Next to home ownership, education is the path to middle class prosperity. It has become so expensive that student loans are now the second largest category of personal debt (over $1 trillion as of 2014, exceeding the volume of credit-card debt). Carrying charges on this debt absorb over 25 percent of the income of many graduates from lower-income families.
Saddling students and new homebuyers with debt has turned their hopes and ambition into a road to insolvency. Something must give way when earnings are unable to cover the stipulated debt service. If banks do not write down their loans, foreclosure time arrives and assets will be forfeited.
The 2005 U.S. bankruptcy code reversed a long trend toward greater protection of debtors. Written largely by bank and credit-card lobbyists, the new law makes it harder to write off personal debts in general, and nearly impossible for student loans to be cleared. The effect is to turn many graduates into indentured servants, obliged to spend much of their working lives paying off the debt taken on to obtain a degree. Many make ends meet by living at home with their parents. Inability to save enough for a home of their own slows the rate of marriages and family formation. Privatizing and financializing the educational system raises the cost of living imposes an access fee on the entry point into the middle class job market. This reverses the policy long followed by the United States, Germany and other successful nations that made their economies more competitive by providing education and other basic services freely or at subsidized rates. Creating a need for loans at the educational choke point turns universities into vehicles for banks to earn government-guaranteed interest.
Much as interest charges on home mortgages end up giving banks a larger sum than the sales price received by the sellers, student loan payments often give the bank as much interest income over time as the college or trade school has received as tuition. Consumer credit, home mortgage and education loans thus treat the labor force much as feudal landlords treated the land and its occupants: simply as a source of tribute.