Wall Street’s Scary Scheme To Own Every American’s Education Destiny
To the old saying about “death and taxes,” you can now add another: debt.
In fact, in contemporary America, debt is likely becoming at least as all-encompassing as the other two.
An increasingly powerful force behind the debt explosion is not what you might expect: not cars, not homes, not healthcare. It’s education.
Since the Great Recession, federal and state authorities have been disinvesting from their obligations to educate the citizenry. So now, nearly every state spends less on higher education than it did in 2007. And most states continue to spend less on K-12 education than they did in 2007. Federal government expenditures on education are also in decline.
So the burden of financing education has increasingly fallen on local governments and individuals, who have responded by borrowing money to pay for schooling.
Education debt is rapidly becoming a cradle to grave omnipresence – from parents taking out kindergarten loans, to taxpayers shouldering the ballooning costs of exotic school bonds, to senior citizens staving off bankruptcies caused by college debts.
With edu-debt levels mounting higher and higher at every turn, cash-strapped parents, municipal governments and education institutions have turned to solutions from Wall Street.
According to at least one investment news source, banks are increasingly reluctant to back infrastructure investments like schools, so the financial industry is rushing in to fill the void. “The severely restricted capacity of banks to provide long-term debt for infrastructure deals comes at a time when the need for infrastructure spending across the globe is soaring,” the report notes. “A great deal of debt will go to the bond markets. But they will not be the full solution by any means.”
Instead, an emerging “private loan space” is introducing “a number of new vehicles.”
An alphabet soup of new financial vehicles – SLABS, CABS, PPPs, ISAs – that’s been created in the edu-debt sphere spells disaster, as Wall Street tightens its control of how – or even whether – the nation educates its future workers and citizens.
Turning Students Into SLABS
A lot has been written about college student loan debt, now nearly $1.2 trillion and counting. But too little attention has focused on Wall Street’s role in the run-up.
Recall, when Wall Street speculators wanted a market for subprime mortgages, they created high-risk derivative securities that bundled the mortgages to sell as investments. The speculators have done the same for student loans.
These student loan asset-backed securities, or SLABS, have a performance history that has “been very good, and investors’ rate of return has been excellent,” according to an article in Wikipedia.
SLABS are “hot,” a Wall Street Journal headline exhorted its readers in 2013. “Investors are flocking to SLABS,” a more recent article on the Huffington Post reports.
A post on the blog for left-leaning advocacy Demos explains, “Before the SLABS binge, most private student loans were actually made in connection with the college financial aid office, which helped ensure students weren’t taken for a ride, or weren’t borrowing more than they needed to. Between 2005 and 2007, the percentage of loans to students made without any school involvement grew from 40 percent to over 70 percent.”
It’s not hard to see the allure of SLABS. Student loans seem to be an endless stream of revenue as colleges and universities continue to increase tuition, economic conditions and employment transience feed the unemployed back into continuing education, and political leaders urge everyone to attend college. The income stream is nearly guaranteed to pay off because the loans are next to impossible to discharge in bankruptcy.
A Huffington Post article by Chris Kirkham states that SLABS offer “seemingly unlimited growth potential at virtually zero risk. The burden of college loan repayment falls entirely on students’ backs, shielding corporations from the consequences Wall Street’s Scary Scheme To Own Every American’s Education Destiny: