MIDDLE-CLASS MELTDOWN AND THE DEBT TRAP
“I TRIED FOR MANY, MANY YEARS TO BE ‘MRS. ALL AMERICA.’” Nancy Daniel said, sitting in a coffee shop in a northern suburb of Atlanta, Georgia. “I married a guy in the military and divorced him. Had two kids. Tried to do everything right, or what I was being taught was right. And it didn’t work that way. It just didn’t.” She’d greeted me with an embrace, telling me, “I’m a hugger,” although we were there to talk about a sobering subject. Daniel, like millions of other Americans, had been struggling since 2009 to keep her home.
She bought her condo in 1996, right after the Atlanta Olympics, when prices dipped to a reasonable level. “This is the first home I bought with my own money, my own credit. I was so proud of it,” she said. “I had a lot of friends help me move in and decorate and whatnot. We had a great time. It has been a wonderful place to live.”
Things started to go downhill for Daniel in the recession that followed September 11, 2001; she lost her job at a commercial refrigeration company when construction slowed and the company downsized. She described feeling shame the first time she needed to go on unemployment, as if she couldn’t support herself, but her friends reassured her that it was her money, that she had paid into the system for years. It took her over a year to find another job, a marketing and event planning position. “I thought, ‘Well, great. This is wonderful.’ Until they moved their whole marketing department to Houston,” she said.
That was in the mid-2000s, and she was getting older. Marketing, she said, is a young person’s game; it was hard to convince people to take a chance on a woman in her mid-fifties. She signed up with several temp agencies, developed an eBay business, and swapped services with people in her neighborhood, all the while remaining an active member of her condo association. She was getting by, but had to dip into her savings more and more often. Finally, in 2009, she filed for bankruptcy and reached out to Bank of America to see if she could refinance her mortgage. But in the years after the financial crisis, she was just one of millions who were struggling and reaching out individually to the big bailed-out banks for relief. “They just kind of lost me,” she said. “They stopped returning my calls.”
Like many others at the time, her mortgage had been handed off to a different company—in her case, Nationstar, a mortgage servicer. As home loans were packaged into investment securities, they were sliced and diced so many times that banks lost track of the underlying ownership. This practice occasionally ended up creating situations where banks foreclosed on a home when they no longer owned the loan, and for homeowners like Nancy Daniel, figuring out who actually owned their loan could be near impossible. For a while, she waited in limbo, not sure what was going on—until she started to get letters demanding she pay up or face foreclosure. In the fall of 2013, Nationstar began foreclosure proceedings. The banks that had created the crisis had been bailed out as a group, but homeowners like Daniel were left to struggle individually, the bailouts somehow failing to trickle down to the people at risk of losing their homes. Daniel was one of millions for whom what had seemed like a manageable level of debt—so-called “good debt,” like mortgages or student loans—had spiraled out of control when the economy collapsed.
Daniel didn’t remember how she found Occupy Our Homes Atlanta, only what it was like at the first meeting she attended. “The first thing they told me is, ‘There is no shame here. This is a shame-free zone.’ And I was full of shame. I was scared. I was begging.”
At the meeting, Occupy Our Homes activist Shabnam Bashiri welcomed Daniel, reassuring her that there was hope, that they could help. The first thing Daniel was asked to do was to write out her story and post it on the Occupy Our Homes website. “I went, ‘You mean, tell people what is going on?!?’ I was raised in a family and a culture and a society that said, ‘If you can’t pay your bills, then you are not a good person.’”
But she did it. And after her saga was published, she took a petition to a fall festival at which she was a vendor. “I sucked it up and I started asking people for signatures. I was so surprised at how many people had been in similar situations or knew people who had. I got my first, probably, two hundred signatures from the people at that festival. They were so generous, and caring, and there was no shame whatsoever. They really wanted to help. They understood.”
Occupy Our Homes Atlanta had spun off from Occupy Atlanta in the fall of 2011 as part of an attempt to connect the occupation with what was going on in the broader city. Bashiri had been home in Atlanta on a break from touring with her band when the occupation began and had thrown herself wholeheartedly into activism. “I consider myself part of this generation of people. I was excited about Obama, then really disappointed, saw something on Facebook about this Occupy thing, and went,” she told me. The park occupation was evicted after three weeks, which Bashiri thought was a good thing—“It had started to become about holding the space, and not really about what had led us to be there in the first place.”
She remembered sending out a Tweet that told people facing foreclosure to call her number. “That was on a Monday and I got a call that Thursday, from a cop. This was ironic because we had just dealt with being evicted by SWAT teams,” she said.
The police officer lived in DeKalb County and was facing a final eviction hearing the next morning; Bashiri and several other occupiers piled into a car to attend. Watching the judge sign the eviction order, she said, made the mortgage crisis real for her.
Without much further planning, they decided to occupy his house and attempt to prevent the foreclosure—and at first, they managed to stave off eviction and drew support from the neighbors. “It’s a good cause,” one of the neighbors said. “If we don’t take a stand, who will?” Eventually, the family relented under threat of arrest, though they expressed no regrets about working with Occupy. Even though they hadn’t succeeded, Bashiri thought they were on to something.1
They weren’t the only ones. In Minnesota, Occupy had also turned to foreclosures. Cat Salonek, from the beginning, had been unsure of the value of holding onto an occupied space in a park—particularly with a Minnesota winter fast approaching. When homeowner Monique White came to the plaza and told her story to the general assembly, Salonek said, it was easy to get consensus to support her. Like the Atlanta occupiers, they moved into White’s home without much of a plan, learning about the foreclosure process on the fly.
