By Manette Kaisershot
Manette Kaisershot is a postgraduate researcher in finance and human rights at the University of London. She is originally from California, but now lives in Surrey. She has been in higher education in both the US and the UK, and is particularly interested in credit, debt and their human rights impacts.
The effects of huge debt burdens are already being felt by the majority of graduates in the US. Is the UK treading a similarly dangerous path? How will the UK’s service-based economy function with increasing costs of education and basic human needs such as housing, most of which now require increasing amounts of credit? Should debt – as it is so essential to our economies and lives –be considered a human rights issue?
Financial experts say that student debt in America has the potential to be the next catalyst for a major financial crisis like the one experienced in 2008 when the sub-prime mortgage sector in America collapsed, pulling many of the world’s strongest economies into recession (from which, one can argue, they still haven’t emerged). Populist media, such as the documentary Inside Job, highlight the ways in which financial institutions were instrumental in the economic crash; manipulating the market to work in the favor of elite investors and leaving the burden of the recession on the shoulders of the rest of society.
In the US social spending was cut and then cut some more – a real strain for those living in a nation that has no nationalized health services and where other public services are already under-funded, hard to access, and scarce. In the UK the recession and subsequent ‘austerity’ measures meant cuts to important public services such as legal aid, unemployment benefits, educational funding, public sector jobs – the list could go on and on. Pair the cuts on social spending with other socio-political factors: wage stagnation, continuing high unemployment, rises in university fees, and price rises for such essentials as transportation and energy – to name a few – and the picture that begins to emerge is a bleak one.
According to Forbes Online the student debt in America is over $1 trillion, with 11.5% of loan holders over 90 days delinquent with loan repayments. While other types of debt have seen a reduction in late payments, student debt delinquency continues to rise – as do the interest rates on these enormous loans. One in three loan holders say they would have been better off working than going into higher education. The burden of debt is affecting the ability for young Americans to buy homes, start businesses, or otherwise engage in activity that requires a bulk of capital upfront – i.e. savings. Unlike other kinds of debt in the US, student debt cannot be eliminated in bankruptcy proceedings. Furthermore, the student debt market is being likened to the mortgage market prior to the 2008 financial crisis. Or, in other words, huge amounts of money are loaned to high-risk individuals who have no history of credit or collateral to secure the debt. Yes, the debt is American, but the crisis will – again – impact beyond national borders and will affect more than just those burdened with student debt.
The situation in the UK is increasingly mimicking that in America. The UK outsources many of its jobs to nations overseas where costs are less and regulation is minimal. As a result, the UK now has an economy based on human capital. It is as important to the state as a whole as it is to the individual that the UK continues to turn out one educated, creative, and innovative generation after the next. However, considering that a growing number of new graduates feel their university degrees were, essentially, an expensive piece of paper, will future generations be as likely to engage in higher education?
Do such heavy financial burdens bode well for higher education in general? How will these burdens work within an economic model that relies on an educated public? In light of the obsession with economic competition and growth, how will this make Britain’s future generations competitive and innovative in the ways that are necessary to keep up the never-ending pursuit of economic growth?
There are also social expectations that cannot be ignored when it comes to higher education: struggling young Britons (and Americans) were told (perhaps by their baby-boomer parents) that a university education would result in better jobs, higher-paid jobs, a better life, a higher quality of life. This is the same generation of investors, policy makers, politicians that are enforcing the current situation in which salaries are stagnating, interest rates are stagnating (meaning, at the moment, if you are saving money you are actually losing money as inflation is higher than the savings rate offered by your typical high street bank), but tuition fees are on the rise. With one hand they give; with the other they take away.
Think back to your time in school. Did the teachers explain to you how to pay your taxes? Did they teach you what your taxes would go towards? Did they teach you how to register to vote or how to understand local or national policy? Did they teach you about finance? Investing? How to open a bank account? What pensions are and how they work? They taught us how ancient Egyptians made papyrus, but not what interest rates were and how they work. How were we expected to understand the implications of what life would be like under the burden on a mountain of debt when we weren’t taught the basic skills needed to live in an increasingly financialized world?
Unless schools start teaching complex critical thinking and mathematical skills – the kind needed in order to be an informed, responsible, and productive member of society – then a university education should be free to those who want it or feel they need it in order to compete, understand, and belong to a world that seems to be unendingly complex.
Consider next part-time education, graduate courses, or professional qualifications: many of these courses in the UK are not funded by educational loans. Students in these circumstances, therefore, must borrow the money needed to complete their education in the form of a ‘career development loan’, which often required the borrower to start paying the loan back before they have completed their education, regardless of their employment status or salary level (not to mention the interest rates on these loans, the amount of time one has to repay them it, nor the unwillingness of banks to negotiate repayments should recently graduated students fall on hard times).
