Student Loans, Debt Crisis and Bondage

In the medieval era there was a rather odd ceremony; when a member of the lower social castes found themselves in dire straights, they turned to the landowning nobility. In exchange for land to work, the noble demanded a portion of the produce, availability for certain laborious tasks, and service in the event of war. The agreement was sealed when the peasant laid his head into the hands of the noble lord.

This ceremony was called a Bondage, as it sealed the bond of the peasant to the noble, as his serf (in contrast with an Homage, where one noble became a vassal of another noble). In our advanced and progressive times, we are – of course – much more evolved and civilized. Far from relying on archaic displays of subservience, we rely instead upon the innovation called the promissory note.

Every fall, hundreds of thousands of 18-year old kids, with absolutely no concept of money, credit or finance, sit down to sign promissory notes to obtain government-backed loans so that they might attend an overpriced four – to – six year long summer camp, often mislabeled as a college or university, hoping to obtain academic degrees that are often not worth the paper on which they are printed.

The only way a teenager with no job and no assets can obtain credit in the staggering amounts necessary for today’s college tuition is for the government to issue the loans. Just as the home buyers taking adjustable rate mortgages for houses they couldn’t afford would have never been able to get a mortgage without Fannie Mae purchasing mortgage-backed securities, these kids would never be able to get student loans without massive manipulation of the credit markets. The only way America’s youth could have collectively borrowed one trillion dollars in uncollateralized debt is the government’s own policies; a free and natural capital market never would have allowed it. Government guarantees the loans, issues the loans, and sets the rules. They even made sure student loans were not dischargeable in bankruptcy, thus closing those pesky avenues to freedom and second chances for all those who got burned by a bad investment – college. They give with one hand and strangle with the other.

With legions of young people submitting without question to the propaganda preaching the absolute necessity of a college degree, and a government standing at the ready with easily available credit, tuition costs have soared. Colleges would never be able to rip off their students to this staggering magnitude if it wasn’t for government-guaranteed student loans. In 1910, the University of Pennsylvania charged $150 a year for tuition – which, incidentally, could have been earned by working 30 days on the Ford assembly line. The current charge is $36,208, more than the average teacher makes in an entire year. The century in between, where easy credit and government meddling became synonyms for “compassion,” really did make a difference, didn’t it?

To address this situation, our current noble lord has proposed a series of measures to reduce interest on student loans, forgive them if you work for the government (presumably this is to be extended to everyone now) or have them limited to a certain level of your income. The unfortunate part is, this will only add to the intensity of the growing moral hazard. While some prospective students may have begun to notice the rising price and diminishing returns of college education, now there will be new inducements, which, although they do not address the problem look as though they will help. Although, a cursory glance at the proposal has led me to believe that my particular tranche of student loans will be utterly unaffected. So much for riding the gravy train.

So, colleges can continue ripping off their students, government will continue to provide guarantees with taxpayer money to cover tuition, and the students will continue to sign those promissory notes for ever higher amounts, secure in the knowledge that their payments will be capped at a percentage of their net income, assuming they actually find a job.

By slightly reducing the harshness of bondage for today’s serfs, Barack Obama is trying to curry favor without actually having to take action, make tough decisions, or engage in mature, statesmanlike conduct. There are just too many people riding the gravy train – tenured professors who don‘t actually teach, athletics programs that compete over who has the best Brazilian jujitsu instructors, and boards of regents or trustees – and Obama can hope to bask in the admiration and gratitude of college students and the parents who are still convinced that college is the new guarantee of future security for their kids.

Barack Obama, when you stop to think about him, is really nothing more than a grown-up college student isn’t he? He has never had a proper job, he has absolutely no concept of the world outside of his own head, and yet he is absolutely convinced that he knows better than everybody else. I suppose the same could be said about most college professors and members of Congress, come to think of it.

As for student loans, I say we should just get rid of them – forgive a portion of all outstanding loans and then stop giving new ones out. Loan forgiveness will only work if the government stops giving them, or else we will be stuck in an endless cycle of debt, bailouts, and then more debt. Colleges would have to trim the fat in order to bring costs down to reasonable levels, and more classes would be big lecture hall affairs, but the prices would be unbeatable and the young could enjoy them secure in the knowledge that they are not flushing away their future for what is ultimately just a scrap of paper.

As for Lord Barry, Duke of Chicagoland, he has summoned his bannermen to the causes of central planning, government-controlled capital markets, and collective salvation – along with unsustainable, toxic debts both public and private. I hope and pray the next crop of college graduates can see past the veneer of nobility presented by an increasingly desperate professional politician, and resist the trumpets calling them to his standard.


About the Author

Mr. Waechter is an attorney and a recent graduate of Drake University.

 

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  1. From Adjustable Ahead | Xpedition Online | Nov 10, 2011 at 5:22 am 

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