A College Christmas Carol: Restoring the Bankruptcy Option

As Scrooge leaves his counting-house on Christmas Eve, he encounters his cheerful nephew, who tells his Uncle Scrooge that Christmas is one of those "many things from which I might have derived good, [but] by which I have not profited, I dare say."   The good, the nephew continues, is to have the one moment in the year in which "men and women seem by one consent to open their shut-up hearts freely, and to think of people below them as if they really were fellow-passengers to the grave, and not another race of creatures bound on other journeys."

Scrooge dismisses this feeling and, with a final dig at his long-suffering clerk, leaves his office, only to be confronted by two amiable gentlemen who are soliciting "some slight provision for the Poor and destitute, who suffer greatly at the present time."

Scrooge asks them, "are there no prisons?"  "Plenty of prisons" one replies.  "And the Union workhouses? Are they still in operaton"? Yes, he hears.  "The Treadmill and the Poor Law are in full vigour then? said Scrooge." Yes.  Well that is enough then, Scrooge replies.  "I help to support the establishments I have mentioned--they cost enough; and those who are badly off must go there."  The gentleman responds, "Many can't go there; and many would rather die."  "If they would rather die," said Scrooge, "they had better do it, and decrease the surplus population."

Thus spake the Scrooge we know best from the Dickens parable: a social Darwinist, happy to let the market decide who is weak and who is strong and to let the weak die out. Any similiarity among the fates of people differently placed in Victorian England's class society, as the nephew proposed, is a holiday illusion.

What happens next is pretty well known too.  Scrooge the accountant is visited by his long-dead partner, Marley, or rather by Marley's ghost. Marley explains why he continues to walk the earth, after death, in chains: "It is required of every man, that the spirit within him should walk abroad among his fellowmen, and travel far and wide; and if that spirit goes not forth in life, it is condemned to do so after death."  The ghost is forced to witness what it can no longer share, weighted down by the material possesses on whose accumulation it had foolishly devoted its years alive.  "I wear the chain I forged in life," Marley explains.  "I made it link by link, and yard by yard; I girded it on of my own free will . . ."

When we say "don't be a Scrooge," we forget the Scrooge at the end of the story, who by the visitations of Marley's Ghost and the three others has been radically transformed.  He dances with childish delight at finding himself to be alive, buys his clerk's family the largest turkey he can find, comes to his house to dine with him and to become a second father to Tiny Tim.  He goes on to spend his life "abroad among his fellowmen." "I will honour Christmas in my heart, and try to keep it all the year," he famously exclaims. How he will do this is equally important: "I will live in the Past, the Present, and the Future. The Spirits of the Three shall strive within me. I will not shut out the lessons that they teach."

The lessons are versions of the same, which is that Gain Kills: putting Gain first kills love, kills defenseless children, kills society itself. This is why those those who have weakened society by using it as a strip mine for profit are doomed to wander without society--but with all their earthly possessions chained to them.  A Christmas Carol first appeared in 1843, and the generalized mechanism of social murder was debtor's prison coupled with the New Poor Law of 1834, which herded whole families into workhouses where their misery was the explicit goal. Dickens was writing at the end of the period 1815-1848 that T.J. Clark has called "the moment of Restoration and the Holy Alliance, of apparently world-historical [political] immobility" that perhaps is something like that which we have faced since 1989.  Not imagining political corrections, Dickens presents the good news that people can reverse destructive policies by being forced to confront their concrete effects.  The bad news, of course, is that the confrontation with reality requires supernatural intervention.

Fast forward to our own period.  We don't have debtors' prison in the traditional sense--though a Wall Street Journal piece this year considered whether a version of it is coming back (and see Yves Smith in 2010).  We do have mass foreclosure and pervasive debt, including widespread, unpayable medical debts that lead to home foreclosure. We have also seen a destruction of middle class assets on a scale large enough to have erased thirty years of gains. And since special  legislation passed in 2005, we have three kinds of debt that are undischargable in bankruptcy--criminal fines, child support payments, and student debt.  

Scrooge tells the charity gentlemen that the laws have already taken care of the poor, and we hear the same thing about low-income students today: scholarships have already helped the poor, and we don't need to worry about them.  On a statistical level, this claim is demonstrably false: Crossing the Finish Line studies the issue of increasing borrowing by low-income students as they struggled towards degree completion.  The College Board has produced a helpful snapshot:

Were low-income students protected from debt by financial aid, we would see a median debt in the first two columns well below that of affluent students.  But we do not.  Low-income students borrow as much as high-income students do--and with much less ability to pay.

The New York Times' Education section has told more than a few Dickensian tales about student debt this year.  Its series, Degrees of Debt, offered titles like "Debt Collectors Cashing in on Student Loans" and "Last Plea on Student Loans: Proving a Hopeless Future," in which a former student with $89,000 in loans, since blinded by diabetes, has to prove his absolute lack of hope for any future income in order to have his student loans discharged under the 2005 no-bankruptcy rule for students.  We don't have debtor's prison for students. We just have debtor's penury, and a Victorian style of permanent debt anxiety for the acquisition of basic economic necessities as is now the case with higher education.

