Naked Capitalism on Student Debt

Why Isn’t Elizabeth Warren Attacking the Student Debt Problem Head On?

It’s hard not to notice the difference between Senator Elizabeth Warren’s posture on big banks and student debt. She came hard and fast out of the gate in her initial Senate appearances, making deft use of the highly constrained and artificial hearing format to get the issue of still untamed too big to fail banks back in the national focus. It was fun to watch her pin obfuscator-wannabes and wring answers out of them on basic questions. She’s done ever better with the biggest asset she has as a legislator, that of a bully pulpit, than even many of her fans imagined.

It’s thus puzzling to see her pull her punches on another pressing issue for middle class families, that of student debt. As readers no doubt know, she launched a bill that elicited favorable commentary in what passes for the left-leaning media for its catchy high concept, that of letting students borrow at the same rate as big banks. But in fact, her first bill is a narrow, technocratic fix to a particular problem that had been ignored, that interest rates on most student loans were set to jump sharply.

Now there’s nothing wrong with short-term patches as long as you set them in a bigger context. And Warren could have clearly used her bill as a way put the spotlight on the student loan debt slavery the same way she has with unreformed and unaccountable banks.

But if you look at her speech introducing her bill, you don’t hear an iota of questioning the underlying, destructive system of having students borrow large amounts of money to pay for college and grad school that has led to wildly escalating higher education costs with no noticeable improvement in the actual product. Worse, the colleges themselves have become loan-pushers, selling the less and less true with every passing day line that this is an investment that will pay off. As any market participant will tell you, an overpriced asset is a bad investment. For too many young people, higher education has become every bit as big a liability as 2007 subprime mortgage.

It’s no longer possible, as it was when I was in college, for students to work their way though college. And I don’t mean state schools. I’d guesstimate that a full 1/4 of my class at Harvard was work-study, and I later met people who went to other well regarded private schools (Ivy and equivalent) who’d paid their way through college as well as good grad schools.

Reader Paul Tioxon listened in on and wrote up a MoveOn briefing tonight with Warren on her student loan bill. As I read the call, she focused on the interest rate issue and discussed the broader issue of crushing levels of student debt only when prodded by questions. And even then, she said there needed to be a mass movement. Why isn’t she willing to be in the fore here? She’s one of the top bankruptcy experts in the US. It would be a natural for her to call for a rollback of the 2005 bankruptcy law changes that made it virtually impossible to discharge student debt in bankruptcy. Not only are student protests on this front rising, but student debt is increasingly recognized as an impediment to household formation, home buying, and other spending and investment by young people. It’s not hard to imagine that a lot of real economy players would also support relief to student borrowers.

By Paul Tioxon, a long-standing contributor to the NC comments section

First, a little context on the livestream briefing tonight, June 3,2013. The following is from Bill Moyers’ website yesterday. There is more information available there for people who want to know more because they have kids or are students heavily in debt. First, there is a larger unreported student week of action due this time at the traditional graduation rite of passage. Poor job prospects coupled with high debt burdens will be coming due now that people can not defer interest payments once they graduate. With degree in hand, it is time to pay the piper his due, but there are few jobs and even the ones available do often do not pay enough to allow graduates to service the debt and live independently by setting up their own household.

Nearly 200 students, parents, community members and union leaders rallied at Sallie Mae’s annual shareholder meeting in Newark, Delaware, last Thursday. On the agenda: first, demand that the nation’s largest private student loan lender meet directly with students to discuss their crushing debt burden; and second, introduce a shareholder resolution calling for disclosure of the corporation’s lobbying practices and membership in groups such as the American Legislative Exchange Council (ALEC).

Outside of Sallie Mae’s corporate headquarters, the activists were met by “dozens of police, blockades and K-9 units,” according to participants. Sarita Gupta, executive director of Jobs with Justice – American Rights at Work, urged the crowd to confront Sallie Mae executives and board members “about their role in America’s student debt crisis.”

More than 38 million people now owe over $1.1 trillion in student debt; Sallie Mae owns approximately 15 percent of that debt, or $162.5 billion. Students owe an average of $27,000 when they graduate from college and many have a debt load several times greater than that amount. Nearly one in ten will default on their loans within two years.

