The Soul of Student Debt

Not quite feudalism, student debt is a peculiarly capitalist form of social control.

Janet Lynn Parker is a middle-aged elementary school art teacher from Arkansas. She graduated in 1991 from Arkansas State University with a degree in art education and $25,000 in student loan debt. Unable to find a job in her field of study, she bounced around from job to job until 1999, when she finally found employment at a public school at an annual salary barely over $20,000. Over that time, her financial mounting difficulties forced her to ask for multiple forbearances and deferments on her student loan, pushing the balance of her educational debt up to about $70,000.

To add injury to insult, Parker broke her back in a boating accident in 2000. It left her in a back brace for months after the incident, and reliant on pain medication to get her through the day. In spite of it all, she continued to teach and to care for her young granddaughters during the summer months, when school was out of session. Still, the strains took a toll on her family and her marriage. Parker and her husband separated in 2003 and divorced in 2004. With her student loan, credit card, retail, and medical debts running far beyond her ability to pay them, she finally filed for bankruptcy in 2004. Because of the peculiarities of US bankruptcy law, she had to file a separate petition to seek a discharge of her student loan debt. Despite the long odds ranged against her, she actually won: the bankruptcy judge in her case agreed with her claim that her student loan debt constituted an “undue hardship” and should therefore be wiped out.

But the story didn’t end there. Parker’s creditor, the Student Loan Guarantee Foundation of Arkansas, appealed the bankruptcy court’s decision, bringing the case before a federal bankruptcy appellate panel. Despite the ample evidence that Parker’s educational debt was ruining her life, the panel decided to reverse the lower court’s ruling and compel her to continue making payments on her loans.

The reasoning behind the panel’s decision is revealing, and perfectly consistent with the merciless logic of capitalist rationality. According to the judges’ decision Parker failed to demonstrate undue hardship because — in their view — she failed to adequately maximize her income and minimize her expenses, a requirement of the test adopted in case. As the panel argued, “the Debtor has a duty to maximize her income . . . Although she is working as a full-time teacher, the Debtor admitted that ‘it would be possible’ for her to get a paying summer job. The bankruptcy court found that the Debtor was capable of summer employment and attributed to her additional net income of $100 per month.” No matter that the unpaid care work she performed over the summer months was a crucial source of support for her daughter, a single mother. For these Gradgrinds, the bonds of family and the imperatives of caretaking are, as Marx so vividly put it, to be drowned in the icy waters of egotistical calculation.

In the end, the bankruptcy panel directed Parker to consolidate her student loans under the William D. Ford Consolidation Program, which would reduce her monthly payments but leave her with only $15 after expenses at the end of each month. It would also her require her to make those payments for an additional 25 years — at which point she would be 76 years old.

The issue of debt generally and student loan debt in particular quickly emerged as a major concern of the US Occupy movement. In June 2010, total outstanding student loan debt became larger than total outstanding credit card debt for the first time in the country’s history, and in the spring of 2012 this figure surpassed the astonishing figure of $1 trillion. This explosion in student loan indebtedness has been the logical result of the dramatic inflation in the cost of higher education (particularly public higher education) in recent decades. Economists estimate that the cost of tuition and fees has more than doubled since 2000, easily surpassing the rate of inflation in energy, housing, and even health care costs.

The driving force behind this explosion in higher education costs is the long-term disinvestment in public colleges and universities at the state level. While public higher education institutions have absorbed the majority of new undergraduate enrollments since 1990, the proportion of state spending on higher education has dramatically declined. According to a recent study by Demos, between 1990 and 2010, real funding per public full-time enrolled student declined by over 26%. This shortfall has not been filled by other sources of public funding, but rather by a marked increase of students’ out-of-pocket costs. Over the same period, tuition and fees at four-year public colleges and universities rose by 112.5% while the price of public two-year colleges increased by 71%. Because household incomes have stagnated over the previous two decades, students and their families have been compelled to turn to student loans to cover these costs. According to the Department of Education, 45% of 1992-1993 graduates borrowed money from federal or private sources; today, at least two-thirds of graduates enter the workforce with educational debt.

Even though college-educated workers tend, on average, to earn higher incomes than their less-educated counterparts, young college-educated workers have not escaped the pressures of wage stagnation. In the last decade, the average annual earnings of workers ages 25 to 34 with Bachelors degrees fell by 15%. New graduates, meanwhile, saw their as the average debt load increase by 24%. What makes this dramatic expansion of student loan indebtedness particularly troubling is the fact that unlike most other forms of personal debt, student loans cannot be discharged through the standard bankruptcy process. In the event of default on a private or federal student loan, borrowers face a range of invasive measures: wage garnishment, the interception of tax refunds or lottery winnings, and the withholding of future Social Security payments.

