Sacred Headwaters #26: Student Loan Debt

Student loan debt has grown into a massive crisis, specifically in the US but analogously in many Western countries. Why has it escalated so much and what can we do about it?

Nov 23, 2020

Sacred Headwaters is a bi-weekly newsletter that aims to guide a co-learning process about the existential issues and planetary limitations facing humanity and about how we can reorient civilization in a way that will enable us to thrive for centuries to come. If you’re just joining us, consider checking out the first issue for some context and head over to our new table of contents to browse the whole library. The newsletters are not strictly sequential, but this exploration is meant to build on knowledge and understanding over time. Subscribe below if you haven’t already, and please share with friends, family, and colleagues who may be interested:

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Issue #26: Student Loan Debt

First, a caveat: I really try to bring in a global perspective and to avoid centering these newsletters on US issues. Student loan debt is not a uniquely American issue, but it’s certainly prominent here, and I’m writing about it specifically because it’s captured a lot of attention over the last few weeks. President-elect Biden and Senator Schumer have both expressed interest in some type of student loan forgiveness program, but there’s been strong pushback from Obama-era economic advisers and, for lack of a better term, centrist media outlets, so I want to explore the issue a bit more deeply. Despite the American lens, though, I want to be clear: I’m writing this as the first in a series of newsletters on debt and will try to provide a context that makes it clear how important debt is as a cultural, political, and economic construct in the broader challenges of achieving a sustainable civilization. The next three newsletters will cover:

In today’s issue, we’re going to look at student loan debt: why people have it, what its implications are, how forgiveness might work (in the US) and what it could accomplish (globally), and why it’s important from a systemic perspective.

Student loan debt has more than doubled in the last decade, reaching $1.7tn at latest count. It’s 19 times what it was in 1999. The role of predatory lending practices and for-profit colleges can’t be denied, but there are other more systemic contributors, including a systematic defunding of public education and a corresponding rise in tuitions, wage stagnation, and credentialization. These material factors are reinforced by the cultural belief that a post-secondary education is the key to social mobility, and they all combine to create a crisis of indentured servitude, where 44.7 million (and counting) Americans are locked into increasingly impossible to pay off loans. This situation has a variety of macroeconomic impacts, and conversely, freeing people from these debts would also have a variety of macroeconomic impacts that are particularly appealing in the context of the global economic crisis caused by the COVID-19 pandemic.

But student loan debt is more than just an economic question. When I wrote about universal basic income, I argued that, in addition to its material effects on poverty and wellbeing, one of its most transformative properties could be the radical empowerment of every day people, the unshackling of the general public from the fear of scarcity, and that this would allow us to begin questioning — at a transformative scale — the systems of human organization that are driving the ecological and social justice crises. Student loan debt (and debt more generally) is another facet of this. I’m able to write this newsletter, to work on advocacy projects, and more precisely because I’m lucky enough to have been born to parents who could afford to pay for my university education. The more people we can free from the cycle of debt and scarcity, the more allies we’ll have working to explore what a just and livable future on this planet might look like.

Been Down So Long It Looks Like Debt to Me (20 minutes)

This is a personal story about someone whose middle-class family was devastated first by the financial crisis, then by the student debt incurred by the author. Miller went to NYU and earned a BA and MA and has been gainfully employed for the decade following, but still finds himself unable to make payments, his whole family bound to an unreasonable (and growing) pile of debt, serviced by a series of companies with varying stories of legal malfeasance. Miller's grim tale, told as someone who has achieved a not-insignificant degree of professional success, paints a picture of how the student debt crisis hamstrings the professional class, leaving people across the educational spectrum living paycheck to paycheck and under a psychologically unbearable burden of debt and insecurity. While there are obviously many indebted people in worse situations than Miller -- or at least, many people who aren't gainfully employed as editors at the New York Times -- this story speaks to the less material side of the burgeoning student debt crisis, to the reality of how debt propagates what is effectively a form of indentured servitude. It also includes a refreshing glib jab at the Silicon Valley trend of painting a flashy veneer over existing structures of exploitation, claiming to be making the world a better place when in fact just making those structures more efficient in their extractive capacity.

