Interest rates for student loans will double on July 1 unless Congress acts. That's outrageous -- but the fiscal abuse of our nation's young people runs far deeper than that. An entire generation has been trapped into debt servitude and joblessness by the implacable machinery of Wall Street greed. Bank-servile scolds insult the young people of America while the bankers' economic engines strip-mine their financial future.
Jobless or overextended college graduates aren't even allowed to declare bankruptcy -- a privilege that's extended to every reckless investor and mismanaged corporation in the nation. Once they finally find work, college graduates face years of garnished wages to repay the loans that funded their often-overpriced educations. If they haven't repaid that debt by the time they grow old -- a very real possibility at the cost of a college education today -- they'll even be forced to surrender part of their Social Security benefits.
That's indentured servitude.
Meanwhile banks have been slicing and dicing student loans into derivative financial instruments called "SLABS" -- student-loan asset backed securities. We've seen this movie before -- the one where big banks mass-market loans to a population with stagnated wages and dwindling economic prospects, then bundle them and sell them to investors who haven't reviewed the way they were underwritten and sold.
Hey, what could go wrong?
It's true that many of these packaged debts are backed by the U.S. government -- but not all of them.
Why are these graduates facing such a bleak job market? Because Wall Street's gambling on other financial bets crashed the economy, leaving an entire generation without much of a future to give them optimism and hope. Their parents can't help them much, because most of their assets were taken by Wall Street, too. So as an entire generation of college students graduates with unprecedented debt -- and joblessness that's unprecedented in modern memory -- they're looking forward to a lifetime of reduced expectations.
And just like their parents, these young people are being told the the banks aren't the problem: They are.
Half of today's college graduates are un- or under-employed. The total amount owed on student loans is greater than our country's entire credit card debt. The banks were rescued in a multi-billion dollar bailout (that did not turn a profit), but If anybody talks about a WPA-like program to rescue young people the bank-funded political crowd gasps in horror.
Instead of help, young people get comments like this now-notorious one from perenially ignorant GOP representative Virginia (Ginny) Foxx: " I have very little tolerance for people who tell me that they graduate with $200,000 of debt or even $80,000 of debt because there's no reason for that."
Ginny Foxx is acting out the last in a four-step process to crush the soul and spirit of a generation:
First, cut funding for colleges and universities throughout the country, driving the cost of a college education out of reach of most Americans. And while you're at it, play footsie with the for-profit college industry, giving out student loans for paper mills that churn out worthless diplomas at inflated prices -- but whatever you do, don't tell the students that!
Second, lobby to "privatize" much of the student loan industry. Turn Sallie Mae, the agency created to help students, into a greed-driven get-rich-quick scheme for greedy executives (See "Sallie Mae's Jets") who used government money to lobby for their own get-rich-quick schemes and turned the student loan program into a taxpayer-funded money tree for already-rich bankers. (To their great credit, the Obama Administration and Democrats on the Hill did a great deal to roll back this part of the greed machine with last year's student reform law.)
Third, deregulate Wall Street and allow them to wreck the economy, forcing an entire generation to face the bleakest job future in modern memory.
Fourth, condemn them for their own situation. That distracts some people from the real cause of this generational misery.
Blame the victim: It's the oldest game in the world. In fact, it's exactly what was done to many of their parents when they bought their homes. They convinced them that homes would rise in value forever, sometimes hired crooked appraisers to inflate their homes' value, encouraged them to take out loans on that inflated value -- and then, when the bubble burst, convinced a lot of people that the real problem in this country is 'greedy homeowners.'
But this time it may not work. There are too many young people, and too many parents, who have learned how the game works. They may not stand for it a second time.
There's another reason why it won't work -- and why Mitt Romney is suddenly the voice of reason, urging his fellow Republicans not to let these interest rates double. If they do rise after July 1, a lot of students will be unable to pay their debts. Not all of those loans are backed by the government, so a lot of banks will be hurt.
Republicans don't want that to happen -- so expect a lot of conversions to "reasonableness" in the coming weeks. The delinquency rates for these loans may be higher than originally believed, and there's reason to believe it could go much higher as more students graduate into a bleak job market. The financial industry is beginning to worry.
It should worry. So should all of the investors who have bought those "SLABS." Between the politics and the economics, Republicans would be crazy to let these interest rates soar. But then, they've done lots of crazy things lately ...
Our financial system can't afford another shock. That's another reason why the Administration's additional proposals for easing student loan debt should be passed immediately, especially the "pay as you earn" and "forgiveness in 20 years" (or less) provisions.
But that isn't enough. We owe the next generation a lot more than what's being offered. We owe them nothing less than a national program of jobs -- a program that will give them experience, income and a sense of restored optimism about the future.
Students also deserve the chance to pay off their loans altogether by taking on tough jobs (with salaries) that help society, as well as themselves. (There's some reduction in the length of the loan under the current system, but it should be improved.)
And yes, we should be talking about forgiveness.
Think about it: One trillion dollars in loans -- loans that look increasingly risky with every month that passes. A generation that was tricked into borrowing for their educations -- in many cases for an overpriced or useless diploma, and in many other cases at costs that were driven sky-high by the selfishness and false economy of their elders.
And now, instead of helping our kids, we're letting people like Ginny Foxx demonize them. Or we're letting candidates like Mitt Romney say all the right things, then push for only the bare minimum needed to placate the public -- and protect the banks, which is their real agenda.
The choice is simple, really: We can do the right thing by the nation's young people -- or we can let the banks slice and dice their futures and sell them to unwary buyers. We can give our kids the chance for a decent life, or let their hopes be run through the Wall Street meat grinder.
We welcomed them into this world with promises. Will we sell their dreams to Wall Street to be carted away on SLABs?
Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future and the host of The Breakdown, broadcast Saturdays nights from 7-9 pm on WeAct Radio, AM 1480 in Washington DC.
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