“Occupy Homes formed out of a few different needs locally,” Salonek said. “One was for there to be really tangible wins, [and] what’s more tangible than a whole house? Two, we needed some clear direction at Wall Street, the horrible things they had done to collapse our economy, so we were able to use this narrative that could be as reformist or as radical as it needed to be for the context.”
In Minneapolis, unlike Atlanta, there were existing community groups and unions that had done some work around the foreclosure issue. But what was key in both locations was that a core group of organizers made Occupy Homes their job, living on whatever money could be raised and committing to spend all their time working on home defenses. They built a model for the fight that included petitioning, public protests at the banks, and letter-writing and phone-call campaigns as well as physical home blockades—a model that allowed different people different levels of engagement, from signing a petition in support of the effort to going to jail in defense of a home. In Atlanta, Bashiri and four others moved into a house that functioned as both home and headquarters for their organization. “We met every morning at 9 a.m. for a year,” she laughed. “We basically worked all the time and there was really intense accountability, a level of accountability that I don’t know that I’d ever want to replicate, but you couldn’t get away with not doing your work because somebody would just come in your room and say, ‘You’re supposed to be doing this thing!’”
Along with the core group, both groups worked to bring homeowners in and to organize the neighborhoods behind homeowners facing foreclosure. Salonek noted that while protesting banks galvanized the anger people had, working to save a home galvanized their compassion. “It was this really powerful community,” she said. “I remember hotdishes getting passed up through windows by the Lutheran moms who didn’t want to go in the house and risk arrest but they’d make a casserole,” she laughed. “Doing a barbecue and a potluck is just so Minnesotan.”
Salonek would see people becoming politicized through the process of risking arrest for their neighbors: “We’d say, ‘You should think about how the banks have controlled our communities to such a degree that you can’t walk into this house without being worried.’ It’s powerful, for the act of sitting in someone’s living room to be an act of resistance. Talking about the really big numbers of the bailout and really big scandals of Wall Street theft doesn’t hit a person in their guts the way that seeing a mom trying to live in her house does.”
People fighting a legal battle on their own against foreclosure mostly found the deck stacked against them. Bashiri discovered, though, that for many people, facing the failure of the legal system to provide anything like justice brought them to a point where they began questioning a system that had told them that if they worked hard, they would get what they deserved. “The number of people who tried and tried and tried and as a result of just sheer incompetency and evil on the part of these banks found themselves questioning capitalism as a whole. Hardcore Republicans.” The immediacy of watching neighbors and friends struggling to keep their home seemed to transcend politics; it was more than symbolic that Occupy Atlanta’s first home battle was for a police officer. People who dismissed the park occupations as silly whining from kids felt differently when those activists were willing to risk arrest to help them save the home they’d worked hard to buy, and they began to understand whose side the occupiers were on.
Even so, it was hard for homeowners to shake the feeling of shame that they couldn’t pay their debt. Nick Espinosa was one of the core group of organizers at Occupy Homes Minnesota and had already fought a few foreclosures when he found out that his mother, Colleen McKee Espinosa, a nurse, was facing foreclosure herself. At first, she wanted nothing to do with the occupiers, despite her son’s involvement, but he was able to win her over. “As I resolved to fight, I realized I had nothing to be ashamed of,” McKee Espinosa said. “If anyone should be ashamed, it’s the banks for tearing apart our communities after we bailed them out with our tax dollars.” After several months of campaigning, Citibank agreed to cancel a sheriff’s sale of McKee Espinosa’s home and modify her mortgage, allowing her to keep the house. Her whole life, Nick Espinosa said, his mother had never been political, “but by getting involved in a struggle that was about her life and her family and protecting the little that she’s fought for her whole life to get, that made it real to her, that was transformative.”2
Mildred Obi had always been an activist—she’d marched with Martin Luther King Jr. when she was sixteen. She fell behind on her house payments after having to leave her job on account of a disability, and in 2009, she was notified that she was in foreclosure. Like Nancy Daniel and too many other homeowners facing foreclosure, she had a hard time finding out who actually owned her mortgage, who was servicing it, and who else had a claim, and she tried to file legal claims against what seemed like a maze of banks. Despite her legal battle, she was evicted in 2012. “The same day that my personal belongings were put out on the street I received a notice from the Court of Appeals granting my motion for reconsideration,” she said.
Obi had participated in rallies at Occupy Atlanta, but at first she resisted telling the other protesters about her own struggles. “After engaging the legal system and not being able to get any justice,” she said, “you just reach out, you start hollering, you yell for everybody, anybody.”
Obi moved back into her house with a group of occupiers, changed the locks, and resumed negotiating with Bank of America. At first, she said, they threatened to evict her again, then they offered to give her cash for her keys, and then finally they gave her the house back free and clear. “It’s been tough, exacerbated my symptoms both physically and mentally, but without the help of Occupy, I don’t think I would’ve had a victory,” she said. “Public outcry was important; the resistance, the persistence was very important. We had people willing to risk arrest for me. I’ll never forget that—that is close to my heart, a beautiful thing.”
As the Occupy Homes groups grew and racked up successes, they also began to coordinate on national political campaigns, joining community groups and labor unions to press for a new director to the Federal Housing Finance Agency and to push for a new law allowing homeowners to buy back their homes after foreclosure. They drew on the drama of their battles to highlight those demands. Occupy Homes also worked on a Homeowner Bill of Rights, bringing homeowners to the Minnesota State Capitol to testify and using direct action to create pressure for the bill’s passage. “I think there’s a misconception that poor people or people of color don’t have time for politics or don’t care about politics,” Nick Espinosa said. “The reality is that people are really hungry for that. Their lives are political.”
