Student loan debt reached $1.6 trillion, in 2019, and continues to grow. The average student loan obligation is now around $35,000. While there seems to be no end in sight to this madness, it is finally getting the attention of the political class. Some Democratic candidates have proposed ideas to reduce or cancel this monumental debt, which is a positive development. But how did we get here in the first place?
Like most of the socioeconomic horrors in the U.S., this one can be traced back to the 1980s, when Ronald Reagan imposed a neoliberal economic policy regime. There were two simultaneous developments that would inevitably fuel a student loan crisis. First, a financial gap grew between the college graduates and non-graduates in terms of average earnings. Neoliberal policies accelerated outsourcing and offshoring of manufacturing while also undermining labor solidarity. As well-paying union jobs disappeared and were replaced by non-union service sector jobs, so too did a critical avenue to a middle-class, financially secure life among those with a high school degree. Between 1979 and 2005, average hourly wages for those with a college degree increased 22 percent; for those with only a high school degree, it declined by 2 percent.
At the same time, the neoliberal ideology emphasized market rather than government solutions, private rather than public investments, and a rollback of social welfare programs. Students receiving public support for higher education through Pell grants and similar sources were lumped in with the so-called welfare freeloaders, leeches and “tax eaters.” Rather than viewing higher education as a public good that warranted public investment, it was regarded as a private individual investment in one’s human capital and, therefore, the responsibility of the individual to finance on their own. The human capital ideology became a central feature of the socialization process. Many children were taught from a young age that they must get a college education and that without one they would be losers in the game of life and would suffer from perpetual economic insecurity.
Thus, the higher education bubble was formed—just like the housing bubble. Just as people can pay for a home with home mortgage loans, they can pay for indispensable college degrees with financial loans. Just as homebuyers were told that a home would increase in value and be a great investment, students were told that a college degree was the best investment for which there would be a healthy labor market return. As home prices continued to rise, tuition steadily increased. When the housing market collapsed, homeowners went underwater, and millions foreclosed; when college-graduate labor market opportunities dwindled, student borrowers became financially pinched and many defaulted on their loans. The two financial crises are related. A recent study found that families assuming the financial burden of borrowing to pay for college are also more prone to face home foreclosure.
There is also a broader range of negative consequences resulting from the combination of student loan debt and a labor market that provides far too few well-paying jobs. In the past, a student graduating with a college degree would find a job that allowed for independent economic security. This provided an enormous stimulus to the macroeconomy through the demand for a wide range of goods and services. But under the current situation, we see far less positive macroeconomic benefit from a college-educated population. Every dollar used to pay off a student loan is a dollar not used to purchase goods and services in our capitalist economy.
What would happen if we cancelled all student loan debt? If we had a good old-fashioned debt jubilee? A group of economists at the Levy Economics Institute of Bard College conducted an econometric analysis to answer this question in their report titled “The Macroeconomic Effects of Student Debt Cancellation.” They found that “the current policy of encouraging the expansion of debt-financed higher education has been a failure, and therefore a radical departure is in order…Student debt cancellation results in positive macroeconomic feedback effects as average households’ net worth and disposable income increase, driving new consumption and investment spending.”
Of course, cancellation of student debt would only make sense alongside another novel idea: free tuition to prevent the next generation from ending up in the same predicament. If jobs require employees to have a college degree, it should be viewed the same way a free high school degree was 50 years ago. Just as primary and secondary education became a public good for which we all benefit as a society (and should therefore be provided cost-free to all citizens), so too should a college degree.
There should also be more economically viable options through apprenticeships and vocational training that provide students with an alternative career path, if they so desire. The key is to ensure that such careers are economically rewarding, and this will require, for these and all workers, the right to organize and negotiate the terms and conditions of employment.
The current student debt crisis should stimulate some creative thinking about debt relief, universal free tuition and alternative career paths for young adults. When the most highly educated generation in history is also the most economically insecure, there is a serious structural problem with our socioeconomic system. It can no longer be ignored.
Jaffee is Professor of Sociology at University of North Florida.