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Student debt might be next big financial crisis

For Sale: One kidney. $30,000 plus all expenses. White, male, BS with dual major in physics and mathematics.

I personally know this student. He is serious, not crazy.

As an honors student, he worked part time for four years. He has been entirely self-supporting and has graduated with a $30,000 student loan debt.

In his words: "I only need one kidney, and I want to start out even."

In the United States this past year, the total amount of outstanding student loan debt reached $1 trillion. This exceeds the total amount of outstanding credit card debt. The average college student in the class of 2010 at a public nonprofit university will graduate with a student loan debt of $25,500. It is even higher for those attending for-profit educational institutions.

It hasn't always been this way.

Historically, the United States made investments in education as the way to secure the future of the nation and to provide the equality of opportunity that defined the American dream. All of that started to change in the 1980s with the political philosophy of reducing the size and the social responsibilities of government.

Since 1982, college fees and tuition have increased more than four times the rate of the consumer price index and nearly twice the cost of medical care. After the financial crisis of 2008, every other form of debt has decreased as people made adjustments to harder times. The exception is student loans, which have grown larger as college tuition and fees increased to compensate for loss of government support for education.

When too many students owe more than their degree is worth, or lose their ability to pay the debt, this financial bubble will burst — as it surely will with suppressed wages and a 9.1 percent unemployment rate. Similar to the housing bubble, we will be asking all over again, how could this be?

The answer is the same for student loans as it was for mortgages.

The college loan industry is following the same path as mortgage lenders by recruiting students who have little chance of success. They end up with debt and no degree. These loans are similar to the toxic mortgages. Other students take out loans on the promise that economic growth will make the loan affordable in the future. The grim reality is that this is no longer true, for student loans and mortgages. The illusion of economic growth by financing the present through debt is over, for individuals and for governments.

The student loan bubble is an even more dangerous symptom of the failure of our national political process than was the mortgage bubble and the resulting financial crisis of 2008.

Education, science, health, roads and all of the other things that have made the American dream possible, and made our country the envy of the world, are not commodities; they are public investments in the common welfare. My student's kidney, and all that it symbolizes, is not, cannot and should not become a commodity.

Student loans are the only type of debt that cannot be discharged in a bankruptcy, except under rare and unusual circumstances. With accumulated late-payment fees and interest charges, they are a more toxic financial "product" than the instruments that brought on the mortgage crisis.

It is not an individual's responsibility to have to choose between debt and one kidney, or between forgoing education and avoiding debt. It is, however, the responsibility of government to be a buffer between the public good and predatory Wall Street practices of creating artificial financial "products" to make money at taxpayers' expense, or as cumulative debts to be paid for by our children.

Protecting the quality of public life is the primary responsibility of government. That is why we pay our taxes. We are not going to solve our social issues of public education, health and human welfare by reducing government. It is our government, and it is our civic responsibility to have it serve the end of human progress; this is the definition of a democracy.

It is not the primary function of government to further the accumulation of power and wealth by corporations, and the control of government by the wealthy; this is the definition of a plutocracy. The choice between the two is ours to make. It will be the defining choice of our lifetime.

This is what the occupy movements around the world are about.

Professor Edward Renner teaches in the honors college at the University of South Florida. He blogs at

Student debt might be next big financial crisis 11/17/11 [Last modified: Wednesday, December 7, 2011 3:02pm]
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