In 2013, the Occupy Homes groups decided to take their fight to Washington in an action they called “Justice to Justice.” They worked with community organizations to gather five hundred homeowners and family members who’d been affected by the mortgage crisis for a week of action in the nation’s capital that included civil disobedience outside the Justice Department. “This woman Marie, she’s from Chicago and she’s seventy-eight years old and there was this line of DHS officers in full gear, at these flowerpots,” Bashiri remembered. “They lift her up, she gets on the flowerpot, she pushes by them, and she sits down. And then all these other seniors, they’re sitting. We’re not moving!”
Bashiri was frustrated, though, by the lack of national action despite dramatic protests. The national mortgage settlements over massive fraud, she said, were too little too late, and homeowners have seen almost none of that money, which often filtered into state budgets. The grand promises turned into tiny sums. “The housing justice movement was one of the most wonderful, beautiful things,” she said. “We had so many little victories, but on a grand scale, they got away with it.”
In Minnesota, Occupy Homes began a campaign to occupy vacant homes, many of which had been sitting empty for years—in some cases “zombie foreclosures,” homes on which banks had begun foreclosure proceedings without completing them, and where the homeowner moved on even though the house remained in limbo, with no one taking possession. “The homelessness rate in Minnesota was climbing to an all-time high, and so we pulled these two stories together and we organized people who were experiencing homelessness to move into vacant homes,” Salonek said. They used a similar structure to the foreclosure battles, reaching out to the neighbors to make sure they were supportive, and reaching out to the banks to ask if they would donate the homes to a community land trust. But as they worked on that, the police began raiding the homes. The struggle to keep them simply became too much of a risk.
The organizing continued, though. “Occupy Wall Street was like a dandelion that got blown into the wind and seeds landed where they did,” Salonek said. “Occupy Homes was one of those seeds that took and grew and then blew out all over the place again.”
Nancy Daniel was still waiting to see what would happen with her home. Over the past two years, she had gone through a lot. Supporters in Texas had held a protest at Nationstar’s headquarters for her, and she had sneaked into the Freddie Mac office in Atlanta—a building she describes as being like the Death Star from Star Wars—with supporters to deliver a petition to the government-sponsored entity. She had filed multiple complaints with the Consumer Financial Protection Bureau, among them one charging that Nationstar was illegally “dual tracking” her mortgage, negotiating with her at the same time as it was proceeding with foreclosure. She talked with people around the country who were in battles with the same servicer.
“Right now, we are waiting for something to happen,” she said. “I am looking for other places to live, but rents are unbelievable, and with my credit history it is going to be hard. I have this vision of me living in a tent under I-75 downtown. I am supposed to be comfortably retired. Isn’t that the American dream? That is not happening here.”
THE STORY WE HAVE BEEN TOLD ABOUT THE FINANCIAL CRISIS IS THAT it was a brief period in time that has ended, that since the banks have gone back to business as usual, complete with gargantuan profits, things are going to be fine. But the foreclosure crisis lingered on and on, its burdens borne by individuals who felt isolated and ashamed. One estimate found that in 2012, years after the crisis was supposedly over, Americans lost $192.6 billion in wealth as a result of foreclosures—an average of $1,700 per family, although of course the crisis was not spread evenly, and some lost everything. Indeed, communities of color took the hardest hit. Though the foreclosure crisis has fallen out of the headlines, the stories of people like Nancy Daniel should remind us that its ramifications will be felt for generations: wealth that had been accumulated and handed down over decades was wiped out in a few months.3
It was nearly impossible to understand the size of the crisis, the sheer number of people pushed out of their homes, in part because there are simply no official statistics. “It’s a total failure of public policy that government statistics are so terrible around foreclosures that we have to rely on private analysts, usually affiliated with organizations that want to soft-pedal the numbers,” explained David Dayen, journalist and the author of Chain of Title: How Three Ordinary Americans Uncovered Wall Street’s Great Foreclosure Fraud. Tracking only evictions or “completed foreclosures” results in an undercount because it leaves out people who were forced to short-sell their homes as well as the hundreds of thousands of “zombie foreclosures,” which have the same effect on the family as a completed foreclosure. The most reliable number, Dayen said, is a count of 5.6 million between September 2008 and February 2015, according to private property data firm CoreLogic.4
In between the credit default swaps and the mortgage-backed securities, there were millions of people pushed out of their homes. The rate of foreclosures slowed after 2011, but remained well above the pre-crisis average. The housing crisis was the result of a housing bubble that vastly overinflated the price of housing, mostly because repackaging and reselling the loans as investment products had become Wall Street’s favorite form of speculation. Why buy an actual property, when you can allow someone else to take on that risk and profit by selling their debt instead?
Wall Street, explained Alexis Goldstein, who worked there as the housing bubble was inflating and is now a senior policy analyst at Americans for Financial Reform, thought it had hit the gold mine on mortgage-backed securities. The thought process, she said, was that “this is a product that can never really go down in value. We have created a thing that is based on houses. That has inherent value. Even if the first person defaults on their mortgage, we can foreclose on their house and sell the house. So, therefore, money forever. We win.” The ratings agencies bought in and rated the securities at the highest possible level, AAA. Goldstein noted that this meant investors were being told that mortgage-backed securities were essentially as safe as government bonds, but paid much better—giving investors every incentive to throw their money in.
