America Eats It’s Young: The Bipartisan Student Loan Certainty Act

Student Debt

Source: Dollar Vigilante

[Editor’s Note: The following post is by TDV contributor, Wendy McElroy]

Obama just signed the Bipartisan Student Loan Certainty Act. It was cheered as a victory for students in higher ed because it keeps federal student loans at low interest rates through 2015. The victory is Pyrrhic.

The law is more accurately called the Debt Serf Pipeline Act because students who use the loans are pouring their financial futures down the insatiable drain of the state. Like the grads before them, they are likely to end up moving back home and working two minimum wage jobs, if they are lucky enough to get them. Their subsistence wages will go toward enriching the federal government which expects to make $184+ billion on the loans over the next 10 years. Because Congress excluded student loans from bankruptcy proceedings, there is no way out for this generation of grads. The debt collectors will dig them up from the grave, if necessary.

The number of young people who are on the fast track to serfdom is shocking. On August 20th the Education Department reported that 57% of undergraduates used federal student loans in 2011-12. The average loan is $8,200. The average total debt for graduating students is $30,000. Approximately 38 million Americans now have outstanding student debt.

The students are personally responsible for the debts, no question. But an aggressive and deceptive campaign is being pressed upon 18-year-olds who cannot legally buy a beer and have no financial experience. The Free Application forFederal Student Aid form is necessary to qualify; the FAFSA site declares that there is no excuse for not applying since many middle-class families are eligible. For example the number of students receiving Pell grants whose families earn $60,000 to $80,000 soared to 18% in 2011-12; it was 2% in 2007-08.

Interestingly, FAFSA applicants are directed to use “the IRS Data Retrieval process” to complete their forms. “With this tool,” the site explains, “you will be able to transfer your federal tax information straight from to the FAFSA application – eliminating unnecessary errors.” The transfer of information goes two ways. The forms require detailed information on all income (taxable or not), bank statements, as well as business and investment data. Parents must disclose the same. In short, FAFSA has become a massive data-mining tool with the information going directly to the IRS. The alleged purpose is accuracy; the real purpose is to facilitate a huge transfer of wealth from the private sector to the feds.

The shell game being played is massive. At a press conference in May, Obama spoke of the then-pending Act, “We cannot price the middle class or folks who are willing to work hard to get into the middle class out of a college education.” But the loan program seems designed to destroy the financial prospects of an entire generation who will never be able to enter the middle class.

Journalist Matt Taibbi expanded on this point in an August 15th Rolling Stone article entitled “Ripping Off Young America: The College-Loan Scandal,” which was sub-headed “The federal government has made it easier than ever to borrow money for higher education – saddling a generation with crushing debts and inflating a bubble that could bring down the economy.” Taibbi wrote, “For this story, I interviewed people who developed crippling mental and physical conditions, who considered suicide, who had to give up hope of having children, who were forced to leave the country, or who even entered a life of crime because of their student debts.”

One profile Taibbi offered was that of Alan Collinge who graduated in 1999 with roughly $38,000 in student debt. In 2001, due to unemployment, Collinge went into default. The $38,000 loan quickly swelled to over $100,000 due to fees, penalties and interest. He finally found a job only to lose it when his employer ran a credit check and discovered the debt.

The beneficiary of the federal student loan program is not students, it is not the middle class. There are two main beneficiaries. First, the higher education system, which receives an incredible inflow of money. Most of it is not spent on improving the quality of education which has fallen precipitously. It is spend on enormous salaries and pensions. It goes to what Taibbi describes as “extravagant athletic complexes, hotel-like dormitories and God knows what other campus embellishments.” The purpose of the embellishments is to increase the prestige of institution.

[Editor’s Note: A much better investment of time and money would be another passport to allow for travel and possibly permanent expatriation. Instead of chaining yourself to debt in a police state, invest in building a far freer and more profitable life somewhere else.]

The second and main beneficiary is the federal government. It benefits in several ways. The financial data-mining that is FAFSA constitutes a bonanza of information. Moreover, the student loan crisis distracts people from White House scandals. Of Obama’s May press conference, Taibbi observed, “Obama strolled into the bright sunlight of the Rose Garden, covered from head to toe in the slime and ooze of the Benghazi and IRS scandals. In a Karl Rove-ian masterstroke, he simply pretended they weren’t there and changed the subject.” Yet another benefit is that the federal program appeals to one of Obama’s voting bases – students – who may be politically naive enough to not understand how deeply they are being handicapped. They may not understand that the rate of interest is not the major problem; it is the principal or tuition that has risen at almost three times the rate of inflation.

But the primary advantage to the feds is pure and simply the cash cow of loan collection. In 2010, Obama made the process even more lucrative for himself by removing banks and other middlemen from the federal loan process. As always, the stated purpose was to eliminate waste and so benefit students. As always, it benefited the federal government.

The feds cannot lose. At worst, graduates pay back the money with interest. That’s the worst scenario because there is more money to be made in defaulting loans, on which an extra 20% of the principal can be added in fees and other payments.

Nor does the federal government have to worry about debtors being deadbeats. If salaries or bank accounts cannot be garnished, if there are no goods to snatch, then there are always relatives. In fact, stories abound of tax collectors hounding everyone from dead grandmothers to old boyfriends.

America is a debtors’ prison without the visible bars. This can only increase as year after year of students receive their diplomas, step down from the stage, and step into debt from which they cannot rise. The $184+ billion the federal government expects to reap is a hidden tax slapped on the middle and lower class. For the new generation, the American dream is dead.

Wendy McElroy is a renowned individualist anarchist and individualist feminist. She was a co-founder along with Carl Watner and George H. Smith of The Voluntaryist in 1982, and is the author/editor of twelve books, the latest of which is “The Art of Being Free”. Follow her work