The interest rate on the federally subsidized Stafford loans is scheduled to double if Congress fails to act by July 1. Above: President Barack Obama speaks at a news conference in the Rose Garden to talk about helping to keep college affordable for middle-class families and students. (Mandel Ngan / AFP / Getty Images / May 31, 2013)
On June 23, 2013, Adam B. Wolf writes an op-ed in the Los Angeles Times stating:
Cable news channels regularly stoke their viewers’ fears about China holding $1.1 trillion of U.S. debt. But they’re focused on the wrong $1.1 trillion of loans.
The borrowers of this other $1.1-trillion debt are far more likely to default on their obligations: students, particularly those who went to for-profit colleges. The global consequences could be — and likely will be — staggering.
More than 38 million Americans have student loans outstanding. To put this in perspective, 38 million is the combined population of New York and Florida. And this collective debt is on par with the entire GDP of Mexico.
The federal government issued some of the loans to the students, but those covered only a portion of the school’s tuition and costs. Sallie Mae, the now-private lender, made up the difference, dispensing loans to students like Halloween candy. But there was a catch: Whereas the federal government’s loans had interest rates of about 6 percent, the interest rates on the private loans often hovered between 13 percent and 18 percent.
These loans leave many students entrenched in a permanent underclass. When they default — and they are defaulting in record numbers — the ripple effects spread from shore to shore, and beyond. They have no money to see movies, buy health insurance or, sometimes, even put dinner on the table. And when this many Americans are facing debt they can’t afford, businesses suffer from lower demand, tax revenues decline, and lenders face enormous losses.
We all know what happened to the housing market. Student loans are not far behind. That’s the dire situation faced by unemployed and underemployed former students, who have neither steady jobs nor savings to cover tens of thousands of dollars in loans that seem to grow exponentially.
We at the Center for Economic and Social Justice maintain that attending a university is an expense, not an “investment.”
We need to emphasize that financing education within a world in which the money system and economy is restructured according to the logic of binary economics and Capital Homesteading reforms, is fundamentally different from financing education in today’s unjust system of monopoly capitalism or socialism.
Underneath the analysis in this op-ed is the unaddressed question of whether interest-free money and credit should be created by the monetary system to provide for the otherwise worthy education and consumption needs of students.
The focus of binary economics is on increasing the productiveness of the non-human factors of production. In this way students and all members of society –– including educators and school administrators — can become owners of machines and other non-human inputs to the productive processes of society. This will enable students and the rest of society to earn capital incomes to supplement their incomes from other sources. Direct personal ownership of productive capital would help pay for the consumption needs of all members of society…from the bottom-up. Interest-free credit should not be used for consumption rather than liberating non-owning people through capital ownership from their continued dependency on their employer, the government and the private sector power elite who now control money and credit.
Education is a marketable good or service, a consumption item that students purchase. Consuming an education does not directly produce marketable services and direct incomes, except for educators and others supplying educational goods and services. Education is an expense for students, however profitable it may (or may not) be for teachers and administrators. Going to school costs money, it does not generate a profit; getting an education is not financially feasible capital by any stretch of the imagination.
The last few years have revealed as an outrageous lie the “conventional wisdom” that getting an education is an “investment.” Young people have been told that if they get a “good education,” they are virtually guaranteed a “good job.” What passes for “education” these days has become “job training for jobs that won’t be there,” as students discover upon entering today’s workforce.
Fiddling with interest rates on student loans is the equivalent of rearranging deck chairs on the Titanic. If the price of higher education and the resulting debt burden were not so great in the first place, there would be no problem with interest rates on them.
The easy availability of loans for students is itself a major part of the problem. Pumping money into education by providing financing to the “consumer” –– the student –– has increased the cost of education dramatically.
Assuming that a “good education” automatically means a “good job” creates a vicious circle. As a result, the cost of education has been spiraling out of control. Ironically, the myth that a “good education” will result in a “good job” has meant that the cost of education increases even faster during an economic downturn when demand increases, and even more money is made available, driving up the cost even more.
This could not possibly happen if being a student or getting an education were a genuine investment. The cost of forming capital is irrelevant as long as the capital generates sufficient income to cover its own cost and provide an adequate return to the owner.
The obvious conclusion is that because getting an education does not, in and of itself, generate wealth, it is therefore not a capital good by any standard. The use of pure interest-free credit to finance an education is therefore directly contrary to the most fundamental principles of binary economics.
This does not mean that anyone should be indifferent to the problem. If, as moral authorities through the ages have agreed, paying for someone’s education is a virtuous act, then private individuals or foundations can make interest-free loans, or even non-repayable grants to students –– as long as these are financed out of existing accumulations of savings. Most people agree that a well-educated citizenry is a benefit, albeit indirect, to the State. Given that, interest-free loans or non-repayable grants financed by a tax levy, can also be justified, but not money creation.
With full implementation of the proposed Capital Homestead Act, government vouchers could address the student loan problem but be gradually phased out. Under Capital Homesteading, the private sector would become more productive. This economic growth would be financed through interest-free credit used to purchase new, directly owned capital. Rising dividend incomes would enable students to pay for their own education. It would also provide supplementary capital incomes to substitute for the inflationary costs of salaries and benefits of teachers and school administrators at all levels of education under today’s economic system of monopoly capitalism. That’s why we try to concentrate our time and attention to advancing support for passage of the Capital Homestead Act, rather than expedients required under the current system.
Support the Capital Homestead Act at http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm
http://www.latimes.com/news/opinion/commentary/la-oe-wolf-student-loan-debt-20130623,0,4634644.story