Real incomes over the decades leading up to the crisis were stagnant or falling. But banks and mortgage lenders rushed to get more homeowners into more loans, driving up prices, spurring more construction, until the logical end was reached, and it became difficult to find people with credit decent enough to purchase a home. Which was where subprime mortgages came in. Subprime mortgages carried higher interest rates and were typically given to people with spotty credit histories; they had been, up until the mid-2000s, about 6 to 8 percent of total mortgages—until they exploded, reaching 25 percent of the market by 2006. Making matters worse, many of those mortgages came with adjustable rates, meaning they would start at a low rate and go up in the future, yet banks were only gauging the borrower’s ability to afford the “teaser” rate.5
Working people’s incomes failed to keep up with the cost of living, and government services began to be pared back. People began to seek out other sources of funds to make purchases, and home equity loans became more popular. People were not only borrowing to buy homes; once they had them, they were borrowing against them in order to buy other things. All of that debt was only sustainable as long as prices kept rising; if they stopped rising, let alone took a dive, the economy was in for a shock. When the subprime mortgages began to fail, the whole bubble burst—economist Dean Baker estimated the loss could be equal to about $110,000 per homeowner. The homes that people had bought as proof of their success became the method of their failure.6
As the crisis unfolded and people lost jobs, more and more of them became unable to pay their mortgages, and more and more homes fell into foreclosure. Foreclosed homes flooded the market, driving property values down further, yet banks largely refused to write down mortgages to the post-bubble value of the homes, and the crisis continued.
Like Rick Santelli, many commentators wanted to blame the crisis on subprime borrowers, who they claimed should have known better. Banks used sanctimonious speeches by policymakers as justification for not issuing modifications, and no blanket relief was forthcoming from Washington. But many of those borrowers were pushed into loans that they were not even aware they were taking out. Rampant, large-scale fraud occurred across the mortgage lending industry as the bubble inflated, a part of the story that is not told nearly often enough.
“This is a mountain that people think is a molehill,” whistleblower Eileen Foster told me in 2012. “As far as this type of financial crime, things are far worse than I would have ever imagined.” Foster became the head of Countrywide Mortgage’s internal investigations department in 2007. She uncovered routinized fraud, out in the open—templates for fabricating documents, cases of Wite-Out for changing borrowers’ names on paperwork, and a method of simply plugging falsified income values into the automated underwriting system until a number worked and allowed the lender to proceed with the loan. “One process was to cut a signature off one document, paste it and make a photocopy so it looks like an original signature,” she said. “A part and parcel of everyday business was to do anything it took to fund a loan.”7
It didn’t matter that the loans were often being sold to people who were unlikely to ever be able to repay. “They’d set them up with those teaser rates they could afford, put in the income they needed,” Foster said. “They were so confident that they could refinance, because property values were going up. Another part of fraud is rationalizing what you’re doing.”
Instead of being rewarded for finding massive fraud, Foster was pushed out shortly after Bank of America absorbed Countrywide. A report from the Department of Labor backed up her account, finding that Foster had been illegally fired for blowing the whistle.8
No one at Countrywide or Bank of America was punished for this fraud. In 2010, Angelo Mozilo, Countrywide’s cofounder, agreed to a $67.5 million settlement with the Securities and Exchange Commission. It sounded like a lot of money, but Mozilo had made over $410 million since becoming head of Countrywide. The news also came out in 2012 that Countrywide had made hundreds of discount loans in order to curry favor with members of Congress and other government officials, including former Senate Banking Committee head Chris Dodd (D-CT) and Congressman Howard “Buck” McKeon (R-CA).9
Within the foreclosure process itself, the practice of “robosigning”—having low-level employees sign piles of foreclosure documents every day—created an assembly line of eviction. Banks foreclosed on people who weren’t even behind on their payments, with almost no documentation proving they had the right to do so. In 2012, the five biggest banks agreed to a $26 billion settlement with the federal government over major foreclosure fraud; the money was supposed to go to help homeowners stay in their homes, but fewer than 85,000 people actually got mortgage modifications. It was as if, Goldstein said, the regulators said, “We have gotten halfway through this. We are just going to give up. We are just going to pick an arbitrary amount of money to give everyone. Sorry. You won’t get your house back. You will just get three hundred bucks on thirty thousand.”10
Modifying mortgages to keep people living at home and paying something would have made much more economic sense, even for the banks, and yet it didn’t happen. The federal government, which one would assume, having bailed out the banks, had some leverage to make them do so, dropped the ball. Instead, it allowed banks to count actions they’d already taken toward the total amount of aid they promised to give, or to count mortgage modifications that actually increased a borrower’s monthly payment as a modification nevertheless. That the best regulators could do was offer paltry settlements, for which the banks could actually take a tax write-off, is evidence of a massive failure by the US government to help its people. Some of them, like Mildred Obi, were able to get help elsewhere. But it would have been impossible to stop the crisis one home at a time. The individualized solutions pushed on homeowners were not remotely up to the job of fixing the housing market; they only reinforced the idea that the crisis was due to the mistakes of individual homeowners. As Goldstein noted, there seemed to be a fear that one undeserving homeowner would get relief, that some deadbeat would get a deal, and rather than have one person get away with something, “we are just going to screw over all homeowners.”11
Meanwhile, the banks are ramping up again. In cities like Atlanta, Wall Street investors have bought up homes in chunks—private equity firm Blackstone Group bought 1,400 Atlanta houses in just one day in 2013—to sell financial products made from the rent payments it would collect on the homes. Most of the homes they acquired were foreclosures, most of them in the cities and neighborhoods that had been hit the hardest by the foreclosure crisis, where people were still struggling to get back on their feet.12
