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America’s Degree Scam

Student debt may succeed subprime mortgages as the next disaster in the crisis of US capitalism. It is estimated at more than $1,000bn and has doubled over the last 12 years. Average debt for graduates with student loans rose to $23,200 in 2008; public university debt was only slightly lower, at $20,200. Despite the impossibility of discharging student debt through bankruptcy, the student loan default rate has gone from 5% to 10% between 2008 and 2011 (1).

Prestigious private US universities long ago established the market price of a college education at the world’s highest levels — now over $36,000 a year at Harvard, or $52,650 if you include living costs (2). Leading universities, like Cornell, Johns Hopkins and Stanford, which charge over $200,000 for a four-year degree, have set a very high ceiling, encouraging the entire sector to charge high fees and then spend on offering Harvard-style services. Public universities can charge “only” $13,000 a year, with $30,000 a year living costs, and still feel they are being virtuous. The founding ideal has vanished, and for students the bill goes on growing.

College tuition keeps going up, at 2-4 times the rate of inflation. Overall, the costs to students of attending a public university have doubled in the past 30 years (3). The economic crisis has not restrained price rises, but increased them. Fees are up at private universities — by 8.3% on average last year; they are rising far faster at public ones, and especially in states in the west that historically rely on public universities for nearly all of their college graduates. They are up by 21% in California, 17% in Arizona and 16% in Washington (4).

Most of the 50 states have systematically disinvested in funding for higher education, on which core funding for public universities depends. In 1990 Washington paid nearly $14,000 and students paid $3,100 in tuition fees. Today it pays under $5,000 a student and each student contributes nearly $11,000 (5). As a result of the long-term reduction of public funding, student costs (in 2010 terms) have increased from $8,800 in 1999-2000 to $14,400 in 2010-2011.

Grants direct to students

In the mid-1960s the federal government began to offer grants directly to students (not to universities) to use for tuition. But the grants have failed to keep up with rising costs, and the gap between the maximum grant and tuition cost has grown. The main federal grant, the Pell grant, is capped at $5,500 a year, about a third of attendance costs. To fill the gap, students must borrow more each year. But the amount of publicly subsidised loans is also capped, forcing students to borrow from private banks, and the number of students with debts of over $40,000 has grown 10 times during the 2000s.

More US college students are attending for-profit colleges that charge high fees for bad education. Though private, the for-profits depend for up to 90% of their revenues on federal student aid and spend a third of what public universities spend on education while charging twice as much. This affects results: only 20% of their students get their degrees. Though under federal inspection, their enrolments are booming since cuts in public systems force the most vulnerable students out of the public system first. The US feeds a sector whose existence depends on forcing all its students to borrow, to the point of default in at least half of all cases.

The situation is so bad that President Obama addressed it in his State of the Union message in January. He also proposed punishing universities that raise tuition fees too quickly by withholding part of their federal funds. But Obama’s proposal will not address the underlying problem of the cost of further education, the result of the failure of US capitalism to sustain and expand the middle-class society to which it is supposedly devoted.

Legacy of Reaganomics

This is the result of three decades of austerity policies, which have led to a decaying public education infrastructure, stagnant wage growth and worsening inequality: nearly half of Americans are poor or near-poor. At the heart of this is neoconservative ideology — Reaganomics — espoused by all the Republican presidential candidates since Ronald Reagan (and some Democratic ones). Its core element is “trickle-down economics”, in which jobs and wealth are supposed to be created by the richest Americans so the wealthy must have low tax rates. George W Bush completed Reagan’s work by lowering capital gains rates to 15%, half the rate of income tax on labour. Reaganomics destroyed the idea of government as a medium of public action that undertakes investments and activities for society that the private sector performs badly or not at all. Democrats like Obama are more neoliberal than they might otherwise be simply in order to survive, given the far-right political norms of the Republicans, which allow them to label even his weak healthcare reform as socialism that will destroy America’s free economy.

The practical impact on higher education has been devastating. Neo-Reaganomics justifies shifting the costs of higher education from public to private. In the 30 years in which this shift from public to private funding has happened, three-quarters of all Americans haven’t got any nearer to a university education with a degree at the end of it.

Christopher Newfield teaches at the University of California at Santa Barbara; he is the author of Unmaking the Public University: the Forty Year Assault on the Middle Class, Harvard University Press, 2008

(1) “The Student Loan Default Trap: Why Borrowers Default and What can be Done” (PDF), National Consumer Law Center, Boston, July 2012.

(2) Julie M Zauzmer, “Harvard tuition rises to $52 650”, The Harvard Crimson, Harvard, 24 February 2011.

(3) Laura Choi, “Student Debt and Default in the 12th District” (PDF), Federal Reserve Bank of San Francisco, December 2011.

(4) Barry Gordon, “California leads nation in escalation of college costs”, Los Angeles Times, 26 October 2011.

(5) Dan Jacoby, “A better business plan for Washington state’s public higher education”, The Seattle Times, 25 January 2011.

This article appears in the excellent Le Monde Diplomatique, whose English language edition can be found at mondediplo.com. This full text appears by agreement with Le Monde Diplomatique. CounterPunch features two or three articles from LMD every month.

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