A time bomb called student loans

It’s loan-time for British students. The financial support available to new students in colleges and universities throughout the UK has changed from September. Under the new centralised and government-monitored financing arrangement, eligible students can apply for student loan to cover the full cost of studies. In addition, they are also entitled to a loan to meet the living expenses.

Repayment starts only when the students have finished their studies and are earning ‘enough’ as an annual sum, fixed at £21,000. Repayment stops if they stop working or earn below the fixed amount. On top of that, any outstanding loan will be written off after 30 years.

What is interesting about the UK’s comprehensive lending arrangement is its take-off time. It has come into being at a time when the much celebrated student loan system in the US is facing ‘existential threats’. The demand for student debt cancellation has already turned into a protest movement.

‘OCCUPY’ CAMPAIGN

Like the housing and mortgage market meltdown in late 2008, student debt crisis has turned into a ghost that haunts the American financial system. The numbers are sobering. The total student loan debt in the US presently stands at $1 trillion, a figure higher than all credit card debt combined. Two-thirds of all the American students are currently in debt; the average loan liability per person is at a staggering $25,000.

All this happens at a time when employment for those under 25 is at a ‘generational’ low. According to recent reports, at least half of the recent US college graduates are either unemployed or find themselves in low-wage jobs that don’t even require a college degree.

Many jobless graduates find themselves back home, back to the same bed they slept in during their high school days. The aspiring youth no more dares to cherish the ‘American Dream’ that for years equated education with success and security.

The ‘Occupy’ student debt campaign seeks to end the debt financing of higher education. Occupy student groups assert that education is a “right” and knowledge should not just be a source of profit for the private student loan companies.

Unlike other debts, student loan debts cannot be waived even in a case of bankruptcy claims. Therefore, what the Occupy student debt campaign ultimately asks for is writing off student loan liabilities in the spirit of ‘Jubilee’.

DEBT JUBILEE

The ancient Hebrew tradition of Jubilee, in which debts were forgiven and slaves declared free every fifty years, was intended to prevent societies from breaking down. The rulers of Mesopotamia and Rome opted for debt Jubilees to reset the economy at times when social destabilisation was on the horizon.

The last year saw a mainstreaming of the idea of Jubilee as an antidote to the Western debt crisis. Many economists worry over the fact that much of the economy’s productive capacity is now going into servicing the debt and accumulated interest. They propose debt forgiveness as the only possible way to reset the financial system, thereby re-establishing productivity as the basis of the economy.

Steve Keen, the Australian post-Keynesian economist who predicted the global financial crisis, proposed a “quantitative easing for the public”, rather than bailing out banks. He suggested a working model for the modern debt Jubilee — i.e. government provides money to its citizens to help them pay off the debts.

Debt Jubilee is applicable even in the modern world where the concept of money has shifted from metals to intangible electronic money.

“Once we move into a period of virtual credit-money, money is just a bunch of promises. It’s not a thing like gold or silver. It’s a series of commitments we make to one another. And if democracy is to mean anything, we can renegotiate those commitments”, said David Graeber, one of the masterminds behind the Occupy Wall Street movement and author of Debt: The first 5000 years .

The debt of banks and insurance corporations in financial crisis has many a time been renegotiated, and billions of dollars of debt were made to disappear. But when it comes to people’s debts, renegotiating is always unthinkable and paying off becomes a ‘sacred obligation’.

Given that modern money itself is a political arrangement, no government can go on differentiating between debts owned by the rich and the poor. Such is the democratic spirit that propels the Jubilee argument of the Occupy student debt campaign.

No wonder, one of the protest platforms for a student debt Jubilee is mass defaults — saying a “Collective No” to the loan system by stopping paying off the debt. According to an official estimate released in July 2012, cumulative defaults on the US private student loans crossed $8 billion.

EDUCATION LOANS IN INDIA

The problems with student finances in India are markedly different. While irresponsible lending caused, to a great extent, the American crisis, Indian students have to tackle banks that are “too responsible” in their loan policy. Private sector banks remain reluctant to sanction loans for higher studies. Meanwhile, the public sector banks have become less and less student-friendly, thanks to the skyrocketing non-performing assets from past loans.

The Finance Minister’s statement, “education loan is a right of every student”, should be looked upon in that context. As per P. Chidambaram’s directive to banks, every deserving candidate is entitled to a loan.

However, before tackling the access problem, the Government should have a clear policy, as in the UK. What needs to be implemented is a ‘socially sustainable’ lending arrangement that ensures waiving loan for those who don’t earn a certain minimum salary. Otherwise, what lies in the pipeline is a massive cry for debt Jubilee, as in the US.

AN AFTERTHOUGHT

These are the days when the Manmohan Singh Government is aggressively refurbishing some of its backlogged reform proposals such as FDI in retail sector. Unlike the early 1990s, when India’s economic liberalisation started with a bang and much celebration, the free-market as an economic model has lost much of its appeal.

Even in the West, the self-predatory nature of unfettered capitalism has boomeranged on its own population. Protest movements such as the Occupy student debt campaign are one of its eventual repercussions.

It is indeed a paradox that in these times a diligent economist such as Manmohan Singh is desperately trying to implement a new package of economic reforms.

(Sajan is a social anthropologist at University of Bergen, Norway. Idicula is a clinical neurologist and neuroscientist at Haukeland University Hospital, Bergen, Norway.)

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