Ben Wray: Jeremy Corbyn should abolish student debt – it’s time for a people's bailout

CommonSpace columnist and Common Weal head of policy Ben Wray says student debt is contributing to Britain's zombie economy

THE UK press think they've got a new way to dampen youth enthusiasm for Jeremy Corbyn. They are banging on endlessly about a Corbyn U-turn on abolishing student debt.

The policy was not in the party’s manifesto, but Corbyn had said in an interview before the election that he would "deal with it" (although in the same interview he also said he didn't have "the simple answer for it at this stage").

In an interview with Andrew Marr on Sunday, he said that he never claimed he would abolish student debt, but that Shadow Chancellor John McDonnell was looking at the issue and would publish the party’s position on it shortly.

Corbyn should ignore the rightwing press and push forward with a policy of writing off student debt. This would be a sign that he is serious about doing something about Britain’s zombie economy.

Corbyn should ignore the rightwing press and push forward with a policy of writing off student debt. This would be a sign that he is serious about doing something about Britain’s zombie economy, where banks – aided by government – suck the lifeblood out of the 99 per cent through ever increasing indebtedness.

Student debt is a prime example of neoliberal economics at work. Sometimes neoliberalism is thought to be about taking the state out of the economy, but this is wrong. Neoliberalism is an ugly academic term and perhaps a better one to use to explain what’s going on is financialisation - the increasing power of finance over our lives, which creates market imperatives for what should be social goods. Far from retreating, the state is an active participant in this process, as the introduction of student fees and loans shows.

My parents received government grants to go to university. No fees, no loans. They left with no debt. This non-marketised model meant education was about learning. Their time at university was one where campus was a hotbed of debate, because that’s what you were there for.

With the introduction of tuition fees, a university education has become a product you buy, except it’s not like buying food from the supermarket, where if you don’t like the taste of the biscuits you can buy a different brand or shop somewhere else next time. 

You go to university once and you make that choice without any genuine knowledge of the product. Therefore even if you are a believer in market models, you should still be able to recognise that a market-imperative in university education is not going to drive improving quality.

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And, of course, quality hasn’t improved. The neoliberal university is an institution where staff live a precarious existence wondering how many hours they’ll get from one week to the next, your pharmacy course is proudly sponsored by AstraZeneca and your six-figure salaried principal is setting up campuses with no students in them in New York, or establishing research institutes to serve the Chinese Communist Party (oh the irony).

What you are really paying for with your university fees is status, but since lots of people now have the questionable status of a university degree it becomes an insufficient status symbol in itself, so you top it up with a Masters (and end up with even more debt).

Between part-time work, partying and exam cramming, there’s little space for genuine intellectual life on campuses anymore. Everyone knows they are there to play their part in the neoliberal game.

Of course, none of this deals with good old TINA: There Is No Alternative. "Well how else are we supposed to pay for higher education?" I hear you cry. Well first, fees don’t actually pay for education up front – the government pays for it and, in theory, gets it back in later years. It is not going to get as much back as anticipated as fees are only paid when the debtor earns £21,000+ and they’re wiped entirely after 30 years. 

Have we all forgotten that the banks didn’t pay their debts when facing insolvency? They were bailed out. It’s about time we got used to the idea of bailing out the people.

When this policy was introduced the government wasn’t expecting a financial crisis and subsequently the longest decline in incomes since the Napoleonic wars. So many former students are not earning over £21,000+, meaning at least 70 per cent of fees will never be recovered. So the government is going to pay for it one way or another.

But then there’s also the maintenance loans that replaced maintenance grants to give students something to live on while they are at university. While students from Scotland studying north of the border don’t pay fees, they do have maintenance loans. 

The Tories have been looking to privatise the student loans book, undermining the whole notion that this is a good way of funding higher education. But rather than privatising it, we should just cancel the loans.

Maintenance loans are paid at nine per cent for income over £17,335 (tied to inflation). For your average earner that is a fair chunk of change out of your monthly pay packet, and is another contribution to a mounting household debt pile that is only expected to grow over coming years.

In recent months there has been growing fear over household debt as the Bank of England (BoE) has reported the biggest surge of defaults on credit cards and loan repayments since the financial crash. Yesterday the BoE again warned of "spiralling complacency" over personal debt, particularly from credit card companies and car loan providers. 

The ONS also found in June that household savings have now remarkably hit the lowest level since records began in the mid-1970s, at just 1.7 per cent of disposable income.

This is the zombie economy, as an ever increasing share of income is ate up by debt repayments to the banks rather than going into the real economy, creating economic stagnation. It is this private debt rise – not government debt – which threatens another financial crisis.

Economist Steve Keen, one of the few to correctly predict the 2008 financial crash, has identified unserviceable private debt as the key factor triggering financial crisis. This graph of private debt as a percentage of GDP in the US shows how the peaks of private debt occurred just before the Great Depression in the 1930s and our very own Great Recession of 2008.

Our government and media remains obsessed with government debt and worries about the consequences to the economy of writing off student debt. They’ve got it upside down. Government debt hovers at around 80 per cent of GDP – household debt is over 170 per cent of income. And unlike the government, households do not have the power to create money and collect taxes.

So, yes, we should we be worried about debt – household debt. Abolishing student debt would be a good place to start if we want to prevent a future financial crash.

It would also help undermine the strange moralism our society has about debt. Debt owed to banks is not the same as if you borrowed a car from your friend who needs it back to get to work. 

Banks have the special privilege of being able to create loans for free. They then charge interest on those loans, something they paid nothing to originate. They hardly have it tough. Plus: have we all forgotten that the banks didn’t pay their debts when facing insolvency? They were bailed out.

It’s about time we got used to the idea of bailing out the people. Debt write-downs and cancellations are almost certainly going to be necessary in coming years if the global economy has any hope of escaping debt deflation, which is driving unprecedented inequality and economic stagnation. 

Serious about taking on neoliberalism, Jeremy? Then it’s time to think differently, and think big.

Picture courtesy of Michael Fleshman

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