Gupta noted that Sallie Mae “spent $16 million on federal lobbying from 2008 to 2012 and has more than sixty state lobbyists.” The corporation has lobbied at the federal level “to block student loan reform,” and at the state level “for reduced public investment in higher education, forcing more students to rely on private student loans.”

Tonight, Anna Galland, National Executive Director of MoveOn.org, hosted a Civic Action on Livestream. Senator Elizabeth Warren (SEW) was the main speaker, along with three other guests who addressed the student loan debt issue. Starting at 9:06PM SEW gave a basic overview of her “BANK ON STUDENT LOANS FAIRNESS ACT”. She described this as an emergency measure to keep Federal Stafford Loans, subsidized college loans from the government, from increasing the rate of interest charged from 3.4% to 6.8% for the fiscal year 2013-2014, that begins this July 1, 2013. This is a bill that addresses the profit-making student loan portfolio held by the US Government which stands to double the profits when the rate doubles in 4 weeks. Instead of that rate, she proposes the Federal Reserve Discount Window rate, the overnight rate charged to banks of .75%. This does not affect private loans via SallieMae, only Stafford Subsidized Federal Loans, the vast majority of all student lending since the government takeover of college lending a few years back. This does not address the entire student loan crisis, this is a campaign to keep loan rates from automatically rising and to also lower them for the fiscal year of 2013-14. That’s all.

The host said that there were over 10,000 people on line from MoveOn, and several thousand more college and high school students as well. SEW was questioned by a guest from The Oregon Working Families Party, Tom Leedham, from Teamsters Local 206. He asked point blank about getting debt free higher education, because college debt affects entire families, not just the student matriculated in college. Their website shows that student debt is one of their main issues as an organized political party in Oregon.

SEW replied that we need to invest in people to get them a good education just as we invested in financial institutions during the financial crisis. SEW said there is push back against this larger crisis of out of control student loan debt. She says that there are elected officials who like the $51 billion profit center for the government. However, I can not see how the Norquist anti-tax pledge can stand for revenue enhancement by interest rate charges as anything other than money coming out of the students’ pockets and going into the government treasury. If Chained CPI is seen as a clear tax increase by raising revenues over the years, how is increasing the interest rate and the money collected by the government as profits doubling not a tax increase as well? Over and over, SEW makes a clear, rational argument as well as a clear moral argument against the interest rate increase. Not only is it wrong, according to her, unfair and unjust but it is a drag on our economy, crowding out home ownership, household formation, car purchases and ancillary demand that goes with the discretionary income, now being channeled into college loan debt service. It would seem that at least some Republicans and some Democrats, who may be fiscally conservative can see this is a back door tax hike. Maybe enough to pass the emergency bill to lower the rates.

2 more questions were addressed:

Does this affect private loans. SEW: No. Not now. The total cost of college has to be attacked head on, but this is a singular campaign for the next few weeks for an emergency matter. I read her bill, four pages long, and it just changes a few words, an amending of current law that will direct the Fed via the Treasury to offer the Discount Window rate.

Is anyone in Washington listening to us about this at all? The banks and the universities are ignoring us about the rising costs and bills we have to pay for college.

She has some co-sponsors, but SEW says that a grass roots movement needs to make an organized push. She can’t do it by just talking to colleagues herself. Outside pressure needs to be brought to bear.

And then, at 9:29PM, she signed off and the outside pressure was introduced.

Apparently, as the above referenced Bill Moyers piece indicates, there are a lot of students as well as others, well aware of the issue directly affecting them and they have been and are planning to do something about it.

Finally, two more younger guest spoke up as well. The first a college student from Oregon, the leader of the US Student Association by the name of Alexandra. This is a crisis that is mobilizing students to act in public civil disobedience, protests at graduation ceremonies and work this week in conjunction with Moveon to deliver to the offices of Congress reps and senators their horror stories of crushing student debt, joblessness all the while watching states disinvest in higher education while offering tax breaks and loans to relocate factories and offices of corporate America.

Robert Applebaum spoke about forgiving student debt as a bill he helped write as a congressional aid. Huffpost has a lot more linked material about this.

Lastly, Anna Galland from MoveOn launched a campaign of theirs, in coordination with many other groups that will deliver the stories of how student debt is crushing the lives of people as well as being a dray on the economy. You can listen for yourself here. Their promo:

On Friday, June 7th, thousands of MoveOn members will take our student debt stories to local congressional offices to call for passage of the Bank on Students Loan Fairness Act.

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