Sarah Jaffe has a story over at Alternet, Is the Near-Trillion-Dollar Student Loan Bubble About to Pop?, that starts with stories about people buried under student debt, unable to make their payments in this terrible economy. Jaffe opens with stories of people for whom the tradeoff – great education and full opportunities combined with massive debts – didn’t work out. People, for instance, who had to drop out of college and thus ended up with a debt load and without the necessary credentials to get ahead in the economy.
Jaffe goes on to look at the large amount of student debt out there and what can be done about it. I want to add three additional ways of looking at this problem.
Firstly, notice how the debt works here. For those that can successfully graduate from college and transition into higher paying work – often people with the most resources behind them – the debt is less of a burden, but for those who don’t finish college – those who often have fewer resources – the debt is a gigantic burden. It’s like rolling dice, with the consequences being how much the debt impacts your life.
A nice comparison is to late 19th century Western and Great Plains farmers with mortgage debt along with sharecropping in the South. Success of their enterprises were a dice roll, but either way the debt had to get paid. As J.D. Fields, a leader in the Texas Alliance (which would later evolve into the People’s, or Populist, Party), put it, farmers’ two alternatives were “success and freedom, or failure and servitude.” How well does that describe out educational debt system now?
A second point is that the analogy should be extended to the notion of indenture more broadly. For all the talk about freedom, the majority of whites who came to the British colonies arrived under indenture. Indenture was extensive and prevalent, secured not by property but by people and an extensive legal code that limited recourse if things went bad. Indenture was the means of social mobility, something that could transfer people across space – class and distance – and into a better life with more opportunities. It was used more by the young and those with less resources, of course. And it generated a major financialized secondary market to go along with it.
How well does colonial indenture match up with student loans? Pretty well I’d argue. That’s the provocative thesis of this great Jeffrey Williams piece in Dissent, Student Debt and the Spirit of Indenture. I brought this thesis up to a conservatively-minded economic historian I know and he delighted in it – as he pointed out, in colonial times people died so quickly and they could disappear easily. As such indenture needed to function in a “total institution”-like space with coercive punishment very present to get maximum returns to creditors. With today’s longevity, as well as our surveillance and monitoring technologies, indenture can function in the background as a cut deducted from your checking account every month for a few decades.
But Jaffe’s piece focuses more on those for whom this arrangement doesn’t work out. What about those for whom it does work out? What about those who go to a great, highly-selective school and place into the job market? How does student debt impact them?
Beyond a major drag on their income at a crucial point in their lives, there’s another interesting factor. As the third item, we luckily have this fantastic Jesse Rothstein paper to examine, Constrained After College: Student Loans and Early Career Occupational Choices. From the paper (my bold):
In the early 2000s, a highly selective university introduced a “no-loans” policy under which the loan component of financial aid awards was replaced with grants. We use this natural experiment to identify the causal effect of student debt on employment outcomes…We find that debt causes graduates to choose substantially higher-salary jobs and reduces the probability that students choose low-paid “public interest” jobs…Specifically, in our preferred specifications in columns 6 and 7, we estimate that an extra $10,000 in student debt reduces the likelihood that an individual will take a job in nonprofits, government, or education by about 5 to 6 percentage points. This is a large effect…students with more debt are less likely to accept jobs in low-paying industries and accept higher paying jobs more generally.
There’s a lot of great stuff in the paper about life-cycles of economic agents for those who would find that interesting. For our purposes, even those for whom this arrangement works find themselves pushed out of government, education or non-profit work by their debt loads. Debt puts contraints on what people are capable of doing, and one way out of that constraint is to work in the fields that pay the most. For those who want to see our best working in schools, government, nonprofits, taking chances starting entrepreneurial work or simply not working to replicate already existing power structures, this is a terrible arrangement.
And as a reminder, moving from subsidizing loans and grants, capital that can be easily captured by incumbent institutions, to providing a cheap public option, is one way to use the market to combat this runaway educational price inflation.