The leading intellectual lights of the Occupy movement have seized on the issue of debt as their leitmotif, organizing their analysis of the economy around what they’ve taken to calling the “debt system.” For them, the explosion in personal and public indebtedness that has occurred over the last three decades represents a break in the logic of capitalism and marks the revival of older forms of exploitation associated with feudalism. At an Occupy conference held shortly after the clearing of Zuccotti Park, David Graeber made the case succinctly:

I think there’s a fundamental shift in the nature of capitalism, where some people are still using a very old-fashioned moral logic, but more and more people are recognizing what’s really going on. They just don’t know the extent of it. It’s not even clear that this is capitalism anymore. Back when I went to college, they taught me that the difference between capitalism and feudalism. In feudalism they take the money directly, through legal means, and they just shake you down, pull it out of your income, and in capitalism they take it through the wage, in these subtle ways. It seems like it’s shifting more toward the former thing. The government is letting these guys bribe the government to make laws where they can pick your pocket, and that’s pretty much it.

Graeber is certainly correct to point out the ways in which debt and finance can be nakedly exploitative. Marxists have traditionally characterized capitalist exploitation as an abstract social process that takes place behind the backs of those it exploits. But there’s nothing indirect about a credit card or student loan bill. All of those seemingly extraneous charges and fees are right in front of you on your bill, chipping away at your income and your standard of living month after month for years on end.

Still, that’s not “pretty much it.” The critique of debt as neo-feudalism advanced by Graeber, the organizers of the Strike Debt campaign, and others fails to capture how debt and finance works under contemporary capitalism. It also echoes the misguided populist discourse that casts the financial sector as a parasitical growth on the productive, “real” economy. In the case of student debt, the neo-feudal argument also prevents us from properly understanding one of the main functions of debt and finance within neoliberal capitalism: the shaping of our economic souls. The social function of student debt is not to make us into serfs or indentured servants. It’s to teach us how to be investors and risk-takers, entrepreneurs who have taken on debt to finance our climb up the ladder of bourgeois success. The soul of student debt is not feudal, but capitalist through and through.

Any discussion of higher education and student debt needs to be situated within a larger understanding of the turn toward neoliberalism and financialization that began in the 1970s. As the postwar settlement between labor and capital collapsed under the weight of its own contradictions, capitalists and policy makers in governments throughout the advanced capitalist countries pursued what is now a familiar strategy. They set out to smash the power of organized labor, unleash the financial sector, and integrate ever-wider layers of the population into the circuits of finance through the expansion of access to credit. This last point was a particularly crucial aspect of the neoliberal project. As Leo Panitch, Sam Gindin, and Greg Albo argue in their book In and Out of Crisis, the expansion of access to credit — and hence debt — “was as or more important to the dynamism and longevity of the finance-led neoliberal era” than any of the other aspects of the turn to neoliberalism. In particular, it allowed the working class to maintain its living standards in the face of stagnating wages, allowing the system to preserve its legitimacy and stability.

The consequences of this shift have been profound, dramatically altering the social textures of everyday life. They have upended relationships between workers and employers, citizens and the state. They have shifted the place of the individual in society and encouraged the formation of new forms of consciousness and being in the world. As Gerald Davis has argued in his book Managed by the Markets: How Finance Re-Shaped America, we now live in a “portfolio society” whose animating spirit is the logic of finance. Education, among other things, is conceived as a form of “human capital” rather than a social good, an investment security for one’s personal economic portfolio rather than the foundation of democratic citizenship. Student debt — the price one must pay in order to gain access to the possibility of upward mobility — is now one of the most risky investments in that portfolio.

Modern student lending practices date from the 1950s, when Cold War competition with the Soviet Union spurred Congress to establish the Perkins Loan Program in 1958. Perkins expanded student loan lending through need-based loans at low interest rates. But this program was relatively modest. Federal student loan lending expanded further during the Johnson administration with the passage of the Higher Education Act of 1965 and the establishment of the Guaranteed Student Loan program (known today as the Stafford Loan Program). With the onset of the fiscal crisis of the 1970s, states began their long-term disinvestment from public higher education, driving up the cost of tuition and necessitating the expansion of federal student loan lending. In 1978, federal spending on student lending was $500 million. In fiscal year 2012, the federal government lent $115.6 billion in new student loans. Today, the average student graduates college or university with over $25,000 in educational loan debt.

