The big banks are repaying the American public for bailing them out with hundreds of billions of dollars worth of direct expenditures — and maybe more notably, the allowance of trillions of dollars worth of almost zero interest loans — by harming millions of students with debt slavery. There is no good moral or good economic principle behind this effective debt servitude to the banks; it’s simply a giant scam. There is no rational reason that public university in world history’s richest country shouldn’t be free for students, as it could easily be financed for about $70 billion a year, with that money plausibly being generated through a financial transactions tax.
The advantages of slavery by debt over “chattel” slavery—ownership of humans as a property right—were set out in an infamous document called the Hazard Circular, reportedly circulated by British banking interests among their American banking counterparts during the American Civil War. It read in part:
Slavery is likely to be abolished by the war power and chattel slavery destroyed. This, I and my European friends are glad of, for slavery is but the owning of labor and carries with it the care of the laborers, while the European plan, led by England, is that capital shall control labor by controlling wages.
Slaves had to be housed, fed and cared for. “Free” men housed and fed themselves. For the more dangerous jobs, such as mining, Irish immigrants were used rather than black slaves, because the Irish were expendable. Free men could be kept enslaved by debt, by paying wages insufficient to meet their costs of living. The Hazard Circular explained how to control wages:
This can be done by controlling the money. The great debt that capitalists will see to it is made out of the war, must be used as a means to control the volume of money. … It will not do to allow the greenback, as it is called, to circulate as money any length of time, as we cannot control that.
Slavery by debt has continued to this day, and it is particularly evident in the plight of students. Graduates leave college with a diploma and a massive debt on their backs, averaging more than $37,000 in 2016. The government’s student loan portfolio now totals $1.37 trillion, making it the second highest consumer debt category, behind only mortgage debt. Student debt has risen nearly 164 percent in 25 years, while median wages have increased only 1.6 percent.
Unlike mortgage debt, student debt must be paid. Students cannot just turn in their diplomas and walk away, as homeowners can with their keys. Wages, unemployment benefits, tax refunds and even Social Security checks can be tapped to ensure repayment. In 1998, Sallie Mae (the Student Loan Marketing Association) was privatized, and Congress removed the dischargeability of federal student debt in bankruptcy, absent exceptional circumstances. In 2005, this lender protection was extended to private student loans. Because lenders know that their debts cannot be discharged, they have little incentive to consider a student borrower’s ability to repay. Most students are granted a nearly unlimited line of credit. This, in turn, has led to skyrocketing tuition rates—because universities know the money is available to pay them—and that has created the need for students to borrow even more.
Students take on a huge debt load with the promise that their degrees will be the doorway to jobs that allow them to pay it back, but for many the jobs are not there or are not sufficient to meet expenses. Nearly one-third of borrowers today have made no headway in paying down their loans five years after leaving school, although many of these borrowers are not in default. They make payments month after month consisting only of interest, while continuing to owe the full amount they borrowed. This can mean a lifetime of tribute to the lenders if the loan is never paid off, a classic form of debt peonage to the lender class.