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Student Loans, Debtfare and the Poverty Industry

Susanne Soederberg, a professor of political studies and global development studies at Queen’s University in Canada, is calling for the student loan industry to be, “revealed, attacked, and uprooted.”

In her article on Dollars & Sense, Soederberg says the educational finance is not part of the natural order of things. Rather, it’s part of the poverty industry, which

includes educational lending, but extends to other forms of consumer credit—such as payday loans, credit cards, sub-prime housing loans—all of which feed off of and reproduce marginalization and insecurity. The increasing reliance on expensive personal loans to replace or augment wages—as well as obtain an education—is not a natural phenomenon. Rather, it is a social construction that needs be revealed, attacked, and uprooted, not negotiated within the territory of consumer protection, which is sponsored by the debtfare state and the capitalist interests it represents.

The debtfare state, a term apparently coined by Soederberg, is what she calls a new feature of governance that exists alongside the welfare state. The system uses a set of institutional and ideological practices aimed at

regulating and normalizing the growing dependence on expensive consumer credit to meet basic needs, such as education. Personal bankruptcy law is a core regulatory feature of debtfarism, as it acts to deal with defaults in the student loan industry and to ensure the legal and moral obligation of debt—regardless of the borrower’s ability to repay.

In other words, the government creates a new set of laws that’s designed to keep people in debt except in only the most extreme of situations.

By creating a safety valve in the form of bankruptcy the government can punish people by forcing them into bankruptcy as it ignores the fact that it created the regulatory scheme that made it inevitable that people would need the help in the first place.

It’s akin to a diet drug manufacturer going out and buying a cupcake factory to ensure that it has enough customers who want to buy the diet drug.

Leave it to a Canadian to see things clearly.

Banks lend money to people who have been sold on the American Dream of higher education as a ticket to wealth and stability.

The more those people borrow, the more money the banks make. And the less likely they are to repay the debt, the more the bank can charge in interest to those who do make their payments.

In addition, those who fail to pay are subject to lawsuits and judgments, which lead in many cases to wage garnishments and bank account levies.

This, in turn, forces more of the population to rely on credit cards as a way to make ends meet. Here, again, the banks make more money.

All this happens as those who originally sought a way to a better financial future are kept down economically and sociologically.

The rich get richer, the poor get poorer. And that makes the rich happier.

Now we’ve got the bankruptcy problem. If we make it too easy for people to discharge their student loans in bankruptcy then more will do so. Banks won’t make as much money, and investors will go elsewhere.

Now, according to Soederberg’s theory, is where the government steps in by creating a series of consumer protection laws. By making relief available at a price (credit standing, money, negative connotations due to societal attitudes), the government is able to show that help is available … to an extent. With respect to student loans, the relief available in the bankruptcy law is so narrowly available as to be worthless.

With bankruptcy safely out of the picture, people remain indebted and the cycle continues. The rich get richer, the poor get poorer.

It’s an interesting read, and I recommend it highly if for no other reason than as a window into a possible different way of thinking.

Photo credit: fleschmanpix/Flickr

By |June 29th, 2015|

About the Author:

I've been a consumer protection lawyer since 1995, working to help people end their bill problems. I'm a faculty member at the Student Loan Law Workshop, a nationally recognized speaker, and a long-time member of both the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.
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