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Our Children’s Future is Too Big to Fail

Student loan debt is at $1.6 trillion and climbing, second only to mortgage loans in sources of personal debt. Mortgage loans account for $10.2 trillion in U.S. personal debt while consumer credit weighs in at a measly $3.89 billion. Mortgage loans and consumer credit are spread among all segments of society, while student loans are concentrated among young people. Student loans, like mortgage loans, are sometimes bundled and sold into derivative instruments called SLABS — Student Loan Asset Backed Securities.

Some folks may remember the Great Recession, touched off in part by the blowing up of CDOs — Collateralized Debt Obligations — -derivative instruments representing bundles of home mortgages. The objective in both cases is to spread the risk of default. The risk got spread so thinly that the CDOs became loaded up with NINJA loans — No Income, No Job, no Assets — -promoted by sketchy practices of mortgage lenders relying on federal loan guarantees if they could just fill in the blanks on standardized forms.

The rating agencies that were supposed to rate the risk in CDOs became another of the many sub-scandals in the Great Recession when the banksters were able to capture the rating agencies by threatening to withhold business unless their papers got clean bills of health.

At the pinnacle of crookedness were the banksters who fixed the LIBOR (London Interbank Offered Rate) and raked in money on the fraudulently created arbitrage opportunities. The LIBOR manipulations involved Barclays and banks of similar stature. The fraudulent CDOs with false investment grade ratings attached touched just about every large investment bank in the U.S.

Money stuck to the fingers of crooked banksters from the top of the system LIBOR fraud to the extenders of revolving consumer credit with interest rates tied to the LIBOR to the mortgage lenders who got paid for the NINJA loans. But the blame fell on the poor schmucks who were induced to sign applications they either had not read or did not understand.

If they didn’t notice they were being blamed for blowing up the economy, they did notice when they were foreclosed upon, evicted from their homes, and rendered unable to access credit at normal interest rates if they could get it at all. Before you get up on your superiority horse, think back to your last real estate closing. How much of that shit did you read? Me either, and I have a law degree.

Back to the SLABS. Student loans are NINJA by definition. The borrowers are kids without income or jobs or assets because those are the kids who must borrow. Those not NINJA do not need to borrow because they have help from their parents. The value supporting the loan is the increased earning power of the student borrowers combined with draconian collection practices that go with the federal loan guarantees — most commonly pre-judgment garnishments and the fact that student loans cannot be discharged in bankruptcy.

The would-be students are at the bottom of a pyramid of crime that the Department of Education under the Obama administration tried to cut off by blacklisting schools with abominable graduation or post-graduation employment rates and cutting out banks as middlemen in the student loan process. These policies were quickly reversed under Trump’s Education Department appointee, Betsy DeVos. The world is once more safe for future Trump Universities.

All of the $1.6 trillion in student loan debt cannot and will not be repaid. Spreading out the Trump University level loans in SLABs does not solve the problem. The sums owed are already far beyond the possibility of repayment and the tab is growing every semester.

Banksters and their shills have attacked Elizabeth Warren’s sweeping loan forgiveness program on the theory that it does not address the real problem. They are correct. The real underlying problem (predatory lending to one side because many of the bad loans are legitimate) is that U.S. students should not have to borrow the sums they are borrowing to access higher education.

When federal education funds disappear over here the slack is taken up by a tuition increase over there. To those who claim we cannot afford to educate our young, I put the question how it is that European nations with much smaller GDP per capita numbers manage to keep tuition low or free for students who remain in good standing?

I was a first generation college student and my tuition was fifty dollars a semester. That’s not per semester hour — per semester. Adding in various fees and the cost of textbooks and living expenses, the overall cost was daunting but I got out with moderate student debt and with the awareness that the taxpayers had spent more on my education than I had.

Over my lifetime, I have more than paid back the cost of my education in the difference between my taxes and those of my peers who did not find a way to get an education. In that, I am living proof of the bottom line: we don’t educate our young merely to benefit them, but to benefit the country. Not just in tax receipts but in production of knowledge based value in patents, copyrights, and various kinds of increased efficiency that make us more competitive as a nation.

I do not care to hear scoffing at the value added by kids who choose to take their degrees in the arts. Artists improve my quality of life every day just as engineers do. They make their communities more attractive places to live and art schools are part of great universities for good reasons.

Something like Elizabeth Warren’s student debt forgiveness plan is going to happen. The younger generation we failed to provide education funding for needs to be bailed out. If the banksters were too big to fail, what about our kids who are delaying adulthood over student loan debt enough to affect sales of houses and cars? They will become too big to fail in the economic sense but they are already too big to fail in the moral sense.

Enrolled Cherokee, 9th grade dropout, retired judge, associate professor emeritus, and (so far) cancer survivor. Memoir: Lighting the Fire (Miniver Press 2020)

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