To Bashiri, it’s a sign that the lack of real reform after the foreclosure crisis has emboldened the banks to find new ways to speculate. Financiers argue that buying up foreclosed homes is a good thing, that it is making prices rise. Blackstone even called its strategy “a bet on America.” But the banks have been lousy landlords, sometimes jacking up rents by over 30 percent and using aggressive collection techniques on their tenants—some of whom are the former owners, renting back the home foreclosed away from them. And the shift away from homeownership to rentals is changing the shape of the housing market. It is leaving renters vulnerable to the whims of their landlords, who might decide to sell their properties as quickly as they bought them. “Whenever it makes sense for them to cash out and dump all those properties, they will,” Bashiri said. “Then where do we land?”13
HISTORY IS FILLED WITH STORIES OF REBELLIONS OVER HOUSING. From the Paris Commune in 1871, to the organizing by leftists after the Great Depression, to 1960s Chicago, to Brooklyn in 2012 and 2013, tenant organizing and rent strikes have been a way for people to express some power over their living situation. Perhaps we shouldn’t be surprised that modern homeownership in the United States was shaped by the desire of those in power to quell unrest.14
It might have been the rise of the automobile that finally convinced financial institutions to lend to non-rich people, but it was homeownership that really kicked off the spread of credit. Homeownership was promoted by the government as a hedge against the spread of socialism, a goal made more explicit after the beginning of the Great Depression, when the National Housing Act of 1934, and then the creation of the Federal National Mortgage Association (now known as Fannie Mae), helped incentivize lending to working-class homebuyers by providing government backing for private loans. The method assuaged bankers’ fears of socialism because the lending remained in their hands.15
After World War II, the booming economy and GI Bill benefits for returning servicemen helped fuel the suburbanization of America. Developer William Levitt created the Levittown planned communities, which were built in an assembly-line style borrowed from the factories, where workers were enjoying higher wages than in the past and regular eight-hour workdays. And along with those wages and union contracts, the ongoing promotion of homeownership served to keep workers happy and content. “No man who owns his own house and lot can be a Communist,” Levitt famously said. “He has too much to do.” The July 3, 1950, cover of Time featured Levitt and declared, “For sale: a new way of life.”16
That new way of life was what we began to call “middle class.” While it was never a lifestyle as widely available as myth would have it—redlining of neighborhoods where black people lived ensured that they were ineligible for Federal Housing Administration (FHA) loans and couldn’t make use of the GI Bill’s housing provisions, legally enforceable racial covenants kept black buyers out of white neighborhoods, and even unmarried white women had trouble accessing credit—it was, for a period of time, widespread. Union representation was at its apex, peaking in the mid-1950s at 35 percent and helping to drive wages up even in nonunion workplaces, and profits continued to rise and prosperity spread. For a brief few decades, many families were able to subsist on one income. The GI Bill provided college funding for more than 8 million veterans of World War II—up until then, the number of eighteen-to twenty-four-year-olds attending college had always been under 10 percent, but the GI Bill started the upward trend, which reached an all-time high of 39.6 percent in 2008. People began to shake off the old “working-class” identifier; we were all middle class now.17
The student loan, separate from the GI Bill’s grants, was born in 1958 from Cold War policy. In response to the Soviet Union’s launch of the Sputnik satellite, the United States created the National Defense Education Act, pouring federal dollars into research universities and making low-interest loans to students who wanted to go into scientific or technological research. These first loans, as sociologist Andrew Ross wrote, “were explicitly aimed at creating a technically skilled workforce as an arm of the warfare, not the welfare, state.”18
Federal student loans for everyone else came along in 1965 as part of the Higher Education Act, which at first was aimed at low-income students to supplement grants and scholarships, and then expanded to everyone. Those loans, too, were issued by private banks but backed up by the federal government. With the spread of higher education, the promise of upward mobility, for a brief period, seemed assured. The middle class seemed to have become so broad that it was, in fact, the only class, though the name still provided producerist reassurances to people that they deserved all they had.19
Having the trappings of a middle-class life became the ultimate goal for so many people, but once there, Americans were continually anxious about falling out. “Class in general is . . . referenced through a container metaphor,” said communications expert Anat Shenker-Osorio. “So you’re ‘in the middle class,’ you fall out of it, you climb into it.” Once you’re in that container, you have particular expectations for what you should be able to do: survive on one income, go on vacation, own a home, or send your kids to college. Over time, the middle-class identity became more and more closely associated with what could be bought than with stability. Symbols of class identity like televisions and then cellphones became cheaper—“Ironically,” Shenker-Osorio noted, “through the same forces that have destroyed unions and destroyed large swaths of our manufacturing economy”—so that even as incomes began to stagnate in the 1970s, people could still tell themselves they had the little luxuries of a middle-class life. The influx of women into the workforce, women who had previously only worked in the home, helped to maintain the illusion, but now it typically took two incomes for a family to maintain middle-class status instead of one. Consumer credit arose to finance that big-screen TV. The goalposts of what it took to be middle class were moving.
Class, through the 1970s and 1980s, became detached from its moorings in one’s position in the economy and became instead a form of political identity—an idea stoked by populists from George Wallace to Ronald Reagan to George W. Bush, in opposition to what was considered “identity politics.” Class, Barbara Ehrenreich noted, was just another “form of cultural diversity, parallel to ethnicity or even ‘lifestyle.’” The meaningless paeans to the middle spouted off by politicians and others deliberately disappeared the fact that class is a relation of power, not a lifestyle choice. And what we got in return—as the discussions about class obscured, rather than revealed, economic realities—was the largest wealth and income inequality since the Gilded Age.20
Politicians from all points of the political spectrum tout their concern for the middle class and their desire to save it. The theme is so popular that it has become meaningless; it tells us nothing about what the person promising it actually wants to do. More importantly, as Shenker-Osorio noted, in reality, the endless evocations of the middle worked to suppress action on measures to address the growing inequality.
