Abstract
In several Western countries, student credit is gaining ground.
This is hardly a coincidence, but rather the result of basing higher education policy on the (economic) doctrine(s) of neoliberalism.
In this way, the increase of student credit is but one of the many aspects of the changing landscape in the field of academic and higher education, in which, on a global scale, lesser and lesser government funding is made available for education in general, and both education institutions and students are to an increasing extent made dependent on funding that is made available through free market mechanisms.
This chapter investigates how this has been made possible and what the consequences thereof are for society, such as the decline of the democratization of education, next to the shaping of a polarized society in which those who control the mechanisms of the free market, amongst which credit, get ever richer to the detriment of the rest of society.
Special thanks to Laura Hofströssler for her valuable assistance in researching additional source material upon completion of this Chapter.
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Notes
- 1.
See Lobosko (2018). Similarly, Friedman (2018); Nichols (2019).
See already before Micklethwait and Woolridge (2014), p. 121.
According to Griffin, in the period 2007–2018, student loans in the USA witnessed almost 157% in cumulative growth. By comparison, auto loan debt was reported to have grown 52%, while mortgage and credit-card debt was reported to actually have fallen by about 1% (See Griffin 2018.)
According to Herzog, between 2004 and 2014, the average amount of debt for U.S. college graduates to finance their studies rose by 56%, while the total outstanding federal student loan balance had in the course of 12 years quadrupled to over $1.3 trillion (Herzog 2018).
In November 2019, it was however also reported that not student loans or credit card debt, but personal loans were the fastest-growing debt category in U.S., their balances exceeding USD 300 billion as of the second quarter 2019. (See Alvarez (2019).)
- 2.
Friedman (2018).
In June 2018, more than 42 million student loan borrowers had student loan debt of USD 100,000 or less. More than two million student loan borrowers had student loan debt greater than USD 100,000, with 415,000 of that total holding student loan debt greater than USD 200,000. The largest concentration of student loan debt was in the range of USD 10,000–USD 25,000, which accounted for 12.4 million student loan borrowers. (See Friedman (2018).)
- 3.
Friedman (2018).
- 4.
Friedman (2018).
- 5.
Friedman (2019).
- 6.
Frazier (2019).
- 7.
Student Loan Hero (2019).
- 8.
See https://www.cometfi.com/student-loan-debt-statistics (last consulted on last consulted on January 17th, 2020).
For a profound study on the default rates for student loans since the 1990s, see Scott-Clayton (2018).
The website of Comet mentions that, during the past decade, total U.S. student loan debt has surpassed credit card debt and auto loan debt. In the third quarter of 2018, Americans owed USD 840 billion on their credit cards and USD 1.21 trillion in auto loans. On March 28th 2019, U.S. student loan obligations were larger than both, trailing only mortgages in scope and impact.
- 9.
See Coughlan (2018), having phrased the problem as follows: “The tuition fee system for England’s universities is ripping off students and giving taxpayers poor value for money, says a parliamentary committee.” and “By 2044, when many of today’s students will still be paying off their loans, the student loan book will have grown to more than £1tn, rising to £1.2tn by 2049.””
- 10.
- 11.
See also Micklethwait and Woolridge (2014), p. 121.
- 12.
In the recent past, there have also been worrisome reports on American universities that are suffering from too much debt. (See Bennett (2019b). Similarly Bennett (2019a), warning that universities may very well be on the brink of a “credit crunch”.)
Similarly, there is also in the UK a growing concern about the fact that: “the higher education sector has become a pin on which balances the most enormous mountain of debt.” (See Inman (2018).)
According to Inman, figures of 2018 show that UK universities have borrowed £12bn since the 2007–2008 financial crash of—from their banks, from private investors, mostly in the US, and from the international bond markets. Inman moreover reports that this colossal and rising total of university borrowing is dwarfed by projections for a rise in student debt from £100bn in 2018 to £1tn over the next 25 years and the hundreds of millions borrowed to build student accommodation. (See Inman (2018).)
- 13.
See Micklethwait and Woolridge (2014), p. 121, pointing out that the attempts of universities to become more cost aware have above all resulted in a world wide epidemy of student debt.
- 14.
- 15.
