Financialization becoming the dominant force behind the Western economy in the last 50 years has led to a completely backwards set of incentives. The absurd logic of contemporary political economy reaches new heights when considering student debt.
Sitting within the crosshairs of heated political discourse in the last two years in the United States is the issue of student debt relief. According to reported numbers from October of last year, the Biden administration had relieved over 120 billion USD of student debt, the highest amount relieved from any president in history. Still, the figure in terms of outstanding student debt in the US was 1.74 trillion USD as reported just a month before the Biden-relief figure came out.
Current student debt in Canada is sitting around 23.5 billion CAD, which given Canada’s significantly smaller population size is still quite a bit.
These staggering figures are no doubt the result of neoliberal economics, which, starting in the 1970s, saw increased tuition and fees coinciding with the cutting of grants and programs that made college affordable to middle- and low-class families. These cuts came alongside the general degradation of the tax base’s of developed Western countries starting in the ‘70s, as top marginal tax rates for individuals and corporations started getting axed.
After the neoliberal turn, it was no longer common sense that a wage — often called the Fordist wage — could afford a satisfactory pension, a mortgage, the needs of a family and a sizeable college fund. In its place, the post-war wage was replaced by a new paradigm of existing in society and the economy for the public: the individual credit-debt paradigm. This new paradigm changed the former incentives of the public and private sector — empowering the average consumer with a single wage — to one in which the shoring up of the owner-investor class’ wealth through increased financialization and monopolization of once universal or cheap services meant workers would maintain the same productivity.
This begs the question of why workers would remain just as productive for objectively less material gains than before.
This is because debt peonage compels one to work to avoid drowning in debt, even if all that is possible in such a position is a sub-decent life buoyed by below-modest means.
It’s worth emphasizing that consumer credit became increasingly more accessible at the onset of the neoliberal era to ostensibly maintain the same purchasing power of ordinary people. In reality, it was the monetary system becoming complicit in the mass privatization of services in society by using credit and its sole form of deriving capital — interest, and its more pernicious form: compound interest — as a bludgeon to keep people working just as productively as before, even as they got less from society in terms of basic necessities and social services being affordable and easily attainable.
The consequences of this dynamic are self-evident in the shocking statistics detailing the divergence of real wages over the decades in the US. Wages have essentially flatlined beginning in 1979 after decades of steady growth. Meanwhile, both before and after 1979, there’s been a continued steady growth of productivity.
This phenomenon is not just exclusive to the US though. The same divergence can be observed in Canada as well as in the 24 countries that comprise the OECD nations when considered through averages.
Student debt is a function of the same logic nested in late neoliberalism that sees flexible credit used as a tool to create a mass of debt peons to enrich managers, the owner-investor class and private banks, which are the institutional bastions and handmaidens of the former two groups.
An important caveat, though, is that the government now offers loans to students for higher education instead of banks, with the rationale being that this protects students who are just beginning their adult life and have little leverage or a financial history that would permit taking out loans from banks at all. The government sees this as a good investment because a highly educated workforce makes for a more productive economy.
Still, in a society dominated by widespread financialization, the university — like many other public and third-sector institutions — increasingly functions like a corporation with a bloated administrative bureaucracy to run efficiency tests, check boxes and ensure other forms of collaboration and coagulation with the private market.
These administrators then pay themselves handsome salaries for this work and increasingly hire more of themselves when problems arise. As they hire more of themselves for roles with all the usual signs of fluff suggested in their job titles — “strategic coordinator,” “diversity and equity superintendent,” “strategic business and marketing advisor” — they need to pay those salaries which can often reach six-figures, and which are then felt in terms of tuition and fees on the student end of the equation.
Altogether, the effects of neoliberalism on the university have created a slew of negative consequences for the teaching faculty in terms of precarious work — often called “adjunctification” — and on students in terms of taking on massive amounts of debt to pay for a metastasizing administration.
