Student Loan Debt & Neoliberalism

Funny thing: When I’m not at my computer, I feel like writing. As soon as I sit down at my desk, though, the desire completely drains away. I’d almost prefer to lean in and stare at the RGB pixels in my monitor.

One thing I’ve felt drawn to write about (until I sit down at my computer) is the seemingly increasing discussion of the cracks in the foundation of our (and much of the world’s) economy. If you read the news (and I’ll make no assumption that you do), you may have seen what I mean. Instead of the usual coverage of the ups-and-downs of the market – news of which there is still plenty – you may have noticed a slow move toward recognizing there’s a significant problem facing us.

Ultimately, they’re all talking about neoliberalism. Don’t believe me?

In the current issue of The New York Review of Books, Rana Foroohar examines the causes and effects of the student debt crisis. I will quote heavily:

All of these changes have their roots in the rise from the late 1970s onward in “neoliberal” economic thinking—which assumes incorrectly that the marketplace is always fair and efficient and better than public institutions at allocating resources—and the subsequent financialization of everything. Neoliberal theory, or at least the twentieth-century, laissez-faire reincarnation of it, assumes that markets empower everyone; in reality powerful institutions, and in particular financial institutions, end up dominating both the economy and society.

“Financialization” is an academic term for the trend by which Wall Street and its methods have come to reign supreme in America, permeating not just the financial industry but also many other parts of both the private and public sectors. It includes such basic matters as the growth in size and scope of finance and financial activity in the economy (the size of the industry as a percentage of GDP has more than doubled the last forty years); the rise of debt-fueled speculation instead of productive lending; the ascendancy of shareholder value as the sole model for corporate governance; the proliferation of risky, selfish thinking in both the private and public sectors; the increasing political power of financiers and the CEOs they enrich; and the way in which a “markets know best” ideology remains the status quo in many academic and policy circles.

University of Michigan professor Gerald Davis, one of the preeminent scholars of the trend, likens financialization to a “Copernican revolution” in which business and society have reoriented their orbit around the financial sector. This revolution is often blamed on bankers. But it was facilitated by shifts in public policy, from both Republicans and Democrats, and crafted by the government leaders, policymakers, and regulators entrusted with keeping markets operating smoothly. Greta Krippner, another University of Michigan scholar, whose Capitalizing on Crisis is one of the most comprehensive books on the topic, believes this was the case when financialization began its fastest growth, in the decades from the late 1970s onward. According to Krippner, that shift encompasses Reagan-era deregulation, the further deregulation of Wall Street under Bill Clinton’s administration, and the rise of the so-called ownership society under George W. Bush that pushed property ownership rates higher and further tied individual health care and retirement to the stock market.

The financialization of education was part of this fundamental change as well, a point that student debtor turned activist Cryn Johannsen lays out in Solving the Student Loan Crisis. As she puts it, “students…are defined as consumers seeking out personalized education and training that will make them marketable,” a concept that disconnects higher education from its value as a public good. Of course, American higher education was never completely devoid of mercantilism (for-profit business and trade schools have been around since the nineteenth century) and it’s virtually never been free; but payment for it was in the past split more evenly between families, the government, and philanthropy, and the civic benefits were as highly valued as the economic ones (which, crucially, were seen as accruing to the nation, rather than just the individual).

. . .

Both the wealth divide and the tendency to blame the victim (witness conservatives who use Pell Grant fraud in the for-profit sector as an argument for doing away with public financial aid programs altogether) stem from neoliberal policies and attitudes with their emphasis on market outcomes.

. . .

Why haven’t educational leaders been more vocal about this crisis? Perhaps because like regulators and politicians involved in the 2008 crisis, they too are victims of neoliberal ways of thinking. Universities have been duped by Wall Street into bad debt deals, just as public municipalities such as Detroit were. New research by the progressive Roosevelt Institute has found that seven of the eight largest universities in the state of Michigan, for example, have gotten involved in risky interest-rate swap deals in recent years, resulting in millions of dollars in unnecessary fees, further raising costs for students. The very idea that a large number of American universities are now involved in swaps that put them far out of their financial depth raises disturbing questions about how their balance sheets are being managed.

But the financialization of education and the debt bubble it has brewed raise a deeper question: Who, exactly, is higher education for? Who is it helping? While a four-year degree does ensure a job paying more than $15 an hour for most graduates, it is no longer a ticket to social mobility for the poorest. Among those who do graduate, debt loads can result in downward mobility. In her Solving the Student Loan Crisis, Johannsen cites a 2013 study by the liberal think tank Demos that found that the average student debt burden for a married couple with two four-year degrees ($53,000) actually led to “a lifetime wealth loss of nearly $208,000.”

Such a burden is a huge economic concern, and not just for millennials. The majority of college graduates in the US now move back home with their parents, often for several years. The class of 2016, the most indebted in history, cannot afford homes, cars, or other trappings of a middle-class life, which is an obvious problem for an economy of which 70 percent is accounted for by consumer spending.

She finishes with:

Reconsidering and reforming our system of higher education should move beyond debates about whether STEM skills—those promoted by the study of science, technology, engineering, and math—trump liberal arts. We need both, not only because it’s impossible to predict exactly what the jobs of the future will be, but also because critical thinking in any field is the most important measure of economic and civic success. We need a deeper shift in the American system—we must once again start to think about public education as an investment in our future as a nation, the way our leaders did forty years ago. It is, after all, an asset, rather than a cost, on our national balance sheet.

See? Neoliberalism has taken over everything. I’m not the only one calling it out. I never was.


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