Byttebier (2019), Chapter 3, p. 66. See also Lipman: “Neoliberalism reframes all social relations, all forms of knowledge and culture in the terms of the market. All services established for the common good are potential targets of investment and profit-making. In the discourse of neoliberalism, the society becomes synonymous with the market, democracy is equated with consumer choice, and the common good is replaced by individual advantage.” (Lipman (2006), p. 51.)
Compare Friedman (2002), p. 177 et seq.
- 16.
Byttebier (2019), Chapter 3, p. 70 a.f.
- 17.
We can suffice here by referring to United Nations Special Rapporteur on extreme poverty and human rights Alston’s very alarming “Statement on Visit to the United Kingdom” (see Alston 2018), amongst others mentioning the following: “The UK is the world’s fifth largest economy, it contains many areas of immense wealth, its capital is a leading centre of global finance, its entrepreneurs are innovative and agile, and despite the current political turmoil, it has a system of government that rightly remains the envy of much of the world. It thus seems patently unjust and contrary to British values that so many people are living in poverty. This is obvious to anyone who opens their eyes to see the immense growth in foodbanks and the queues waiting outside them, the people sleeping rough in the streets, the growth of homelessness, the sense of deep despair that leads even the Government to appoint a Minister for suicide prevention and civil society to report in depth on unheard of levels of loneliness and isolation. And local authorities, especially in England, which perform vital roles in providing a real social safety net have been gutted by a series of government policies. Libraries have closed in record numbers, community and youth centers have been shrunk and underfunded, public spaces and buildings including parks and recreation centers have been sold off.”
- 18.
Byttebier (2019), Chapter 3, pp. 70–75.
- 19.
As Lipman has phrased it: “Education privatization is one result of the hollowed-out neoliberal state and the marketization of the public sphere (…).” (See Lipman (2006), p. 47.)
- 20.
See: The Bologna Declaration of 19 June 1999: Joint declaration of the European Ministers of Education (https://www.eurashe.eu/library/bologna_1999_bologna-declaration-pdf/) (last consulted on last consulted on January 17th 2020).
- 21.
- 22.
In this funding model, an (additional) tuition fee to be paid by individual students will only be requested if the funding authority does not bear the full cost of public education. This will obviously depend on the extent to which the funding authority does not bear the full costs of the (public) education system.
- 23.
- 24.
Recently, it has appeared that this model has lead to situations in which, in several American (elite) universities, rich parents have been paying (huge) bribes to get their children admitted. (See, for instance, Ascarelli (2019).)
- 25.
An interesting experiment of having a university funded in a totally different manner has been the “Berea College” that was founded in 1855 by John Fee, a Christian minister and an abolitionist, which was the first integrated, co-educational college in the American South. Since its inception, Berea was meant for students who could not afford college—costs were nominal, and students had to work on campus to help support themselves instead of paying high tuition fees. In 1892, the College even stopped charging tuition entirely. Up to the present day, the College’s funding is to a large extent based upon its labour programme, which requires each student to work on campus for at least 10 hours every week. The jobs students perform are essential to Berea’s operation. (See Honderich (2019).)
- 26.
Ross and Gibson explain the objectives of neoliberalism as follows: “Neoliberalism is embraced by parties across the political spectrum, from right to left, in that the interests of wealthy investors and large corporations define social and economic policy. The free market, private enterprise, consumer choice, entrepreneurial initiative, deleterious effects of government regulation, and so on, are the tenets of a neoliberalism. Indeed, the corporate-controlled media spin would have the public believe that the economic consequences of neoliberal economic policy, which serves the interests of the wealthy elite, is good for everyone. In fact, neoliberal economic policies have created massive social and economic inequalities among individuals and nations.” (See Ross and Gibson (2006), pp. 1–14, especially p. 2.)
See also Byttebier (2018) and Byttebier (2019), especially Chapter 3.
- 27.
As regards US federal policy on higher education funding, see Honderich (2019), pointing out that between 2008 and 2017, overall state funding for public two- and four-year colleges fell by nearly $9bn after inflation. These cuts to government funding have been met with steep tuition hikes, effectively pushing American families toward loans. From this, it has become clear that the US federal government is expecting its citizens to pay for college with loans. As a result, during the past decade, student debt has more than doubled, jumping from $675bn to $1.5tn in 2019.