Minarchists and even some classical liberals who preach a “lean government,” argue that increased tuition and fees from higher education institutions are the result of them knowing the government will foot the bill. Therefore, the argument goes, the government should get out of the loan business and banks should supply student loans instead because their profit margins are on the line in the case of a bad loan. With this, less students will be caught in a debt trap due to low fruitful employment rates based on their degrees.
Firstly, it’s worth mentioning how this view conveniently downplays how administrative bloat, which has only correlated with a market-first neoliberal approach to the university, has ballooned costs for students. But more importantly, relegating student loans to private banks would structurally favour the wealthy as they will be more likely to get into programs due to their family’s wealth. Programs with lower ROIs such as humanities degrees and social science degrees would especially be populated with the wealthy for the same reason.
Furthermore, students taking on debt are more likely to work while studying to get started on working off those loans which potentially means less time spent studying. This could mean less educated university graduates stemming from the simple fact that university students today don’t have the time and energy to immerse themselves in their program.
Some data shows that graduates with student debt see major limiting effects on choices for basic needs later in life such as homes and having children. In general, it’s post-college grad age cohorts that contribute the most to GDP, but that’s because historically they’ve had more purchasing power which is diminished by encumbering debts.
And so far we haven’t considered the roughly 10 per cent of higher-education dropouts in Canada who sit with that debt regardless of not getting a degree which theoretically helps earn the money back through the proof of an increased specialization of labour getting higher paying jobs.
In a paper for the Levy Economic Institute, Michael Hudson characterized the current economy as a “neo-rentier” economy. The rentier class — those who could earn a satisfactory income from simply owning assets to lease to others — who emerged during the Industrial Revolution and essentially disappeared after World War I. However, the rollbacks in confiscatory taxation and universal state programs, which were constructive responses to the two world wars, leads Hudson to claim that a new kind of rentier class is emerging. This class mainly consists of the top-earning owner-investors and those underneath them, which French economist Thomas Piketty calls “super managers”; essentially the institutional henchmen of managers and administrators who receive the trickledown from the former group for keeping lower-level labourers in line.
Hudson writes:
“A financial class has usurped the role that landlords used to play — a class living off special privilege. Most economic rent is now paid out as interest. This rake-off interrupts the circular flow between production and consumption, causing economic shrinkage — a dynamic that is the opposite of industrial capitalism’s original impulse. The ‘miracle of compound interest,’ reinforced now by fiat credit creation, is cannibalizing industrial capital as well as the returns to labor.”
Hudson’s point about interest’s disruption of the symbiotic relationship between production and consumption just to enrich a small few emphasizes the feudal-despotic character of 21st-century capitalism.
Those looking to get a higher education too are treated as peasants by that fact: if it isn’t obscene enough that university students today are taking on such massive debt, it’s even more obscene that these are still interest-bearing loans, even if lower than the market average.
But Hudson’s point about the degreasing effect of interest on the greased wheel of consumption and production cycles should be radicalized further by pointing out that student debt relief and making higher education free through tax funding would cut out the issue of interest altogether.
The taxes to fund free college, as Bernie Sanders laid out in his 2020 campaign program, could come from small tax levies on things like investor trades and other forms of monetary repatriation from the rich.
Moreover, a free post-secondary education would grant students more buying power pre- and post-graduation, which would likely stimulate demand and revitalize the circular flow of consumption and production in the economy writ large.
Student debt relief and free post-secondary arguably make sense from an economic standpoint as well.
So why doesn’t it happen if it makes sense, not just morally, but economically?
It’s worth remembering that ideas like the divine right of kings in the Christian feudal age in Europe encumbered common sense in favour of consolidating power for the few.
Similarly, though obviously less brutal than the European feudal power structure, the lords of today’s neo-rentier economy also must ensure common sense doesn’t make its way to real political proposals like affordable access to higher education. The sentiment behind proposals like free higher education and a student debt jubilee directly threatens their power.
