Subprime Student Debt

Some 33% of the U.S.' student debt, explains this Wall Street Journal article about a new TransUnion report, is now held by people whom the rating agencies classify as subprime borrowers.  This is debt that may never be repaid.  A third of subprime student debt - one ninth of the U.S. total student debt, was 90 days or more past due in March of last year, the article notes, a nine percent increase from a 2007 figure.  Student debt, a ubiquity across much of the  U.S. student and professional population, is only likely to continue to grow as the gap between the rising cost of tuition and declining real wages expands.

Why are TransUnion, Fitch, and Moody's interested in, and rating, student debt?  Because of the market in Student Loan Asset-Backed Securities, (SLABS,) the trade in securitized student debt.  The prospect of a market failure akin to the one spurred by the collapse of the subprime housing debt market five years ago has led many to invoke the specter of another bubble.  But, as Malcolm Harris has argued, perceptively, student debt, as one of a very few types of debt from which their can be no legal release, is, like court-imposed criminal penalties and child support, in something of a class of its own.  As Harris notes:

Besides, no interested party cares if student debtors pay up soon; they will have to someday, and the longer it takes them, the more interest accrues, the bigger the haul. In the meantime, markets and investors are empowered to just pretend the money is there anyway.

Thus, the metaphor of the bubble is problematic.  Harris suggests that this subprime will yield no burst, but instead will slowly "fill with value from the bottom," in the form of commdified labor extorted from borrowers by a mixture of state and non-state forms of coercion.  "Assuming current rates of repayment and issuance," Harris concludes, "the $1 trillion outstanding total will double within a decade. And short of suicide, expatriation, or revolt, there’s not much 37 million American student debtors and counting can do about it."

If there's good news, it's that the beginnings of that revolt may be underway.  In the last few years organizations like the Edu-factory collective, the Occupy Student Debt Campaign, and now Strike Debt (which has a meeting this comming Sunday from 2-4 PM at Judson Memorial Church in Manhattan) have staked out the lines of an incipient debtor revolt.  How this revolt develops, and what other forms it generates are, as always, up to us to determine.