- 28.
Lipman has phrased this as follows: “the politics of neoliberalism is pushing the logic of the market into every facet of social life. The neoliberal state response to the failures of Keynesian state policies and pressures of global competition for markets and investment is drastic reductions in spending for social services, government deregulation of corporations, privatization of the public sphere, environmental degradation, regressive tax policies, and attacks on organized labor. The gutting of social welfare programs and privatization of public institutions and services in the name of individual responsibility, efficiency, and freedom has opened up new investment opportunities and sources of profit on a global scale. The growth of the for-profit health care industry and the prison–industrial complex are but two examples. Education is becoming a third. These economic and social changes are degrading living standards and working conditions of millions of people, dislocating populations, and increasing social polarization along lines of race, ethnicity, gender, class, and nationality on a global scale.” (See Lipman (2006), p. 35–58, especially p. 39.)
- 29.
See especially the pseudo-philosophical writings of Ayn Rand. For instance Rand (1982); Rand (1992); Rand (2008).
Galbraith has in this regard pointed out that conservative economic theories, such as neoliberalism, have no problem in justifying subsidies, next to similar forms of government support, to large enterprises (and hence to the rich classes of society) while at the same time rejecting any form of government support to the poor. (See Galbraith (1992), p. 122.)
Chomsky has phrased this paradigm as follows: “Each time, the taxpayer is called on to bail out those who created the crisis, increasingly the major financial institutions. In a capitalist economy, you wouldn’t do that. In a capitalist system, that would wipe out the investors who make risky investments. But the rich and powerful, they don’t want a capitalist system. They want to be able to run to the “nanny state” as soon as they’re in trouble, and get bailed out by the taxpayer. They’re given a government insurance policy, which means that no matter how often you risk everything, of you get in trouble, the public will bail you out because you’re too big to fail—and it’s just repeating over and over again.” (See Chomsky (2017), pp. 84–85.)
See also Lipman (2006), p. 39.
- 30.
- 31.
Compare Hill (2006), p. 107: “The restructuring of the schooling and education systems across the world is part of the ideological and policy offensive by neoliberal capital. The privatization of public services, the capitalization and commodification of humanity and the global diktats of the agencies of international capital—backed by destabilization of nonconforming governments and, ultimately, the armed cavalries of the United States and its surrogates—have resulted in the near-global (if not universal) establishment of competitive markets in public services such as education.”
- 32.
The fact that in such an approach education will by definition evolve into a consumer product and that students are in this way, at least implicitly, given a free licence to actually behave like consumers/customers, apparently does not keep neoliberal thinkers and policymakers awake at night, while those employed by an education institution face the consequences of this changing attitude on a daily basis.
- 33.
See Byttebier (2019), Chapter 3, p. 69 a.f.
- 34.
See also Goessens (2016).
- 35.
See for instance Levidow (2006), p. 249.
- 36.
Regardless of whether this latter characteristic is objectively measurable at all, which is what neoliberal thinking nevertheless wants us to believe anyhow.
- 37.
Compare Goessens (2016).
- 38.
See again Goessens (2016).
- 39.
Levidow (2006), p. 242 et seq.
- 40.
- 41.
See Byttebier (2019), Section 4.5., p. 107 a.f.
See also Hill: “Markets in education, so-called “parental choice” of a diverse range of schools (or, in parts of the globe, the “choice” as to whether to send children to school or not), privatization of schools and other education providers, and the cutting of state subsidies to education and other public services are only a part of the educational and anti-public welfare strategy of the capitalist class.” (Hill (2006), p. 108.)
- 42.
- 43.
Except perhaps in the writings of Ayn Rand herself that are in this way at least completely honest about the ideas of neoliberalism.
- 44.
Of course, the members of neoliberal governments and parliaments also want to get re-elected.
- 45.
See furthermore Hastley (2011).
- 46.
This modern-day version of neoliberalism basically revisits the “trickledown economics”-fairy tale.
- 47.
See Rand (2008), p. 23.
- 48.
See Rand (1992), pp. 57–65, with as title: “The Conflicts of Men’s Interests”.
- 49.
See Thatcher (1993), p. 598.
- 50.
