Friday, October 26, 2012

You won’t be able to afford college if you want to retire

Is Student Debt the Choke Point of Finance Capitalism?

American Students: the Coal Miners of Today

by DARWIN BOND-GRAHAM


Bob Meister isn’t the kind of man who comes across as a radical. He’s a bespectacled grey-haired intellectual who looks comfortable in the sort of suit and tie a distinguished professor would wear. That’s probably because he is a professor, a quite distinguished one who teaches politics at UC Santa Cruz. He speaks in a low and measured voice, and when he does talk it’s clear he’s thoroughly researched a subject, and that he’s choosing his words with care and precision. When a guy like this says something radical, it’s probably worth paying close attention.

A few years back Meister dropped a bomb of an essay on California. Actually it was a series of three essays backed with documentation and analysis (http://www.cucfa.org/news/tuition_bonds.php). It elicited angry rebuttals from the University of California’s managers, but other faculty members and outside knowledgeable observers stepped in to back Meister. Students who read the essay were perhaps the most outraged and perplexed audience.

“They pledged your tuition,” wrote Meister. “Your tuition is UC’s #1 source of revenue to pay back bonds, ahead of new earnings from bond-funded projects, which do not even come second.” Meister spent considerable time digging through the UC’s finances to reconstruct a trail of debt assurances that started with student fees and led to the construction of hugely expensive medical centers, dorms, research buildings, among other things. This trail ended in a perverse incentive system for the UC’s management to increase student fees, thereby increasing student debt, and allowing the entire university system to borrow more cash from private capital markets.

The source of outrage from students was that the pledge of fees as collateral on this type of debt contradicted what the fees were supposed to pay for – education in the form of faculty salaries and a little administrative overhead. Throughout the 2000s the “Feegents,” as the students derisively refer to the UC’s board of directors (they prefer to imperiously call themselves the Regents), had hiked student fees upward many times over. This created huge debt burdens on multiple generations that were forced to take out expensive loans.

It started in 2002 with an 11% hike in total charges for resident undergraduates. In 2003, the year Bush II invaded Iraq, the Regents approved a whopping 29% hike. The next year 14%. 2005 students were hit with a fee increase of almost 8%. Between 2006 and 2012 the UC Regents approved a doubling of the financial burden upon undergraduates, increasing mandatory charges from roughly $6,000 to $12,000. Professional students in the medical and law schools had it worse. Grad students were struck also. Out of state students were shook down for huge sums of money (http://budget.ucop.edu/fees/documents/history_fees.pdf). Mind you none of this pays for food, housing, textbooks, little of it for transportation, or other expenses that have made attending UC a very costly endeavor.

Meister’s message to students in 2009 was that a dangerous financial logic was at work.

“Because UC pledges 100% of tuition to maintain its bond rating, it has also implicitly assured bond financiers that it will raise your tuition so that it can borrow more. Since 2004, UC has based its financial planning on the growing confidence of bond markets that your tuition will increase. (Why? Because you’ve put up with this so far, and because UC has no other plan. Its capacity to raise tuition is advertised in every bond prospectus.)” (http://www.cucfa.org/news/2009_oct11.php).
None of this is unique to California’s public university system. Across the nation public schools have increased fees over the last decade, especially so since 2008. In March of this year the news that student debt had surpassed auto loans and credit cards as the single biggest source of debt caused a collective gasp, but did it lead to any sort of action to stem the debt creation logic of rapidly privatizing public universities, and the rise of private, for-profit colleges?

According to Meister it hasn’t. The situation has gotten worse. Yesterday Meister gathered with a few dozen UC Berkeley students and faculty on the grass across from California Hall on the Berkeley campus to mull over the problem. (California Hall, by the way, was constructed in 1905 with a quarter million dollar appropriation from the state legislature, paying for pretty much the entire cost of the building without incurring any public debt. No student fees pledges necessary.) Meister gave a radical political and theoretical lecture on student debt, and public debt more generally.

