The rain falls on all of us, but on some harder. Like all crises, the student loan debt crisis disproportionately hurts historically oppressed groups, an unavoidable outcome of a structurally classist and racist system--"structurally" because of the layers of wealth accumulation resulting from the material asymmetries of chattel slavery, wage slavery, and discrimination. Structural inequality requires structural solutions, and the tepid refinancing plans offered by current U.S. presidential candidates do not do justice to the magnitude of change we ought to be discussing.
Of course, student loan debt is cracking the entire economy, as it surpasses a trillion dollars, keeping adults living with parents, delaying the transition to starting families (a routine vital to consumer demographics, for what that's worth), discouraging personal investment and tanking personal savings, decreasing the purchasing of vehicles, really throwing a wrench in conventional economic activity and growth. It's another example of how debt traps and high interest encourages unsustainable and extremely unequal growth.
Debt-free tuition, if it happens, may help individuals in the future, but does nothing (except induce a little bitterness in the midst of admiration for a good policy) for the millions of people encumbered by student debt now. Candidate Hillary Clinton's plan also devotes billions to reducing the rate on new or existing student loans, whether for private or public education. But NPR's Danielle Kurtzleben is skeptical that this would be a "game changer" since decreased interest rates do little to help those who can't afford to pay the debt; instead, the decreased rates approach tends to help those with deeper debt who have the ability to repay it.
Moreover, access to higher education, even if it becomes equalized, will not necessarily solve the racial wealth gap. Within the larger framework of understanding the historical source of this inequality--chattel slavery and second-class citizenship for several successive generations of African Americans, for example--the severe discrepancies in intergenerational transfers of wealth have proven formidable, particularly in a world where debtors cannot rely on family and legacy support to pay off their debt.
For minorities, paying off their students loans is an even heavier burden because their parents cannot do as much to help finance their educations. As a consequence, those graduates spend more time paying off their loans, preventing them from acquiring wealth of their own, a situation that could perpetuate itself for generations to come.
"The source of the inequality is ... the intergenerational transfers," said Darrick Hamilton, a professor of economics at the New School. Public policies that have focused on higher education as the pathway to social mobility for minorities have boosted their incomes but ironically held down their median wealth, he said.
All of this raises obvious issues about the role of public finance--like public banks, development banks, and the extension of public credit, in structural remedies for historical, material imbalances--on top of categorical debt forgiveness. Development banks for cooperatives might be a good place to start. Here, the model of the Southern Reparations Loan Fund, a part of the Southern Grassroots Economies Project, might be combined with public banking.
The Southern Reparations Loan Fund (SRLF), a project of the Southern Grassroots Economies Project (SGEP), makes business loans to cooperatively owned businesses anchored in the most marginalized Southern communities. We especially focus our lending toward start-ups and expansions of democratically governed enterprises that meet the needs and elevate the quality of life of African Americans, immigrants, and poor whites. Our goal is to nurture the development of businesses that maximize community benefit, rather than the narrow concept of maximizing profit. The concept of reparations is at the heart of SRLF’s mission: SRLF moves capital stemming from an economy rooted in extraction, exploitation, slavery, and land grabs to build Southern enterprises that are owned and democratically controlled by the very communities from which the wealth was stolen in the first place.
As part of of our commitment to the most marginalized communities, we target our lending to projects that other lenders might consider “un-bankable,” because they are too small, not adequately collateralized, or, though profitable, not “profitable enough.” Operating from a principle of “radical inclusivity,” SRLF is interested in projects that are based on sound business ideas that meet real community needs, businesses built by people who know how to work together to get good things accomplished—regardless of their individual “credit-worthiness.” If SRLF does its job according to its mission, the vast majority of our loans will go to poor people who have a direct personal and community-wide stake in building an inclusive economy that is democratic, just, and sustainable.
. . . SRLF moves capital stemming from an economy rooted in extraction, exploitation, slavery, and land grabs to build Southern enterprises that are owned and democratically controlled by the very communities from which the wealth was stolen in the first place.
While the loan fund works with businesses "to mitigate the risk associated with lending to non-traditional borrowers," there is no doubt the model would work harmoniously with a state-owned, BND-style bank, or a more specific public development bank. Contrast a vision like that with a partially remedial student debt relief package.
Among current presidential candidates, nominee Jill Stein of the Green Party supports public banks, while Senator Bernie Sanders has crafted specific legislation supporting worker-owned businesses with "enterprise banks." But further work needs to be done connecting the model of the SRLF with the public banking movement in general. The idea would be to create public banks with chartered or administrative mandates to finance such cooperative projects, possibly partnering with community banks, so that non-banking private businesses wouldn't need to be the arbiters of how to deal with "unbankable" or "unlendable" groups, and the uncertainty and dependency of philanthropy would be replaced by the structural implementation of transparent, responsible community financing of sustainable enterprises in disadvantaged (and in all) communities.
Free higher education in the future helps some people. Refinancing debt on slightly better terms slightly helps some other people. But the most sustainable and far-reaching comprehensive policy would include free higher education, wiping away all or most of student debt, and financing cooperative community enterprises to correct the historical imbalances that undermine the value of higher education for minorities, and which make current education financing just another unequal encumbrance.