In a few weeks, student loan payments will restart for millions of Americans. What began as a short-term reprieve at the start of the COVID-19 pandemic has turned into an economic lifeline for many.
Over the past two years, the student loan repayment pause has been extended. With each extension comes an interesting question: should student loans just be forgiven?
Student loan borrowers will be the first in favor of a student loan forgiveness program. However, those without debt argue such a program would be unfair.
Implicit in the student loan debate is the idea that debtors are responsible for paying back their debts. Repayment is not just a financial imperative but a moral obligation.
By turning the student loan debt crisis into a question of morality, opponents of student loan forgiveness have reduced their fellow Americans to a state of debt peonage.
The question is not whether debt forgiveness is moral. Rather, it is whether debt itself is moral. The inability of a student to repay their loans is not a sign of personal financial management but systemic failure.
Is it time to wipe their slates clean and start new?
What is Debt?
From a functional standpoint, debt is something someone owes to someone else. Usually, debt is used to finance large purchases. Homeowners take on a mortgage to buy a house while business owners leverage debt to provide start-up capital for their businesses.
Debt has a different meaning depending on whether you’re a borrower or a lender. If you’re a borrower debt is a liability while if you’re the lender debt is an asset.
As an asset, debt takes on a new role beyond just being money that you borrow. An asset is defined as something that has economic value. That means it can appreciate in value or generate revenue. Thus, for a debt to be an asset it has to create new money that didn’t previously exist.
Interest is one way debt does this. When you borrow money you are typically required to repay it with interest. That interest compounds, leading debt to increase in size over time. The duration of the debt ensures a consistent flow of revenue in the form of debt payments.
Debt is thus an important component of a lender’s business model. It is imperative for you, their customer, to be in debt because you provide a reliable source of revenue to them. Meanwhile the size of the debt you hold increases over time, increasing the value of the asset on their balance sheet.
But more than that, debt has increasingly become the only way to purchase things. It doesn’t just create money, it is money. That’s because the money supply is created from lending and the profit that is generated off of interest.
Contrary to popular belief, it does not trickle down. It is accrued on balance sheets, reinvested in companies, or paid out to shareholders. If you find yourself needing to charge gas or groceries to your credit card it’s not necessarily because you are reckless with your money. Our financial system limits your access to actual cash you could use to buy things. Your credit card is money and your lender wants to keep you in a state of debt.
Debt doesn’t just exist between banks and people. It exists between countries too. Developing countries borrow money from international organizations like the World Bank or the International Monetary Fund. And developed countries lend and borrow money to one another.
Debt is thus not just an asset but also a mechanism to maintain a certain balance of power. Put another way: debt protects the status quo. Have you ever noticed that “developing” countries are still developing? Why is it they’ve never fully developed, despite decades of lending and investment?
In some cases, one can argue financial mismanagement and poor capital allocation. But that is not the case everywhere. Once a developing country develops, other countries or organizations no longer have influence over them. Look at the rise of China vis-a-vis the United States over the last several decades as evidence of this.
From an international relations perspective, it’s a lot easier to negotiate trade deals or build a strategic military base in a country that is indebted to you. And by keeping countries in debt to one another it preserves the order of things. Debt is an instrument to keep poor countries poor and in a state of perpetual development.
The same thing is happening with everyday people. Debt is issued, regardless of whether or not you can actually repay it, because it preserves a balance of power. Those issuing debts are able to capitalize on it as an asset, thereby increasing their wealth. Meanwhile, those in debt feel like it is impossible to dig out of it.
Debt then is not just a sum of money one person owes to another. It’s a carefully designed system to keep some individuals, companies, and countries subservient to others. Put another way: it’s financial enslavement.
Where Did Debt Come From?
According to David Graeber’s thesis in Debt: The First 5000 Years the origins of debt lie in slavery. “Human economies” of early civilizations relied on barter or simple credit systems. For those economies to work, they required trust between networks of people. Absent trust, there was typically war and violence.
Implicit in these types of economies is honor. One’s honor indicates they’ve signed off on the social contract that binds groups of people to one another. Thus every person who exists in this type of economy is endowed with individual dignity.
Slavery eliminates networks of people and destroys their honor. Whether you talk about slavery in the context of Roman conquests or the mercantilist Atlantic slave trade, the concept is still the same. People who are reduced to slavery are no longer people. They are objects that can be financially valued and thus traded or sold for something of comparable value.
Graeber refers to this process as social death. Through that process, a slave’s well-being is entirely dependent on his master. He writes:
“Being socially dead means that a slave has no binding moral relations with anyone else: he is alienated from his ancestors, community, family, clan, city; he cannot make contracts or meaningful promises, except at the whim of his master, who could just as easily take it back; even if he acquires a family, it can be broken up at any time.”