In other words, notions of the middle class played into the same old producerist tropes. And those who bought into these notions didn’t want to spare their hard-earned cash to help people who had been excluded from prosperity to begin with. As real conditions worsened for people who had been accustomed to thinking of themselves as comfortably middle class, the “fear of falling” kept them from solidarity with the people who had nowhere else to fall. The new solution that arose to the economic woes of the middle was the tax cut: playing off the resentment of the bottom by those who fancied themselves the middle, Ronald Reagan and his compatriots sliced away at the welfare state. Too many in the angry middle shrugged off the cuts as a just end to the “handouts” they assumed that the poor were getting. Meanwhile, they took out another credit card to stop their own slide.
The middle class, by several measures, has shrunk. Different studies using different methodologies estimated the shrinkage between 1980 and the mid-to late 2000s as between 6 and 14 percent. The US median household income was $4,500 less in 2013 than it had been in 2007, and was in fact less, in real dollars, than it was in 1989. Median household wealth, perhaps an even better indicator of one’s class position, was 36 percent lower in 2013 than in 2003, and was down some 20 percent from 1984, meaning that not all of the drop could be attributed solely to the housing bubble popping.21
Even the middle class’s image of itself is changing. Between 2000 and 2008, Gallup polls found that, on average, over 60 percent of Americans identified themselves as middle class; since 2012, closer to 50 percent identify that way, and 48 percent now identify as working or lower class. The US General Social Survey (GSS), meanwhile, found that the number identifying as middle class was closer to 44 percent; “working class” got a roughly equal response, even though the term “working class,” with its tang of radicalism, was much less popular with politicians. Even politicians began to search for a new way, on the 2016 campaign trail, to talk about the majority of the country, as it became clear that the term “middle class” no longer felt accurate to large swathes of people.22
The middle has hollowed out, manufacturing jobs have gone overseas, and companies are better and more systematic about union-busting in the jobs that remain. As middle-income jobs for people without college degrees declined, the bachelor’s degree became more necessary, a sort of middle-class boundary, even as college tuition grew more expensive, saddling students with yet more debt. In the years leading up to 2008, Americans were spending nearly one in every seven dollars of after-tax income on debt service. And all that debt served to discourage people from the risks of protest, the added weight of payment to make every month a damper on any trouble you might wish to make.23
“Debt has been the primary way that the system has extracted wealth from regular people. And it’s not just that people have debt—the debt-driven system is how the rich have gotten richer. The level of debt is so great that wage increases won’t make up for how much people owe,” said organizer Stephen Lerner. But, he noted, debt can also be a place where those regular people have power. The old cliché, now being repeated by debt organizers, goes, “If you owe the bank $1,000, the bank owns you.
But if you owe the bank $1 million (or $1 trillion, in the case of outstanding student debt), you own the bank.” Since the debt so broadly distributed throughout the population is being lent by an ever-shrinking and consolidating group of financial institutions, there is the growing possibility of debtors using their collective leverage to make some demands.24
BUYING A HOME WAS A SIGN THAT YOU’D MADE IT INTO THE MIDDLE class; it was “good debt” you could take on once you’d reached a certain level of stability and success. The other kind of “good debt” that helped sink what we used to call the middle class, though, came from education, as lenders increasingly exacted a price from young people just for daring to hope of one day getting a middle-class job.
In 1888, a young woman from Texas wrote to the Populist-affiliated paper the Southern Mercury under the pen name “Country Girl” to argue that education alone was important enough to make it worth going into debt. “Knowledge is Power,” she wrote.25
Country Girl’s advice is still given every day to thousands of American high school students, who are still told that education is their ticket to upward mobility. For this, those students sign loan documents for tens of thousands of dollars, loans that cannot be discharged in bankruptcy, for which their wages can be garnished if they do not pay.
While the debt load per student continues to rise, the job expectations for college graduates have not. Those who finished college during the Great Recession, researchers found, will likely have diminished earnings for the next ten to fifteen years. Young workers (under the age of twenty-five) typically have a higher unemployment rate than older workers; that rate has remained above 10 percent since the crisis, peaking at 19.2 percent in 2009.26
College graduates, unable to find jobs that suited their skills, moved into jobs that did not normally require a degree. One observer compared it to a game of musical chairs—when the music stops, the college grads have taken the Starbucks jobs, and the people who don’t have a degree have no chairs left. A study from the Federal Reserve Bank of New York estimated this particular kind of underemployment, where recent grads worked jobs that didn’t require their degrees, at 44 percent in 2012. Wages had fallen nearly 8 percent for college grads since 2000, and they were less likely to have employer-provided health insurance or a pension. There’s little evidence, in other words, that if more young people went to college, they would be able to access better jobs.27
Ultimately, sociologist Tressie McMillan Cottom pointed out, part of the reason for the massive student debt bubble is that policymakers are prescribing education as a solution for what is fundamentally a labor-market problem. Rather than being considered a social good that people undertake to become better informed, more engaged members of society, an education is increasingly perceived as a commodity, something that you purchase to increase your value to an employer. Yet when the fastest-growing jobs out there are low-wage retail, food service, and home care jobs, what does it matter how many years of school you attend?