His main thesis was more a question than prescription: “now that we know what we know, what do we do?” Meister described the conundrum as he sees it. Faced with this year’s absurdly close elections we could stand to lose an neoliberal president who has slowly turned the screws tighter on student debts, and all consumer debts, a commander in chief who bailed out the banks with few strings attached. We could lose president Obama to a candidate named Mitt Romney, a hyper-neoconservative whose vision of capitalism is informed by his piratical days as a corporate raider within private equity. We would go from bad to terrible. What to do?

“After the election we need to go on the attack,” said Meister. “We haven’t critiqued Obama’s policy to increase student loan demand at a time when profit spreads have never been higher for those who hold student loan debt. Now is the time to plan for a militant response. We must be prepared for whoever wins.”

Bracketing Meister’s talk is a disturbing truth about education under the new financial capitalist regime. What students everywhere should know now is that something quite demoralizing has come to be. A college education, for many, will no longer actually be worth it, in monetary terms. A four year degree won’t in fact allow many graduates to have a job that pays enough to pay off their student loan debts, and at the same time live the happy consumer life they’ve been raised to desire. It’s not their personal failing or individual problem. Rather, it’s a structural fact of the new economy and its income distribution.

Perhaps in a prior decade, prior to the great financial crisis and the creeping rise of extreme inequality and economic stagnation that seems firmly set now, back in the days of Clinton maybe, maybe even the first days of Bush II, recent graduates could reasonably expect to land jobs at pay scales making growing debt burdens worth the risk. Even then, however, the burden of debt over their lives was rising fast. It’s hard to say at what point the privatization of everything and the subjugation of the so-called 99% to the rent-seeking of the 1% passed the point of no return.

Somewhere it did, and now most of us are living impossible lives, hoping something changes. Now whole cohorts of twenty year-olds and early thirty-somethings wander about the charred economic landscape with confused looks in their eyes, able to land only menial jobs, watching Fortune 500 firms laying off tens of thousands a quarter, watching their parents struggle, seeing the unemployment and food stamp rolls burgeoning, joining those rolls.

“You won’t be able to afford college if you want to retire,” quipped Meister about the total cost of paying down the average student loan burden, something like $27,000 in nominal debt equaling a final pay out of $130,000 due to the compounding interest over many years.

Meister’s question: now that we know the debt situation is untenable for an entire generation, what are we going to do about it? Meister is advocating the university and the plight of the student as a starting point for a wider political debate and movement against debt. It’s a reasonable starting point and role for the students and colleges to play. Historically students have been galvanizers, taking direct action at seemingly impossible moments. Will they do it now?

Meister’s specific point, however, is worth repeating for a wider audience beyond the few who were there to hear it in person, and beyond the students and faculty of the dying public universities. “The power that debt gives debtors in collective action,” said Meister, relates to “sabotage, choking off the financial system.” It’s a power that is terribly dangerous and not to be played with, however.

Meister compared the students of today to the coal miners of early industrial capitalism. Under that regime of production, coal miners had the power to shut down the economy because they labored away at the site of a singular choke point of value extraction upon which all the spinning looms and colonial plantations depended. Students now occupy a choke point, according to Meister. Student loans are assets in the books of banks and the persoanl fortunes of the wealthy 1%, used to leverage up debts throughout all other sectors of the economy, debts that penetrate into the social collective and reinforce financial servitude for the masses.

“In financial capitalism our debt is a raw material for the production of new financial products,” said Meister. Think about all the bizarre derivatives, complex loans and credit mechanisms, the profusion of financial claims that multiplies leverage across households, corporations, sovereign nations, all in a dangerous and systemic manner. Remember that student loans are the single biggest source of consumer debt now. “Our debt is someone else’s collateral,” observed Meister.

“The question for democracy today is how to assemble a political machine based on actionable demands,” said the not-radical looking professor in a very soft and careful voice. “Are financial activists the coal miners of today?”

The question hung in the air, cold California air damp after the first rains of the season. Meister’s questions beg further speculation and wonder. Dare students organize a debt payment strike? How would they even go about doing it? What would they ask for? How could other subjects of the multitude align with them? What’s at stake?

Darwin Bond-Graham is a sociologist and author who lives and works in Oakland, CA. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion.