Student Loan Debt

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(Contributed)

Workers struggled to provide their children with education prior to the Education Act of the early 1900’s. From then education was largely recognised as a social good, of benefit to all, and best managed by the government. The provision of free, secular, and quality education developed in Australia to the 1970’s, when access to tertiary education was expanded, and fees were abolished. From there it has been all downhill.

The driving method of capitalism is to make everything capable of being bought and sold, and become a source of profit. Education has been transformed into a commodity, a major “industry”, and a great source of profit. However the realisation of this profit in the hands of the capitalist class has been difficult because workers have resisted the attacks on the living standard their struggles have achieved.

“Save Our Schools” has described how government funding of primary and secondary schools has moved funding from the schools used by working children, to schools used by the wealthy and provided by religious groups.

When fees for tertiary education were introduced, the government of Australia, following the model of the advanced capitalist countries, introduced “Student Loans” to move the cost of education to working class families, the disadvantaged, and indigenous families. These student loans have some significant features. They are interest free; they are not repayable until the recipient student earns a salary; and the money is collected by the government through the ATO.

These arrangements have had extraordinary consequences. The wealthy and successful either pay, or manage their affairs so that collection by the ATO is frustrated legally. (Negative gearing which effectively lowers the taxable income below the repayment threshold, is relevant here.) Other students leave tertiary education with four or five figure debts overshadowing them.

These debts are considered in four categories: those in the accumulation stage; those in the repayment stage; those not yet in the repayment stage; and those in the uncollectible category.

Student debt a commodity for finance capital to exploit

Around the world these debts are increasing continually, and so is the rate of uncollectible debt. In the USA, student debt amounts currently to US$1.2 trillion; and in Australia up to A$50 billion by 2016. The level of uncollectible student loans around the world has reached 30%.

At this time when capitalism is experiencing an ongoing crisis in which as the economy slows, the levels of government revenue from taxes etc fall, governments are looking hungrily at that massive pile of debt; and they want it now, not later.

In the early years of the 2000’s, mortgage debt in the US began to swell, due to a government policy of allowing higher risk mortgages for purchases of residential housing. As the debt increased, so did the level of “bad”, uncollectible debt. Banks which held this debt became dishonest, and through subsidiaries on sold these debts, in bundles of good and bad mortgages, to unsuspecting investors like your local council, superannuation funds, overseas banks, etc. These bundles were called “Collateralised Debt Obligations”. When it was realised these ‘toxic loans’ were worthless, the financial institutions which had purchased and sold the CDO’s collapsed in the Global Financial Crisis from which international capital is struggling to escape. US imperialism largely succeeded in exporting its debt crisis to its allies.

Now we see a growing student loan debt with a high default rate emerging, and similar solutions being floated. A few years ago the British government “bundled” $1 billion of student loans and sold them, at a discount, to a non government consortium. Thus the government received some cash to play with, and washed its hands of some unwanted debt. Several years later, the British Government sold a further $1 billion of student loan debt. Later it tried to sell a third bundle of $10billion but failed to find a buyer at the price they were asking. The British Government’s advisor for the sale, Rothschild Bank, recommended the Government change the terms of the loans to introduce an interest charge on the student loans to make a more attractive package for potential purchasers. The potential purchasers included, significantly, international debt collectors Arrow Global, and CarVal.

Australia to follow same path

Now some Australian capitalist class representatives are suggesting the Australian Government should take the same road and sell A$23 billion of student loans for possibly A$15 billion. The discount is required to make an attractive deal of loans with a 25% default rate, no interest, and an indefinite due date.

At first sight this might be seen as a painless deal for students, as a victimless crime even, and some tertiary institution representatives have seen it that way. However it needs closer analysis.

Some have noted that selling the debt early, and at a discount, will leave a shortfall of funds for education in the future. That shortfall will provide incentive to restrict the access of workers and poorer students to tertiary education.

Others have noted that the capitalist consortia which have shown interest in purchasing student loan debt, include debt collectors who clearly will be trying to collect more repayments and faster; US companies like GEMoney, and recently Wesfarmers/Coles/Bunnings in Australia have form in pursuing consumer debt.

Clearly there will be pressure to introduce interest charges, and to give the loans a fixed due date in order to facilitate harassment, prosecution, seizure of assets and bankruptcy proceedings against defaulters.

Of great concern is the possibility that the consortia which purchase the student loan debt will repackage the debt into smaller investment packages, and give them innocuous titles like “Education Bonds” or “Human Capital Shares” (but probably not “Collateralised Debt Obligations”!). These ‘investment vehicles’ could then be sold to unsuspecting smaller investors like your local council, superannuation funds, overseas banks, etc, possibly tipping into another Global Financial Crisis to ruin the lives of another generation of workers around the world.

The solution to the growing student loan debt is to recognise that access to all levels of education should be free and that education is a social good, of benefit to all, not just the rich. As an immediate step, the government should write off all student loan debt not repaid within five years of course completion.

 

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