The cost of a college degree has increased over 3,000 percent since 1972, at the same time as there has been a massive increase in college attendance, notably from middle-income families. At least part of the price hike was due to state disinvestment from public universities, which shifted costs onto the backs of individual students, a trend that began before the Great Recession but intensified after it. The “corporatization” of universities—public and private—led to increased tuition, flashy new buildings, and inflated administrative salaries, on one hand; on the other, professors faced cuts and schools increasingly employed adjunct professors who worked part-time and were paid by the class rather than with a reliable salary.28
Easy access to student loans—and the ongoing idea, dating back to Country Girl, that student loans were good debt—made it easy to ignore the increasing costs. Between 1999 and 2011, during the same period that the country was dealing with the massive housing bubble, total student debt grew by something like 511 percent, twice as fast as housing debt did.29
On April 25, 2012, the total student loan burden carried by US students reached $1 trillion. Activists marked the day, which they called “1-T Day,” with marches, rallies, and protests. It was part of a larger campaign waged by Occupy Student Debt, an extension of Occupy Wall Street, that aimed to bring attention to exploding student debt and the failure of universities and state and federal policies to address it. At the time, Occupy Student Debt organizer Pam Brown told me, “There is an overlapping relationship between the schools who have raised their tuition enormously, between the government which has lowered its spending and has subsidized this debt, and the banks who are profiting from it still.”30
Student loans, just like housing loans before 2008, are big business. In 2006, just one bank, Citigroup, pocketed $220 million from student lending. In 2005, student lender Sallie Mae was the second most profitable company in the United States; in the first quarter of 2015 it posted profits of $47.7 million. In the early days of the Obama administration, the government switched from subsidizing privately issued loans through the Federal Family Education Loan (FFEL) program to lending directly to students. This change didn’t get private lenders out of the business, but it did put the federal government in the strange position of profiting off of loans to its citizens. The Congressional Budget Office estimated in 2014 that the Department of Education would make $127 billion in profits over the next ten years from the student loan program.31
The average graduate with debt in 2015 owed over $35,000. That’s a significant number, because the total amount the federal government lends per undergraduate through its direct loan program is $31,000, meaning that more and more students are taking out private loans in addition to their direct loans. And those private loans are issued by some of the same banks that had to pay massive settlements over their mortgage-crisis-related shenanigans. One report estimated that a household of two earners with a combined student debt burden of $53,000 faces a lifetime loss of nearly $208,000 in wealth. Andrew Ross, in his book Creditocracy, suggested we think of student debt as “precocious wage theft.”32
Sallie Mae, like Fannie Mae, began its existence as a government-sponsored secondary buyer for private loans. It was created in 1972 and became fully privatized in 2004. It had moved into loan servicing and then originating, both under the FFEL program and privately. In 2014, it split into two separate companies, Sallie Mae and Navient; Navient serviced and collected on its own loans as well as those of the federal government, while Sallie Mae continued to make private loans and moved into banking and credit cards as well.33
In 1995, Sallie Mae issued the first Student Loan Asset Backed Securities. Robert Oxford, a graduate student at New York University researching the financialization of student debt and an organizer with Occupy Student Debt, explained that the securities work pretty much the same way mortgage-backed securities do—they’re bundled, repackaged, and sold off to big banks and hedge funds that want an exciting investment product. The difference? “You can’t foreclose on someone’s education.”34
Instead of foreclosure, collectors chasing education borrowers have a set of tools unequaled for any other type of debt. They can garnish Social Security payments. Borrowers cannot discharge their student loans—even private ones—through bankruptcy. There is no statute of limitations for student loan collection, and the fees only go up if you default. Essentially, rather than taking your home, student lenders can foreclose on your future. These policies have been so effective that the recovery rate on defaulted student loans is actually more than 100 percent. And debt collectors, many of them owned by the same lenders, like Navient and J. P. Morgan, have about a 30 percent profit margin—a better return on investment than when simply servicing the loan normally.35
All of this has contributed to the feeling that college is no longer the surefire ticket to a middle-class life that it used to be. In a 2015 survey, only half of the college graduates questioned strongly thought college was worth the price; perhaps not surprisingly, considering the economic problems graduates have faced in recent years, an even smaller portion of those who graduated between 2006 and 2015 thought that college had been worth the cost.36
The new protesters did not represent a fairly prosperous middle class fighting for the rights of those worse off, wrote British journalist Paul Mason; the student activists of the post–financial crisis era were fighting for themselves. He dubbed them “graduates with no future.”37
Of course, in the age of inequality, some graduates are more futureless than others. The rate of default for black student debtors is some four times that of whites; LGBTQ students, who disproportionately have families that are unsupportive, carry a higher debt burden, as do undocumented immigrants, who are legally excluded from federal loans and thus must rely entirely on private lenders. Those whose parents can foot the entire bill, of course, carry no debt at all. Thus has student debt become yet another way that inequalities get magnified.38
The growth of the for-profit college sector in recent years is something of a bellwether for the direction in which higher education is going. For-profits, many of them “career colleges” that provide two-and four-year certifications that are supposed to be directly applicable to the workplace, accommodated a little more than 10 percent of total college students, but received around 25 percent of all federal loan dollars. They tended to be pricey—averaging around $35,000 for a two-year associate’s degree that would cost around $8,300 at a community college—and most of their students were first-generation college attendees who were unfamiliar with the college-application process and fell victim to a high-pressure sales pitch with equally high promises of job placement. In a weak job market laden with low-wage jobs, promises of a future as a medical assistant or a paralegal or manager were especially enticing, but many of those promises turned out to be overblown. “In some ways it is subprime all over again,” Alexis Goldstein said. “You take this thing that is sold to the American public as part of the dream. ‘To be an American is to own a house. To be an American is to pull yourself up by your bootstraps by getting an education.’ And you turn it into a product that then ruins people’s lives.”39
The debt problem attracted the attention of elected officials from President Obama on down, with proposed solutions ranging from income-based repayment plans to refinancing to full-on loan forgiveness. The debt forgiveness idea was included as an economic stimulus plan cosponsored by Representative Hansen Clarke (D-MI) and a dozen other members of Congress in 2012. But the graduates with no future were beginning to grow restless with the lack of movement from elected officials, and they decided to take matters into their own hands.40
IT WAS 2011 WHEN ANN BOWERS DECIDED TO GET BACK INTO THE workforce. Now fifty years old, she had been sidelined with a disability for ten years. Before that, she had worked in marketing, and she thought that by taking some classes to sharpen her skills she could make herself more appealing to future employers. Perhaps it would make up for the gap in her résumé.