For Americans in dire financial straits, bankruptcy offers perhaps the only realistic avenue for relief. As Elizabeth Warren observed in Law and Class in America, the bankruptcy courts are a strategic vantage point from which to survey the social wreckage of contemporary capitalism:

Eventually virtually every social and economic problem in the United States threads its way through the bankruptcy courts. For families, bankruptcy is the place to deal with lost jobs, erratic incomes, inadequate health insurance, no disability insurance, and the financial impact of divorce. The bankruptcy courts deal indirectly from the fallout from stagnant wages and a part-time or “consulting” workforce, with the high cost of housing and daycare that chews through a parent’s take-home pay.

Article I, Section 8 of the Constitution authorized Congress to enact uniform bankruptcy laws under federal jurisdiction to offer a “fresh start” to those who simply could not keep up with their debts. In 1970, Congress appointed a Bankruptcy Act Commission to assess the effectiveness of the nation’s bankruptcy laws, which hadn’t been significantly altered in almost a century. The Commission released its recommendations in 1973, and they generally accorded with the relatively pro-debtor bias of the fresh start principle. Crucially, however, the Commission decided to make an exemption in regard to educational debt. Until 1976, all student loans were eligible for discharge, just like most other forms of consumer debt. But the Commission argued that this provision was necessary to prevent unscrupulous borrowers from financing their education through easily-accessible federal loans and then declaring bankruptcy after graduation.

Even though there was little evidence to suggest that students were running up huge debts simply to dump them back on the taxpayers, Congress included the exemption of student debts from discharge in the Bankruptcy Reform Act of 1978. The Act, however, contained one crucial caveat: such debts could be discharged through separate proceedings if borrowers could demonstrate conclusively that repayment of the debt would bring “undue hardship” on themselves.

But Congress neither defined exactly what constitutes “undue hardship” nor did it recommend a uniform standard for determining how and when a debtor’s personal financial situation meets that threshold. Bankruptcy courts have employed a number of tests for determining whether plaintiffs have adequately demonstrated undue hardship, but the most commonly used is the “Brunner test,” established by the Second Circuit bankruptcy court in 1985’s In re Brunner. The court’s decision in this case employed a three-pronged test to find whether debtors have shown sufficient evidence to support their claim of undue hardship. First, debtors must show that they cannot maintain a “minimal” standard of living if forced to repay the loans. Second, the available evidence must show that this sorry state of affairs will likely persist over the course of the repayment period. Third, debtors have to show that they have made a good faith effort to repay the loan.

By abdicating any responsibility for determining just what constitutes undue hardship, Congress gave bankruptcy judges an enormous amount of leeway to interpret and adjudicate claims arising from the growing pile of student loan debt. As representatives of the judicial branch of a capitalist state, it should come as little surprise that these judges have, more often than not, privileged the claims of the creditor over those of the debtor in their rulings. In doing so, they have reinforced the normative and disciplinary assumptions of what Michel Foucault called neoliberal governmentality.

Neoliberal governmentality seeks to subject our social life to the logic of what Foucault called the “enterprise society.” In The Birth of Biopolitics, he argued that it encourages the formation of subjects whose moral character and economic activity resembles that of the risk-taking entrepreneur. This should not, however, be construed as a simple top-down process of domination. The genius of this form of social control is that it elicits the active participation of the population in the construction of its own discipline. By bringing ever-widening circles of the population into the orbit of finance capital, it imbues the process of financialization with a spirit that accords with democratic norms of mass participation and equal opportunity. After all, what could be more American than the proposition that everyone have access to a college education and, presumably, a chance to go as far as your talents can take you?

As states disinvest from public higher education and compel students to take on ever-increasing debt loads to fund their studies, the experience and purpose of higher education is transformed. The pursuit of a college diploma becomes an entrepreneurial activity, a species of personal investment and risk-taking that places the attainment of future returns above all other concerns. By integrating higher education into the circuits of financial capitalism, the state encourages debtors to look to the market for self-improvement and personal security. Like the subprime mortgage borrower or the worker with a 401(k) plan, the indebted student is taught to view access to credit and the financial markets as the golden ticket to prosperity and security.