That few people actually succeed in combining the often very demanding university or college studies with having a job is likewise part of the reality that supporters of neoliberalism prefer to ignore completely.
- 51.
See also Friedman (2002), p. 190 et seq. On the correlation between grants and student loans, see Herzog (2018), p. 276 a.f.: “Loans are typically a ‘last resort’ source of aid for students after merit-based scholarships and need-based grants are exhausted Students who qualify for subsidized loans may select to rely on unsubsidized loans if the former are considered insufficient. In contrast to scholarship and need-based grant aid that are available (and thus selected) based on academic merit and income background, selection of loan aid is more directly tied to perceived need, which is a function of the actual remaining need after taking into account all other aid received student’s eligibility for need-based federal financial aid is determined by the student’s ability to pay and the cost of attendance at the selected school. Specifically, information on assets and income of the student and parents collected through the FAFSA are compared to the cost of attendance to determine the EFC from the parent and/or student. Students whose cost of attendance surpasses their EFC typically qualify for some type of need-based aid, including subsidized and unsubsidized loans.” (Herzog (2018), pp. 276–277.)
- 52.
See especially Byttebier (2018), under Section 3.5.2.
This way of reasoning also provided one of the justifications for the far-reaching liberalisation and deregulation of the financial services markets that has been organised as of the 1980s, first in the USA itself and next in many other countries.
- 53.
See furthermore Britton et al. (2019): “Income contingent student loans are increasingly being adopted by governments across the world: they are well established in Australia, New Zealand and the UK; they have recently been introduced in the Netherlands, Vietnam, Brazil, Colombia and Japan; and they are growing rapidly in the US, where around 75% of new borrowers are now on some type of income contingent loan plan. The size of these loans has become very large, making up a substantial fraction of public sector debt.” (Britton et al. (2019).)
- 54.
Schwartz has pointed out that in 2018, nearly 90% of the outstanding student loans in the US still involved the federal government as either the ultimate lender or guarantor of the debt. The government’s intervention, however, has nevertheless not reduced concern regarding the real and negative effects this debt has on student borrowers. (See Schwartz (2018).)
On the various types of federal loans in the US, see Schwartz (2018), p. 7 a.f.
- 55.
See furthermore in Byttebier (2017, 2018).
Compare Warren (2019): “We got into this crisis because state governments and the federal government decided that instead of treating higher education like our public school system—free and accessible to all Americans—they’d rather cut taxes for billionaires and giant corporations and offload the cost of higher education onto students and their families. The student debt crisis is the direct result of this failed experiment.”
- 56.
- 57.
On this process, see Byttebier (2017), p. 21 a.f., with further references. The notion “bank” is the one still commonly used in economic literature, while from a legal perspective, at least in accordance with European law, the term “credit institution” has become more accurate.
- 58.
Central banks were also set up from the seventeenth to eighteenth centuries, usually with the monopoly to create “cash money” and to function as a lender of last resort for the benefit of private banks. (See Byttebier (2017), p. 37.)
- 59.
In some literature, the added value generated by the economic system as a whole is sometimes referred to as a (metaphorical) “pie”, with as main question how to divide this pie. Neoliberalism answers this question as follows: as much as possible among the rich (“entrepreneurs”) and as little as possible among the rest of society.
- 60.
Byttebier (2017), p. 26 a.f., with further references.
- 61.
See on this furthermore Byttebier (2017), p. 46.
- 62.
- 63.
Byttebier (2017), p. 26 a.f.
- 64.
It is, hence, no coincidence that dividend payments by private banks have recently been identified as one of the largest sources of income by which the rich and extremely rich of the planet can, literally by the second, increase their already immense fortunes even further (with little noteworthy effort, other than ever having decided to invest past savings in a private bank). (See Oxfam (2017), p. 17.)
- 65.
For this precise reason, both philosophers from Classic Antiquity and, during a long period time, the Catholic church, were strongly opposed towards the interest mechanism that was considered as a technique which allowed the rich to get ever more rich to the detriment of the poor. (See furthermore Byttebier (2015a), p. 115 a.f., with further references.)
- 66.
It should in this regard be kept in mind that the financial cost for the student seeking an academic education not only consists of the tuition fees charged by the educational institution of his choice, but also of his own further living expenses and other additional costs (for instance for purchasing study material).