Debt then was invented, not as a process to measure who owes what to whom, but to strip humans of their dignity. Once a human no longer exists as a unique, individual, person, they can be commoditized and sold.
In the past, this commoditization was used to leverage a slave’s labor to work fields or harness a female slave’s womb to increase the size of the population. Presently, debt slavery exists to extract profit while indebtedness is used to subordinate humans to corporate employers.
When you look at it from this perspective not much has changed. How many student debtors have become alienated from their families by moving to big cities? And how many of those borrowers chose to move to big cities in the first place just to pursue jobs with high enough paychecks to be able to afford to repay those student loans?
How many employees find themselves obligated to the whims of their employer? How many employees organize the entirety of their lives – from where they live to when they take a vacation – around their employer? And how many of these employees could be dropped from their employer’s charge at a moment’s notice?
Debt is a process of depriving humans of their humanity. As a result, it allows people to enslave one another.
This concept of debt-as-enslavement begs an interesting question: are people who have been robbed of their humanity capable of even repaying a debt? A slave could not become free until their master made them free. If debt is slavery then can’t the same thing be said about modern debtors?
Can freedom be earned or is it something that can only be given by the debt holder in the first place?
Are We Morally Obligated to Pay Back Our Debts?
When the topic of student loan forgiveness comes up, opponents are quick to admonish debtors for their predicament. Common rebuttals include:
“They should have picked a better major.”
“They shouldn’t have gone to such an expensive school.”
“I paid back my loans therefore they should too.”
“It’s their responsibility.”
Implicit in all of these positions is the concept of debt morality. Essentially someone who has taken on debt is morally obligated to pay it back.
You can see this in the personal finance community. Gurus like Dave Ramsey tell their followers to literally eat rice and beans in order to pay back their debts. Others share tips on how to follow tighter budgeting protocols and promote extreme frugality.
In a system where the money supply exists as debt and that entire system of debt is based on enslavement, is personal discipline enough to escape debt? Some say yes. As a result, our society blames individuals for personal, financial mismanagement rather than acknowledging the system for what it is.
Do debtors have a moral obligation to repay their debts? Or rather, should they?
While there may be an argument for a moral obligation to repay debts for some consumer purchases, the same cannot be said for student loans. Many students did what they needed to do in order to get jobs. Yet in the process of doing so, they became wage slaves.
Many entered into wage slavery as teenagers before they could legally vote in elections let alone buy alcohol. Even though the age of adulthood in the United States is 18 years old, students without financial backing begin their adult lives in a state of financial dependency. If resources are not flowing from their parents then many young adults begin life financing their livelihood on credit. Is there any wonder credit cards are heavily marketed toward college students?
Yet as a society we tell financially illiterate and juvenile teenagers that they are obligated to pay back their student debts when they are older. It is a moral obligation.
Can debt repayment, especially student loan debt, be morally enforceable as part of our general social contract when it is derived from slavery? Who are we to strip future generations of their dignity as human beings?
The Case for a Debt Jubilee
Debt cannot be repaid because it is not designed to be. A debtor is a wage slave and a slave can only be freed when their master decides to free them. The balance of power is outside of the slave’s control.
The outliers are celebrated on social media and the idea of pursuing debt freedom is amplified. But it’s a fallacy. Debt cannot actually be repaid because if it were the entire financial system would collapse. To make debt repayment a personal moral imperative is ludacris.
The only way to settle an outstanding debt is not to repay it, but to eliminate it. A debt exists only if a debt holder expects repayment. If the debt holder forgives the debt, the debtor can start from a clean slate.
Mass debt forgiveness is often referred to as a debt jubilee. The idea of a debt jubilee is not a fantasy. There is historical precent for it.
In ancient Israel debt jubilees were a regular occurrence. The book of Levictus states:
“And you shall hallow the fiftieth year, and proclaim liberty throughout all the land unto all the inhabitants thereof: it shall be a jubilee unto you; and you shall return every man unto his possession, and you shall return every man unto his family.”
Leviticus 25:10
The book of Deuteronomy is even more specific:
“At the end of every seven years thou shalt make a release. And this is the manner of the release: every creditor that lends aught unto his neighbor shall release it; he shall not exact it to his neighbor.” .
Deuteronomy 15: 1-2
Debt jubilees were not just practiced in ancient Israel, they are commended in the Bible. Forgiving debt is no different than any other biblical commandment such as honoring your parents or keeping the Sabbath. That would suggest that a debt jubilee is what should be morally obligated, not the repayment of debt.
Other ancient civilizations practiced debt jubilees too. In Babylon, debts were regularly forgiven. According to law professor Jason Kilborn:
“Hammurabi’s famous “Code” prescribes not only the sources of a variety of debts, but also at least two provisions for alleviating the burdens of debt: one frees debtor-farmers from the obligation to pay creditors in a year in which their crops fail or are destroyed, and another limits the period of forced labor for debtors who sell themselves or their families into servitude to pay debts—“they shall work for three years . . . and in the fourth year they shall be set free.”