Student debt subjects the borrower to a distinctly capitalist pedagogy, transforming higher education into an increasingly expensive commodity that is bought and sold on the market. But as the legions of student loan debtors can attest, investment in a college education is no longer a guarantee of remunerative employment or personal financial security. It is an increasingly risky investment that can bring the student debtor into severe financial distress, and in the worst cases, to the door of the bankruptcy court to seek relief.

Federal case law offers an important glimpse into the ways in which student debt works to impose a particularly capitalist form of discipline on borrowers. The judges on these cases often seem as if they were social workers trained by the University of Chicago economics department. In cases where debtors have their claims rejected, a common theme quickly emerges. In denying plaintiffs relief from their debts, judges and appellate panels often seek to encourage economic behavior more akin to that of a competitive firm than a healthy human being.

Janet Lynn Parker’s story is, admittedly, something of an extreme case. But her treatment by the bankruptcy courts is not entirely out of the ordinary for the small segment of student debtors who actually attempt to have their debts discharged. The case law is replete with examples of judges resorting to a particularly merciless form of reasoning to deny plaintiffs relief.

Consider the case of Steven and Teresa Hornsby, a Tennessee couple who came to bankruptcy court with approximately $30,000 in student loan debt. Like Janet Lynn Parker, the Hornsbys received a discharge from a lower court only to have the decision reversed on appeal. The appellate judge agreed with the Tennessee Student Assistance Corporation’s argument that the couple did not adequately “tighten their belts” in order to make student loan payments. In moving from Tennessee to Texas (a state with higher monthly rental expenses), taking on debt to purchase a newer used car, and running up “relatively high bills for telephone use, electricity, meals eaten out, and cigarettes,” the Hornsbys failed to meet the highly restrictive standards of judgment adopted by the court. The appellate judge seemed particularly concerned with the couple’s ostensibly “exorbitant” telephone usage as well as the $100 they dared to spend on cigarettes each month.

In other cases where they have denied discharge, judges have directed dance teachers to seek better-paying work in other, often unrelated fields; reproached workers for leaving higher-paying jobs for lower-paying ones, whatever the reason; and, in one case, advised the pastor of a small, financially insecure church to close it and do something more profitable with his time. Unsurprisingly, many student loan debtors desperate enough to seek relief through the courts work in public sector professions. In an extensive 2005 empirical study of undue hardship cases, Emory University law professor Rafael Pardo and Tulane University mathematician Michelle Lacey found that a disproportionate number of plaintiffs worked in education, training, and library occupations. In today’s enterprise society, becoming a teacher or a librarian just isn’t a wise investment.

As Doug Henwood pointed out in his critique of Strike Debt’s Rolling Jubilee initiative, debt is not a system. It’s a symptom of the restructuring of the US state and its priorities away from social provision toward capital accumulation, both at a national and a global scale. If the scourge of student debt is to be confronted in any kind of meaningful way, Occupy and its offshoots will need to struggle on a terrain that they have assiduously avoided — that of politics, public policy, and the state.

In addition to the Rolling Jubilee, student debtors and their allies should begin building toward a concerted attack on the country’s bankruptcy laws, particularly the egregious Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). This 2005 “reform” law, passed at the behest of the creditor lobby to tighten the screws on debtors, made it harder than ever for student borrowers to win relief. For the first time, the law excluded loans from non-governmental lenders from discharge through the normal bankruptcy proceedings. Because of the time and effort required to file a totally separate claim for undue hardship, many borrowers in extreme financial distress don’t even bother to do so. It’s estimated that less than 1,000 student debtors make an undue hardship claim in the US each year. And when they do, it can take years for their cases to be resolved in the courts.

While there are many obstacles standing in the way of relief, there is some evidence that more student debtors should consider filing undue hardship claims. As reported in a New York Times series on student debt, a recent study of such proceedings from around the country found that 39% of claimants eventually received full or partial discharges. While it’s not an adequate solution to the problem, we need to make it easier for student debtors to file for bankruptcy and to win at least a partial discharge of their debt. Repealing BAPCPA and overhauling the bankruptcy process for student debt should be just as high a priority for Occupy as the Rolling Jubilee.

Ultimately, however, the problem of student debt cannot be resolved without winning free public higher education for all. The Quebec student movement provides an instructive example in this regard. In its victorious battle to stop of the provincial government’s tuition hike earlier this year, the movement made a brilliant strategic decision. It made demands that not only spoke to the immediate needs of the people, but pointed toward a broader transformation of their society — and of the state as well. Perry Anderson once remarked that class struggles cannot be resolved anywhere besides the realm of politics and the state. That’s where the struggle over student debt and public education must ultimately be fought, and won.