Cancelling Out Student Debt for Cents on the Dollar

It is hard to say exactly what the long-term impact of the Occupy Wall Street movement will turn out to be. Will it seem in retrospect a very impassioned but transient response to a very serious economic crisis caused largely by the unprincipled marketing of mortgage-backed securities of very dubious value? Or will it be judged the first demonstration of a new wave of Progressivism as the political pendulum finally started to swing backwards along the long arc of Reaganism?

Right now, the Occupy Movement is a rather spectral presence. But several of its offshoots have continued to have a significant impact. One of the most remarkable of these offshoots has been the Rolling Jubilee.

As Vauhini Vara has explained in a recent article for the New Yorker, the activists who founded Rolling Jubilee recognized some basic truths about debt and have devised ways of turning the ways in which debt is treated as a commodity to the benefit of debtors:

“They learned that when companies are owed money—whether in the form of credit-card debt, unpaid medical bills, or student loans—they can sell the obligations to other firms. These forms of credit often aren’t repaid, making them a high-risk purchase, so buyers typically pay only a tiny fraction of the debts’ face value. Then the new owners seek out the original debtors and try to claim the full amount.

“The activists had an idea: What if they bought the original debt at its usual deep discount, then, instead of going after the debtors, simply cancelled it? They decided to raise fifty thousand dollars but ended up with seven hundred thousand dollars after some high-profile supporters helped spread the word. Their first action was to pay four hundred thousand dollars for nearly fifteen million dollars in medical bills owed by more than two thousand patients. The debtors received letters in the mail from the Rolling Jubilee informing them of their freedom.”

In her article, “The Occupy Movement Takes on Student Debt,” Vara describes how the Rolling Jubillee is now applying much the same strategy to the purchase and cancellation of predatory student loans. In a previous post [https://academeblog.org/2014/07/07/too-big-and-too-awful-to-fail/], I discussed the federally mandated and federally supervised dismantling of Corinthian Colleges. When about $4 million in student loans extended to about 2,000 Corinthian students became designated as high-risk because of extended non-payment, the Rolling Jubilee raised the funds needed to purchase the loans for three cents on the dollar, or $120,000. And then simply cancelled the debt.

Our applause for the Rolling Jubilee should not, however, drown out our outrage that the executives and shareholders of Corinthian Colleges have made many millions of dollars at the expense of students—many of them former servicemen and women— whom the for-profit institutions recruited in a very determined way, using very carefully honed and very Machiavellian strategies. Nor should it drown out our outrage at the politicians to whose campaigns the for-profit institutions have made very generous contributions in return for favorably worded legislation related to student loans. Nor should it drown out our outrage that the American taxpayer will ultimately foot the bill for the federally guaranteed loans that have not been paid off.

Except for the occasional intervention of groups such as the Rolling Jubilee, student debtors cannot escape their debt without enduring endless hounding by the government and without accepting the ruination of their credit ratings for at least a large portion of their working lives. In striking contrast, the executives and shareholders who have employed or condoned the relentless marketing of predatory loans to these students have thus far been able to move on to other professional and investment “opportunities” with their rapacious earnings completely unchallenged and untouched.

Vara’s complete article is available at: http://www.newyorker.com/business/currency/occupy-movement-takes-student-debt.

 

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