When We Talk About Student Debt, We’re Talking About Power

The last five decades of American policymaking have been marked by a vicious cycle: the rejection of public power as a way to serve the majority and the rising concentration of private power in the economy and our democracy. In higher education, this reality is made evident by increasing levels of student loan debt and the decline of publicly subsidized college. The existence of federal student loans played a key role in allowing government—both at the state and federal level—to abandon its responsibility to adequately fund public higher education and guard against tuition increases. Policy experts and economists helped fuel this shift by promoting the notion that student loans were a good way to pay for higher education for those who could not afford it. They reasoned that taking on debt to earn more degrees was a good investment because it would pay off in higher earnings down the road.

That premise turned out to be dead wrong. The experts who promoted the virtues of student loans focused on the college wage premium, or the difference between what a person would earn with or without a college degree. But that gap has grown due to decreased earnings for those with only a high school diploma, not increased earnings for those who went to college. As a result, the wage premium shows us that taking on debt is helping borrowers tread water, not get ahead. A better way to judge the value of student debt is to look at whether it has had a positive effect on earnings overall; if borrowers are taking on debt for educations that yield higher earnings, we should a positive change in households’ earnings overall. Despite the fact that borrowers took on an additional $1.2 trillion in debt between 2000 and 2017, the distribution of earnings changed very little during this time. All that debt and education did very little to boost households’ earnings.

At the same time that student debt helped fuel the decline of higher education as a public good, it also acted as a tool for building private power. Student loans have been an enormous opportunity for extraction by financial institutions. The now-defunct federally guaranteed loan program, the Federal Family Education Loan Program, allowed private banks to profit from federal subsidies—and, in the wake of the financial crisis, a government bailout. Its replacement, the Direct Loan program, pours hundreds of millions of dollars into servicers and contractors who routinely break the rules, hurt borrowers, and yet continue to profit from taxpayer dollars. These companies, in turn, employ powerful lobbyists who work to reinforce the continuation of this broken system.

The shift to debt financing has been most troubling because it has deepened racial inequities. For young Americans, student loan debt is a significant factor in the racial wealth gap between Black and white people. The disparities between Black and white students are compounded at every step of the student debt life cycle: Compared to white borrowers, Black students are more likely to need to borrow; more likely to borrow more money; less likely to pay down their principal; twice as likely to default on their debt; and less likely to pay down their principal.

Student debt is not only a tool in the erosion of public power, the accumulation of private power, and the entrenchment of racial inequality, but it is also a symbol of the overall power imbalances in our economy. When employers have too much power—due to both lax antitrust enforcement and policies that inhibit worker power—they can demand higher levels of education without having to offer higher wages. When our laws systematically undermine the wealth and power of communities of color, they continue to be subject to discrimination that shapes their access to education and their ability to get jobs commensurate with their skills. And when policymakers are beholden to donors with far too much economic and political power, our government ends up pursuing tax cuts and bailouts for those at the top while claiming to not have the resources to invest in everyone else.

When audiences cheer on student debt relief plans at town halls and rallies, they do it because canceling debt would benefit them and their families. It’s likely that they also do it because they can feel the effects of these unjust power dynamics in their lives, and they are eager to hear our leaders acknowledge and address them. Once policymakers acknowledge power imbalances and actively seek to correct them, they can address Americans’ pressing needs and work toward the kind of structural change that will build a more fair, inclusive economy for us all.