Student Loan Indenture

 

This morning at Naked Capitalism Yves asked the question, Is Student Debt the Next Front in the Consumer Debt Crisis? I’ve been meaning to write something about this, and the comment I made there is a good summary of my thoughts, so I decided to reproduce it here:

 

I’ve already heard of a few cases of law students suing their law schools for having fraudulently represented the value of the degree and the jobs that would be available to them, and inducing them to take out student loans on that fraudulent basis.

 

The moral soundness of such a suit is clear. This is a clear-cut case of predatory lending. You fraudulently represent an expensive asset as being an investment which will always appreciate in value, and induce the mark to take out a usurious loan in order to purchase it.

 

The parallel with housing is clear, and the fraud is even more direct. In the case of mortgage lending fraud, the seller was usually technically the previous homeowner, with the banks and their flunkeys managing the sale (and the government only propagandizing for it).

 

Here the school and the government themselves, along with the banksters, are active participants in the loan fraud.

 

It’s even worse in this case because there are no non-recourse student loans. There’s no house collateral to repossess. There aren’t even recourse loans which can be discharged in bankruptcy. Instead the “repossession” on a default can be nothing other than indentured labor. Legally, there’s no walking away from a student loan. Once the distressed student borrower can’t pay, he’s placed in the Hobbesian state of nature vis the indenturing system. The 2005 bankruptcy law has only made this worse.

 

Then there’s the fact that many of those who went on to post-graduate study did so expecting to be hired at asset-appreciating rates by the very educational system which was making these promises for these assets. Yet everywhere today we see the schools themselves failing to hire in sufficient numbers, and low-balling those they do hire, and seeking neoliberal structural adjustments for professors and teachers at every level.

 

It’s there that the loan fraud is most stark, direct, palpable.

 

So I’d love to see class action suits against the universities by the distressed student debtors, and a parallel political campaign unmasking this systematic lending fraud on the part of the schools and the very government which makes it impossible to discharge the debt, but wants to turn it into indentured servitude.

 

While here it’s not legally possible to jubilate the debt from the bottom up (the way it is with e.g. mortgage debt), it’s possible to politically demonstrate it to be predatory debt, the victims being the children (and by extension the parents who have to keep financially helping them) of the very middle class who would be the target audience. And this way may lie some kind of political relief, some kind of top-down acquienscence in the demanded jubilee.

 

(Meanwhile, I don’t know how legally viable such lawsuits would be. The law is no doubt rigged against them, and even if not it would still depend upon non-corrupt judges, judges who aren’t pro-bankster. But I think the main point of such suits would be political. Money shouldn’t be a problem, if we have all these unemployed lawyers. All you need is enough of them who recognize that the most likely  path to relief is political, and that such suits can be part of that political campaign even if they don’t prevail in the proximate legal sense.)

 

Beyond that, this is yet another stark lesson in the fact that the government and system institutions have become on the whole enemies of the people. What other conclusion can be drawn from the fact that they’ve taken the education aspiration itself, something which throughout history was the shining emblem of socioeconomic advancement, always right at the core of the work-hard-and-play-by-the-rules propaganda (and let’s recall how just a few years ago the likes of David Brooks were trumpeting the notion that America needed to aspire to universal college attendance), that they’ve taken this and turned it into another malevolent dead end and debt trap.

 

We know what Hobbes said the person who has been cast out and placed back in the state of nature should do, what he’s morally entitled to do, if the sovereign unilaterally breaks the social contract. The student debtor, the victim of top-down loan fraud and the target of indenture, should recognize that the existing system first lied to him and then unilaterally declared war upon him. He should regard it in kind.