Last week,Times reporter Jason LaParle told a Christmas Carol about three poor students trying to go to college from a Galveston, Texas. Called "For Poor, Leap to College Often Results in a Hard Fall," it describes the struggles of three brilliant but isolated Island girls from low-income families. The systems that cause many to say "the poor are taken care of" are all in place: the three meet in an Upward Bound program that gets them to Chicago to see alternative futures, the high school has a heroic guidance counselor to watch over them, and they obtain financial aid. Two of the "triplets" follow the classic low-income path of "undermatching" -- one stops after community college in Galveston. and the other gets a B.A. at a state college. This second student, Melissa, graduates from Texas State with $44,000 in loans.

The third student, Angelica, is the most disturbing case.  She grows up bilingual in a strict Mexican-American family, studies German and goes Goth in high school, and is such a remarkable student that when the school's German teacher quits the administration asks Angelica to finish teaching the course.  She gets into Emory, which takes a special interest in helping low income students and has twice Harvard's proportion of Pell Grant students to prove it.  She is so impressive that her professors take a personal interest when her troubles hurt her grades, her family is basically supportive, and yet she sinks under the weight of financial aid complications that have to be read to be believed.

The core of the trouble isn't uncovered until the Times gets a hold of Angelica's financial aid records, and discovers a twist that both Dickens and Kafka could have put to use:

Angelica reported that her mother made $35,000 a year and paid about half of that in rent. With her housing costs so high, Emory assumed the family had extra money and assigned Mrs. Lady [Angelica's mother] an income of $51,000.  But Mrs. Lady was not hiding money. She was paying inflated post-hurricane rent with the help of Federal disaster aid, a detail Angelica had inadvertently omitted.

By counting money the family did not have, Emory not only increased the amount it expected Angelica to payin addition to her financial aid. It also disqualified her from most of the schools' program of debt relief.

The financial aid office did not tell Angelica what they did, so she was unable to correct it.  There's more byzantine confusion as the supposedly supportive financial aid system does its work.  Angelica winds up with $61,000 in debt, not having yet graduated, and -- well I won't spoil the whole thing. Please read it.

DeParle's high level of storytelling is as close as most of us can come to a visit from Marley's Ghost.  What are we going to do about a society that dishes out increasingly Victorian treatments to the people who are its future?

The longer term goal needs to be to reconvert our "economy of interest" back to an "economy of credit," in David Graeber's terms (332).  It would be much cheaper for society to support its own development through the near-universal use of higher education by extending credit directly for that use.  That would mean free tuition in public universities--no bank mediated loans required, and no interest taken off the top of everyone's education funds to be converted into returns for banks.   Free public universities worked well because they are egalitarian: they support full access to college for the millions of low-income students like those features in the Times's debtor series yet without hocking their futures.

Most people assume that this move back to the future of free tuition is utopian.  But they are wrong.  In the updated version of the study we have cited here more than once, Stanton Glantz and Eric Hays have shown that restoring 2000-01 level state funding, and rolling fees back to that level corrected for inflation (or about $5200), would cost the median taxpayer $55 a year.  Read this report!! Rebuilding public education is entirely possible, and the reason that political, business, and education decisionmakers don't do it is because they don't want to. This, of course, is not a good reason not to do it.

Reduced rather than increased tuition would help student debt. So would a student debt jubilee, an idea which came out of the Occupy Wall Street movement and morphed into various forms including the Occupy Student Debt Campaign and debt resistance (see for example this interview with Andrew Ross about the Student Debt Resistor's Operations Manual) (download a copy of the manual here).  Christmas and the New Year holidays are a good time to think about forgiving and abandoning debt, and about the care for society that mountains of debt force us to neglect.  We have gotten ourselves into a situation where debt is blocking the basic advancement of society. It is our debt and not just the debt of students.  Our debt needs to be abandoned through mechanisms we work out together.

A long step down the jubilee path would be simply to allow normal bankruptcy practice to cover student loans.  There is no reason that financially disabled students can't discharge their student loans in the same way they can their consumer credit--except that these loans used to have a high default rate and now have an effective public subsidy in that legislated lower risk on securitized student debt inflates the securities' value.  A piece last year in the Atlantic Monthly suggested a version of restoring bankruptcy relief for student loans. It is an obvious way to relieve a large number of hardship cases while having better off graduates continue to pay during the time that we work on cutting costs for everybody in school and some kind of debt reduction for everyone who incurred it trying to get an education.

The senior officers of the University of California and other public universities should start pushing for normal bankruptcy protection for graduates.  Since our universities are in fact not run by Wall Street, and since university managers care more about their own students than about the pricing of loan-backed securities, there is nothing to stop them.  Bankruptcy protection for students is something that even post-ghost Scrooge would support.