By Steven Miller
“The arriving freshman is treated as a mortgage, and the fees are climbing. She is a future revenue stream, and the bills are growing. She is security for a debt she never chose, and the cost is staggering.” (wewanteverything.wordpress.com. November 18, 2009)
The early stages of converting public education into corporate for-profit ATMs have become familiar. The process generally begins with corporatization - changing the infrastructure to make institutions conform to the market. Privatization in various forms soon follows - the seizure of assets to produce corporate profits.
Today two new stages tare emerging hat are even more malign and destructive. Financialization is the conversion of productive activity into debt. This is quickly and inevitably followed by criminalization - the state uses coercive force to guarantee the profits. These new stages are driving the crisis of higher education in the US.
Trillion Dollar Day marked the moment, last April, when student debt in the US exceeded a trillion dollars, surpassing credit card debt. Incredibly, student debt was only $100 billion in 2010 and is growing faster today than sub-prime mortgages in the housing bubble! (1)
As the 21st Century unfolded, students were told that they were doing everything right – take out more student loans to get the BA and a good job. When everything collapsed in 2008, they found out that they had become debt slaves… and the jobs had vanished. For the Class of 2011, 80% moved back in with parents, a vastly higher figure even than 2010. For the Class of 2012 - 50% won’t find jobs matching their degree. Many won’t find jobs at all.
Today 36 million have student debt. (2) Student 94% of students who get a BA today have student debt. At this point, unless an unwilling Congress acts, interest rates will double by July - from 3.4% to 6.8%. Congress cannot agree on $6 billion to save students, yet when Wall Street was melting down in 2008, it immediately authorized $700 billion to save the banks. Before all was said and done, this amount rose to over $16 trillion! (3)
One immediate conclusion is that now students must actually get the permission of Wall Street to go to college, since they must qualify for student loans!
Financializing Student Debt
As public universities privatized in the 1990s, they pushed the myth that they had to lease out their services to corporations in order to subsidize public education to students. The truth is exactly the opposite: student loans are immediately financialized and used as collateral for everything from building corporate research centers to securing research and development loans. (4)
The US government guarantees these financial obligations in two ways. Firstly, since 2005, student debt is not dischargeable by bankruptcy. This is the only non-dischargeable form of debt in US history. The statutes of limitation for student debt were also eliminated. Student debt joins murder and treason as the only “crimes” that do not become null and void over time!
Secondly, when students do default (this number is 13.8% and rising), the Department of Education guarantees to cover the loans to Wall Street. Defaults are exceptionally profitable in other ways. Borrowers must pay back the loan, plus interest, plus various fees and penalties to the guarantors and collection companies. These are often owned by the same institutions that make the original loan. The result is ever-escalating debt that can last a lifetime!
This begins the stage of criminalization. Students are becoming criminalized through the same types of sub-prime loans that their parents were forced to accept. The difference is that families could still declare bankruptcy. All that could happen is that their homes could be repossessed and the families turned onto the street.
Financialization reflects the domination of banks, hedge funds and the financial industry over US society today. In 1973, financial returns were 16% of corporate profits; in 2007, they reached 41%! (5) This figure is amazing, considering the vast profitability of other branches of the US economy: petroleum, agriculture, Big Pharma and health care, for example. The figure reflects the fact that finance has thoroughly penetrated every sector of the economy, which are increasingly being configured for speculative profit. The Casino Economy sits like a parasite on the real economy.
Once financialized, student loans are turned into speculative financial instruments called SLABS - Student Loan Asset-backed Securities. (6) These are Collateralized Debt Obligations - a financial instrument where you buy a share of someone’s debt, producing a steady stream of profits. (7) For example, the average student debt is $23,000. This debt is chopped up into thousands of tiny packages that are sold to speculators. Like mortgages, these packages are sliced and diced into new bundles every day.
Speculators buy SLABS every day, always on credit, each SLAB producing a relatively small amount of money. The returns can be huge, however, considering that speculators can buy tens of thousands of SLABS every day. The speculative market on SLABS for the $1 trillion student debt is $2.67 trillion and rising. CDOs and their insurance policies are precisely the same kind of toxic assets that brought down the economy in 2008
Higher education was privatized earlier than K12 primary and secondary schools. The financialization of this type of public education is just beginning. Charter schools “create the market”; they expand by securing loans from the financial industry; financial institutions then speculate on everything from test scores to how well charter corps pay off their loans. Financialization is coming to your community soon!
Every branch of federal, state and local government has become thoroughly financialized in another way. When the pre-2008 economy was booming, Wall Street offered “Variable Rate Interest Swaps” to every form of government from cities to water districts to community colleges and school districts. The scam was that these entities accepted loans with variable interest. If the interest rate was high, the banks paid the government entities; if the rate was low, the government bodies paid the bank.