The Student Debt Crisis is a Crisis of Non-Repayment (20 minutes)

This piece is fairly technical and specific to the US, but it's an interesting overview of the trends in the student debt landscape over the last decade, how existing government relief programs like Income-Driven Repayment (IDR) impact it, and how those strategies fail to resolve what Steinbaum terms the "crisis of non-repayment." IDR, if you’re not familiar with it, allows you to make lower monthly payments based on your income and promises loan forgiveness on a long timescale (20-25 years). There are a few big takeaways from this paper: first, while student loan debt has grown across the entire population, that growth (and the growth in debt-to-income ratios) has been felt most prominently in non-white demographics. Second, IDR has succeeded in its goal of averting a default crisis -- loan delinquency has gone down since IDR was created -- but it's concurrently contributed to longer-lived loans and a greater proportion of loans that have higher balances than when they were initiated. Steinbaum sees these two factors together with wage stagnation and the "credentialization" of the labor market as indicators that a majority of our national student loan debt will never be repaid. Viewed through that perspective, student loan debt cancellation becomes a question of when, not if, and of how much suffering and indentured servitude will be born along the way.

It’s a little dry but I’d highly recommend getting through the “Data” section towards the end of the paper. The graphs are great and the explanations are important. This piece was also part of a series of four, and the other papers are worth a look, as are the interactive maps created as part of the project.

The Macroeconomic Effects of Student Debt Cancellation (25 minutes)

This is a long report. Read the Executive Summary, the Introduction, the section titled “Omitted Benefits and Costs of Student Debt Cancellation” (pp 46-49), and the Conclusion.

This is a study that attempts to predict the macroeconomic impacts of a student debt jubilee by the federal government. In particular, the study uses a pair of macroeconomic models to assess how system-level variables would respond to federal forgiveness of student loan debt. They found, in short, that it would create a significant boost in GDP, a reduction in unemployment, and a reduction in state budget deficits, along with a small increase in the national deficit. One critique that has been made over the last few weeks is that student loan debt forgiveness would be a “regressive” stimulus, meaning it disproportionately rewards higher income groups, but there is significant evidence suggesting that the opposite is true, especially when you consider the amount of debt relieved relative to income instead of in absolute terms. One subtle point that this report makes, that I think is fairly important to understand, is that the cost to government of student loan debt forgiveness is not the value of the loans forgiven, it’s the amount the government pays as interest on the securities it issued to finance the loans in the first place. In other words, if the federal government forgave $1.6 trillion of student loan debt on January 20th, that would not be a $1.6 trillion expenditure on the 2021 budget; it would cost far less than that.

While the paper’s main goal is to model impacts on GDP and unemployment, they make the important point that there are many potential benefits of debt relief that are not captured through the macroeconomic modelling that they use and provide a number of references looking at these other issues. These benefits speak in part to what I was getting at in the introduction: student loan debt is the defining process of an increasingly large number of lives and it fundamentally degrades people’s capacity to live self-directed lives. The authors point to changes in entrepreneurship levels, credit scores, financial resilience, and even household formation as areas where student loan debt forgiveness could create significant change. To me, those are signs of a system of indebtedness as control; a system where people’s lives are spent solely servicing the debt they believed they had to accrue in order to survive.

235 Orgs Call on President-Elect Biden to Cancel Federal Student Debt on Day One using Executive Action (5 minutes)

This letter from a variety of civil rights, labor, and other advocacy groups calls on the Biden administration to use executive action to cancel student debt immediately upon taking power. Biden has committed to varying vague degrees of this over the last year and he’s now being pushed by Senators Schumer, Warren, and others to take meaningful action as a first step of his presidency. The letter lays out a well-referenced and thorough list of the reasons why debt cancellation is important and how it can serve as an economic stimulus that progressively targets minority communities who have been most severely impacted by both debt and the COVID-19 economic crisis. This is an issue on which Biden can act with almost complete autonomy, but by the same token, it’s an issue where he won’t take action without being held to account: there are widespread calls for action, but there are also a variety of voices in the Democratic party pushing against it. What Biden ends up doing once he’s in office is up to all of us. I assume that most readers of this newsletter are happy that Trump lost the election (and of course, so am I), but as Ruth Wilson Gilmore once said, “We’re here to acknowledge victory, and we’re here to organize for the day after victory.”

Sacred Headwaters