Take, for example, those engaged in the study of law: a student loan is offered for undergraduate education in law, but in order to become a solicitor or barrister the student must continue on to qualify by enrolling in a course that no state-backed educational funding will cover. Why should a student be given educational loans for an undergraduate course in law by the government, but not be allowed to complete their education with the courses necessary for them to secure the employment that their undergraduate training prepares them for? As a result, it is more difficult for individuals who do not enjoy the privileges of personal or family wealth to pursue a career that requires formal qualifications. In the case of law, this means that it is more likely that those seeking a place in the legal profession are from a certain kind of privileged socio-economic background; they are the ones that will end up practicing law. This potentially impacts the balance and perspective the legal system needs in order to be just and fair. This is only one example in one industry – the wider-reaching implications of this example can be seen in many other industries. Equal opportunities in education are important for minimizing the ever-increasing gulf between classes.
The UK, it seems, has rediscovered the beauty of privatization. Security, health, even the mail! It is all up for grabs in the fallout of recession. ‘Crony capitalism’ is one term that comes mind. For every company or industry that goes private there is undoubtedly some ‘fat cat’ watching his ever-expanding bank account grow and grow.
Privatization has now also hit the UK student debt market. Government loan holders are selling on the student debt to private companies often without the consent of those who hold the loans. The agency an individual has to address wrongs with a private company are severely limited: public law does not reach corporations and, therefore, there is no way for these private companies, though they fulfill a public function, to be held accountable for bad practice and rights violations. What will this mean for university students whose government loans are passed on to private companies? How will their rights be affected? Will they, like those students who take our personal loans to complete their educational training, be subject to the harsh treatment of private lending intuitions?
Additionally, there is no barometer – either in the UK or the US – for measuring the appropriateness of a course and the subsequent loans that will needed to pay for it. For example, a student in the US could attend a $40,000-a-year art university and emerge from a four-year course in fine arts, but with very little potential to earn. How is that student expected to pay back a loan reaching far into six figures? Furthermore, in this especially unrelenting climate of job scarcity, low wages, and unemployment, allowing an 18 year-old to commit to spending the rest of their lives with this mass debt burden hanging over their head like a dark cloud is criminal. That 18 year-old isn’t to blame for being brought up in a world where they are taught that ‘anything is possible’ and to ‘follow your dreams’ and all of the rags-to-riches fairytales that are part and parcel of the ever-elusive capitalist ‘American Dream’. This reality also leads to other interesting questions such as: are universities priced to cost? If you consider the same $40,000-a-year tuition – per student per year – does the outcome of that degree justify the cost? Does the cost of running a university justify the expense to the student?
But what is the alternative? A student debt jubilee is a popular idea in the US, but what happens to the next generation of university students? If student loans were no longer extended it would have a hugely detrimental effect on academia. It might cause unemployment and closure of educational institutions. Those whose parents could not afford to help them through university would be completely unable to pursue higher education – much to the detriment of the economy and perhaps the intellectual advancement of society as a whole. Though the situation is dire – almost at crisis point – the alternatives are similarly distressing.
Those of us in the UK and US have a very dependent, very important relationship with credit: we need it. It is increasingly the case that we rely on credit to obtain the things in life that we deem necessary: education, housing, and transportation. Many people, when faced with a shortage on income obtain those things that they need (i.e. energy, food, clothes) by credit. When credit has become the means by which we access our rights (for example, our right to education, our right to housing – both defined as human rights in the United Nation’s Covenant on Economic, Social, and Cultural Rights) then our credit – and by extension our debt – needs to be duly protected.
What happens to the person who falls on hard time or slips up and cannot pay back their debt? They are then punished with a bad credit score, making it difficult or even impossible to secure for themselves housing, future loans, credit cards, and in some cases insurance, health care, or jobs.
Credit – that is exists, that we rely on it, that it makes us feel powerless, sad, angry, hopeless, that it makes us despair, that we need it just to cover the basics – is a big issue, a human rights issue, and it needs to be regarded as such. The economic rights of those who shoulder the massive burden of student debt in the US have been to date largely ignored – but ignoring the situation has become increasingly more difficult. The looming US student debt crisis should be closely examined by those in the UK intent on increasing fees and privatizing student debt.
If crisis point is reached – in either country – will the students be given the same bailout packages as the banks? It seems highly unlikely, but we shall have to wait and see.