- 67.
Depending on the amount of money such a student will need to borrow, this will indeed in many cases require a great deal of courage, and often of luck, since a credit debt is a heavy burden to bear.
- 68.
See Byttebier (2019), Chapter 4.
- 69.
Chomsky (2017), p. 67.
California Senator and Democratic presidential candidate Kamala Harris was recently reported to have phrased the matter as follows: “How can you dream when you are drowning in student loan debt?”. Senator Harris also called student loan debt “one of the biggest challenges facing our country and our students.” (See Nichols (2019).) See furthermore Popescu (2017).
- 70.
See Chomsky (2017), p. 68.
- 71.
According to a survey by the Federal Reserve as regards the situation in the USA, black and Hispanic borrowers are much more likely than white borrowers to be behind on their loans, and are less likely to have completely repaid their loans (figure). According to the same survey, the divergence of student loan repayment rates by race and ethnicity suggests that the burden of unmanageable student loan debt may be of greater concern, on average, among individuals who are black or Hispanic than it is for white individuals. Several potential explanations for the observation that black and Hispanic borrowers, as well as those from lower socioeconomic backgrounds, are more likely to fall behind on their loan payments are suggested. In particular, it may be due to differences in their likelihood of degree completion, differences in the wages received for a given educational credential, different levels of financial support from one’s family, or differences in the availability of a financial safety net to help them manage the payments if the degree does not pay off. (See Board of Governors of the Federal Reserve System (2017).)
- 72.
See also Levidow (2006), p. 249.
- 73.
Livni (2018).
The fact of not being able to pursue a home of one’s own may in its own turn confront the debtor of a student loan debt with many further disadvantages in life, for instance having to live further away from his work area which may further impact his life quality in a negative way.
- 74.
Hembree (2018).
- 75.
See Livni (2018).
- 76.
Love (2019).
- 77.
See https://www.cometfi.com/student-loan-debt-statistics (as consulted on March 28th, 2019).
- 78.
- 79.
Williams (2018).
See also Warren (2019): “The result is a huge student loan debt burden that’s crushing millions of families and acting as an anchor on our economy. It’s reducing home ownership rates. It’s leading fewer people to start businesses. It’s forcing students to drop out of school before getting a degree. It’s a problem for all of us.”
Not surprisingly, several policy makers have proposed student debt cancellation plans. See for instance https://www.johnsonsenate.com/ (last consulted on December 10th 2019).
- 80.
As regards the US, see Mitchell et al. (2019): “Deep state cuts in funding for higher education over the last decade have contributed to rapid, significant tuition increases and pushed more of the costs of college to students, making it harder for them to enroll and graduate. These cuts also have worsened racial and class inequality, since rising tuition can deter low-income students and students of color from college.” (Mitchell et al. (2019).)
- 81.
See with Hill (2006): “The current anti-egalitarian education system needs to be contextualized in two ways: (a) the ideological and policy context, and (b) the global/spatial context.” (See Hill (2006), p. 107.)
Similarly Love (2019): “Education in the US is a heavily privatised, for-profit scheme that excludes low-income people and members of disadvantaged racial groups, and only reinforces the existing socioeconomic inequities.”
- 82.
Ortberg (2014), p. 42 et seq.
- 83.
It should also be noted, as an aside, that the ever-increasing level student loan debt is adding to the already problematic nature of the Western credit economy, where too many sections of society—ranging from private individuals, to companies and even to States and other public entities themselves—have over the past decades been guilty of excessive credit behaviour, raising the open question of whether economic growth will ever be sufficient to recoup all that credit (and repay bank creditors). (See on this topic furthermore K. Byttebier (2015a), p. 189 et seq.; Byttebier (2017), p. 222 et seq.)
For an alternative approach towards financing government expenditure, see Byttebier (2019), Chapter 6, p. 189, also exploring the example of financing education.
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Byttebier, K. (2022). The Insidious Dangers of Student Credit. In: Byttebier, K., van der Borght, K. (eds) Law and Sustainability. Economic and Financial Law & Policy – Shifting Insights & Values, vol 6. Springer, Cham. https://doi.org/10.1007/978-3-030-92620-5_1
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