then, the invisible hand of unchecked credit market forces remains at the throats of borrowers everywhere.