Since 2008, the Federal Reserve bank, which controls interest rates in the US has kept interest rates at zero “to provide economic stimulus”. Since then, it is estimated that governments have paid $4 billion to Wall Street to cover the swaps. (8)
The people of the US bailed out Wall Street, dollar-for-dollar to cover their debts, to the tune of at least $16 trillion. It is interesting then that state and local government must still pay off their financial debts. These in fact were already covered by the Bail Out. This form of double payment amounts to a form of collective debt bondage.
Debt Bondage has been a major form of economic exploitation for 2/3 of US history. Debt Bondage, Debt Slavery, Debt Peonage are a fundamental part of the history of the United States. Most of the first white people who came to these shores came as indentured servants - obliged to work off a debt without pay.
After the Civil War, Congress passed the 13th Amendment to the US Constitution that outlawed slavery and “involuntary servitude” (ie debt bondage) except as punishment for a crime.
After the defeat of Reconstruction in 1876, the 13th Amendment was steadily reversed by making debt bondage a crime. With the withdrawal of Northern troops from the South, cities, towns and corporations began to implement Debt Slavery to roll back the impulse for farmers to take the land for free, often in integrated groups. Debt Slavery prevailed in the South until after World War II. Failure to pay off a loan was considered a crime, hence the 13th Amendment did not apply.
This process is becoming evermore elaborated in the US today. People who are indigent can receive tiny amounts of money ($385 a month in California) from local governments to survive. The money comes with strings attached. If the recipient “abuses” this allocation by buying alcohol or a car, they have committed a crime. So they must pay back the amount with interest. It is legal today for governments to make children - even unborn children - liable for the debts of their parents! This law is applied today to the indigent, prisoners and now students. (9)
Likewise, parents who cover their child’s student loans can have their social security or wages garnished. The government can even seize disability payments and suspend state-issued professional licenses to guarantee debt payments. (10)
Recently, universities have started holding up degrees if students are behind on the interest payments. Employers increasingly check your credit rating and can fire someone if they are “a bad risk”. So students are forced to take out loans to get a degree to get a job, but then are denied the job they need to pay off the loans!
Higher Education Finances For-Profit Corporations
California created the world’s largest system of public education as a public good in the 1950s. Today, under the guise of Austerity, state government cutbacks are destroying the system. This creates a market for for-profit education corporations to fill the void.
*** The UC System - 11 campuses, 200,000 students, fees double since 2007, half a billion cut in 2011, cuts over $1 billion since 2007.
*** The California State University System - 23 campuses, 425,000 students, half a billion cut last year, $1 billion cut since 2007, 25,000 students can’t get in.
Another $800 million in cuts, if not more, is proposed to be cut this year from higher ed.
*** The Community College System - (for lifelong learning, remedial, learn english) - 112 campuses, 2.9 million students, $400 million cut last year, 2012 cuts - at least $695 million, 250,000 turned away.
*** California K12 - cut $7 billion since 2007; $5.2 billion proposed this year.
Even though they claim they have no money for students, every level is rapidly putting in on-line education services where students can go if they cannot get a class they need. These “services” cost far more than regular classes. They do however increase the all-important revenue stream that Wall Street speculates on.
Increasingly public institutions tell students that they should turn to for-profit higher education companies to get the required courses they need to get a degree from public higher education. Often, however, these courses are often not transferrable.
For-profit higher education corporations are notorious for dispensing curricula, while teaching nothing. For-Profits are principally financed by student loans. They have 12% of students, but get 26% of student loans. The University of Phoenix is the 4th largest in world and gets 90% of its revenue from student loans.
Hence students go into debt for degrees they cannot use. For-profits only graduate 20% of their students. They spend half their revenue - guaranteed by student loans - for profit, executive salaries and markets.
One obvious conclusion is that students are going into debt bondage to finance the corporate takeover of higher education.
A New Direction is Emerging
The US and the world economy is now into the forth year of what many consider the greatest economic crisis in history. Economic crises inevitably reach a point where they pass over into political crisis. The form the crisis takes today is the overall re-organization of government to make it the open agent of corporations.
The US state is actively intervening to reorganize the branches of the economy. The federal government intervened to reorganize auto to benefit corporations and the banks. It regularly intervenes in the financial industry to save banks with public money. It is intervening in health care to guarantee the profits of the insurance and pharmaceutical companies that control it. Reorganizing the government is an objective necessity that is driven by the economic collapse.
Government is also intervening in public education at every level. Bush’s No Child Left Behind, Obama’s Race To The Top, the national effort for a Common Core Curricula represent federal efforts to organize and facilitate the further privatization of public schools.
However, in the US, public education is organized and delivered principally through state and local government. There are numerous legal statutes at the state and local level that still protect the public and guarantee its interest. Governments today are organizing massive legal changes to eliminate its responsibility to deliver equal, quality public education.