The 5000-Year Circle of Debt Clemency: From Sumer and Babylon to America and Europe
What’s interesting about Babylonian debt jubilees is the relationship between debt and labor. Farmers received forgiveness if their crops did not yield enough output to repay the debt.
One could argue there is a direct correlation between this example and modern-day student loans. Borrowers attended universities expecting to repay their debt with income derived from a labor market where wages have remained stagnated for more than three decades. Metaphorically, student borrowers’ have not reaped the crop yields they were likely anticipating when they took out their loans in the first place.
A more modern example of a debt jubilee involves the tiny island country of Iceland. Following the financial crisis of 2008 Icelandic mortgages experienced extreme inflation. As a result, many borrowers ended up with mortgages that exceeded the value of their original loans. The government decided to “correct” inflated mortgages, enacting a de facto jubilee.
What was the impact of that policy? According to the conservative think tank Heritage Foundation Iceland now has one of the most robust and freeest economies in the world:
“Iceland’s economic freedom score is 77.0, making its economy the 13th freest in the 2022 Index. Iceland is ranked 9th among 45 countries in the Europe region, and its overall score is above the regional and world averages. Iceland’s economy grew at a steady but decelerating pace from 2017 through 2019, crashed in 2020, but recovered in 2021, resulting in a five-year average annual growth rate of 2.2 percent.”
2022 Index of Economic Freedom, Heritage Foundation
If history is any indicator, a debt jubilee is not unfeasible. Nor is it economically detrimental. If anything, debt jubilees help politicians score points with their constituents. In Iceland, NPR reports that the Progressive Party proposed its debt jubilee after seeing low poll numbers. Meanwhile, Professor Kilborn acknowledges in his analysis that rulers of ancient Sumer and Babylon instituted their debt jubilees to maintain the social order.
This would seem to be why debt has become a moral obligation. A debt jubilee would concede political points to an opposing political party. In our increasingly politically polarized world, the idea of this is wholly untenable.
But it doesn’t have to be.
Should Debt Be Forgiven?
Even though debt is rooted in slavery and deprives humans of their dignity, it is also an essential part of a modern economy. Without debt and the money created from debt, the financial system would cease to exist. Debt can be forgiven but not all debts.
The most pressing case for a debt jubilee is in regard to student loans. Many students took out loans to finance an education required to obtain future employment. Salaries, however, have not kept pace with the cost of financing that education.
As a result, student borrowers have effectively been reduced to wage slaves. The only way to free a slave is to eliminate the debt that makes them a slave in the first place.
There is, of course, a pragmatic economic reason for forgiving student loans. Business owners and their shareholders derive profit from consumer purchases of products and services. Student loan payments divert limited dollars away from consumer purchases. If all debt is forgiven the economy will collapse; if student debt is not forgiven the economy may also collapse.
Approximately 66.5 percent of Americans earn less than $100,000 a year. The average American salary, according to the Burea of Labor Statistics, is $58,260.
The bulk of these workers can’t afford to provide themselves with the basic human need of shelter. The median home price is now $428,700 and the median rent is $2,000. At those rates, someone earning the average salary of $58,000 is allocating more than 40 percent of their income towards housing. After personal income taxes are deducted, that allocation is much higher.
A college degree is a prerequisite to earning an average salary in America. The average monthly student loan payment is $393. Combined with housing costs, almost half of an average worker’s salary is allocated towards two debts: a mortgage (or rent) and student loans.
The economic picture becomes bleaker when you factor in other significant expenses such as owning a car, childcare, and medical expenses. While there is certainly an argument to be made that one can choose to own a more affordable car, one cannot necessarily avoid owning a car altogether.
Combine all of this with current inflationary pressure on consumer goods like gas and food, a student loan debt jubilee is imperative. Without it, the vast majority of Americans’ earnings will be remitted to lenders. This leaves nothing left over for consumer purchases.
Companies are taking note. Walmart cut its profit outlook citing pressure on consumers. Even Amazon is warning of stalled growth. Meanwhile, a wave of layoffs and hiring freezes in the tech sector suggest a recession could be imminent.
The macroeconomic outlook isn’t good. The end of the COVID-era student loan repayment pause at the end of the month won’t help either. A student loan debt jubilee may not just be the politically prudent option. It could, however, be the difference between a recession and a depression.
Can student loans be forgiven? Yes.
Should they be forgiven? Probably.
Will they be forgiven? The jury is still out on that.
What is certain is that as a society we cannot impose a moral obligation on student debtors to repay their debt. To argue that it is their responsibility is to argue in favor of enslavement.
And to argue that would require cutting the shared human kinship that ties us to one another.