The book Tough Choices in Tough Times, financed partially by Bill Gates and issued in 2006, is the corporate manifesto for privatization. It calls for eliminating public control of the schools and replacing public schools with “contract schools”. (11) Like charter schools on steroids, contract schools replace government responsibility to the public with commercial contracts.
The California State Education Code states, “It is the intent of the Legislature that each resident of California who has the capacity and motivation to benefit from higher education should have the opportunity to enroll in an institution of higher learning.” (Section 66201).
The cutbacks described above border on illegality based on this legal standard. Other promises to guarantee the rights of the public are embodied in the various mission statements of public universities and other legal documents.
There are over 1200 community colleges in the US - the greatest system of public education in the world. These are 2 year colleges that allow students to get required courses to then transfer to public universities to get their BA. Community colleges also provide adult education, English language education for immigrants, and continuing lifelong education.
The community college mission is being changed in the precisely same way as in Latin America and Canada. Governments are now responsible to impose “competencies”, which are industry-demanded “standards” for education. As a result, students who are not “on-track” towards these “career plans” can be dropped and kicked out of the colleges. Community colleges are consequently eliminating courses that are not directly connected to the competencies, such as Japanese, swimming and ecology.
These changes all demand the legal restructuring and reorganization of government. This massive process is taking place openly and secretly, legally and illegally, broadly and incrementally, statewide and locally. The working class which makes up 99% of the public, and who depend on higher education in order to feed their families, has no choice but to intervene in the reorganization of government to protect and expand their interests. You can bet, however, that capitalism is not about to negotiate political power.
The legal attacks to reorganize government create a forum for the struggle for political power by both the capitalist and working classes. The issue is which class will control the reorganization. Whose interests will prevail? This transformation of government takes myriad different local and state forms. Corporate forces are introducing comprehensive, programatic legal changes and engineering them into reality in a thousand different ways.
Financialization and criminalization represent a political attack on our communities. These assaults cannot be reversed by taking an incremental approach. As long as the public responds incrementally to these assaults as separate battles, it will remain on the defensive. Because this “death by a thousand cuts” is a political attack, and not an economic one, it means that there is no possibility of reversing it by fighting defensively, or by fighting for incremental reforms.
These are not simple economic or local issues. The key to taking the offensive is to see that all the battles to defend public education have a common political unity. The attacks are fundamentally a single political attack by the capitalist class to eliminate the power and even the legal existence of the public. This is class warfare by a class that is operating as a conscious class for itself.
The word “apocalypse” is often wrongly defined as the final battle of good and evil. The real definition, from the Greek, is that apocalypse means “the lifting of the veil”, the disclosure of reality. It marks the beginning of the process, not its end.
Finally we are freed from the 40 year domination in the US of “politics as usual”, as determined by the Democratic Party. There is no way we can fix pubic education by returning to the status quo. The politics of begging can no longer produce results. Even if we could somehow “restore the cuts”, this would only mean that more public money would be diverted to corporations.
The British Columbia Charter for Public Education states it so well, “Everyone has the right to a free, quality public education… We expect: Government to be responsible for fully funding all aspects of a quality education.” (12)
The 90% has no choice but to embrace the politics of class and transformation, of fighting forward to a new system, of fighting with a positive vision of a new society. We have long known that it is impossible to rally people to a negative vision, of always being against something, instead of being for something. Now we have the capacity to unite our diverse struggles in a definite direction – to make the state fulfill its mission of supporting the public.
A political attack cannot be defeated without new politics of class, recognizing and aimed at political power. Government and politicians at every level must be held to their legal responsibility to maintain and expand the interests of the public. The power of the people over public education must be expanded based on a new manifesto to guarantee education for all in the Post-Industrial Era.
Please circulate as you see fit.
(1) “Student loans seen as potential ‘next debt bomb’ for U.S. economy”. The Washington Post. March 12, 2012
(2) “Student loans seen as potential ‘next debt bomb’ for U.S. economy”. The Washington Post. March 12, 2012
(2) Bob Meister, “They Pledged Your Tuition to Wall Street”. mrzine.monthlyreview.org/2009/meister211109.html
(7) Dave McNally. The Global Slump. p 99
(8) Dakin Campbell. “Municipal debt levels putting U.S. banks at risk as local budget deficits grow.” www.pbn.com/Municipal-debt-levels-putting-US-banks-at-risk-as-loc…
(9) “Welfare children no longer facing parents’ debts” UTSanDiego.com. web.utsandiego.com/…/welfare-children-no-longer-facing-parents-de..
(10) cache/chicago - for free, full and decorporatized education
(1) www.otis.edu/creative_economy/…/ToughChoices_EXECSUM.pdf ** See also Exterminating Public Education by Steven Miller and Jack Gerson at www.wcribd.com