One night while watching television, she saw a commercial for Everest College; the promise that she could get a degree from home appealed to her, and she called to find out more about its business marketing program. “The fact that they said they were going to help to put me into a position after graduation was very enticing,” she said. After a few follow-up calls from Everest, she decided to enroll and began taking online courses from her Florida home.
Across the country, in Los Angeles, Nathan Hornes found Everest when he went looking for a back-up plan. He’d moved to LA in 2008, after high school, to pursue his dreams of being a pop star; two years later, he was still working in fast food, though he’d performed at venues large and small, starred in a web series, and even released two songs on iTunes. His mother suggested he look into going to college, so when he heard about Everest, he remembered that a cousin of his had attended an Everest school in Missouri, where he’d grown up. He and his sister Natasha decided to go check it out. Nathan recalled a lot of pressure to enroll right away. The college told him that if he didn’t sign up now, he’d have to wait six months. He decided to get a business degree; Natasha enrolled in a two-year program to become a paralegal.
Everest College was a subsidiary of Corinthian Colleges, a for-profit college chain that had over one hundred campuses and over 77,000 students at the time that Bowers finished her associate’s degree. But what the Horneses and Bowers did not know was that Corinthian’s empire was already unraveling at the time they signed up for classes. While they were completing the degrees they thought would help them find better jobs, the federal Department of Education and multiple state attorneys general were investigating Corinthian for false and misleading job placement claims. In the summer of 2014, the DOE shut off the flow of student aid dollars that made up some 85 percent of Corinthian’s revenue. Its main source of income gone, the chain announced that it would fold. The DOE stepped in and provided a bailout of sorts, releasing $35 million to keep the school afloat while it orchestrated the sale of eighty-five campuses to Educational Credit Management Corporation (ECMC), a company that had zero experience running a college, but plenty of experience chasing indebted students, as it was a debt collector for the education department.41
Corinthian’s remaining twenty-eight campuses were shuttered in April 2015, leaving 16,000 students with no degree and a mountain of debt just weeks before many of them would have graduated. Corinthian had continued to enroll new students in the months leading up to its closure. To Bowers, the DOE had enabled Corinthian to keep making money despite its failure. Meanwhile, she said, “we’re the ones facing all the consequences.”42
The Horneses had been noticing red flags at Everest for a while. “My classes weren’t in order,” Natasha said. “I’d have to take a third trimester course my first trimester. Teachers got fired, we’d have empty classes. I felt like my education wasn’t really an education.” Her brother agreed, saying he’d had one class that had three different teachers over a twelve-week period. “I asked how I was supposed to take this final,” Nathan said. “They said, ‘Oh don’t worry about the final, we’re just going to give you an A on it anyway.’ Are you kidding me?”
When Natasha finished her program, she found that the big promises of job placement were “not worth the commercial that they’re on.” When she did go on interviews—ones that she lined up for herself—she found that even though she’d graduated with honors, she didn’t have skills employers were looking for. She wound up moving back to Missouri, where she got a job at a grocery store, because she couldn’t afford to stay in Los Angeles and make payments on her $50,000 in loans.
Nathan finished his bachelor’s degree in 2014 still wanting to believe that the promises he’d been made meant something. But instead, he said, he was given job listings from Monster.com and Craigslist. “If I wanted those job leads,” he said, “I could do that myself.”
When the news broke that the Department of Education had been investigating Corinthian for a while, Nathan Hornes decided that enough was enough. Together with some friends, he created the Everest College Avengers group on Facebook, which quickly attracted hundreds of members. “There is no way on God’s green earth that the government has been investigating them for the last five years, they’ve allowed this company to continue to do what they do, we’ll give them a slap on the wrist and everything’s going to be okay,” he said. “We thought, ‘This is ridiculous, we’re not doing this anymore, we’re going to fight back.’”
Ann Bowers was still working on her online program, even serving as an “ambassador” for Everest by mentoring other online students. Then a friend of hers sent her a link to the Facebook group and broke the news to her. “I found out that they had lied to me repeatedly,” she said. “My student adviser disappeared, they cut off communication with students and their advisers. When you’d call your adviser it would go to a central answering device.”
The Facebook groups were also how Ann Larson and Strike Debt found the Corinthian students. Strike Debt had been founded by Occupy activists looking for ways to intervene in the debt crisis; they’d tried the Rolling Jubilee, a campaign that raised funds to buy debt on the secondary market for pennies on the dollar and then abolish it. Strike Debt had managed to make its first student debt buy, purchasing and forgiving $3.8 million in debt from 2,700 Everest College students, in the fall of 2014, and it was hoping to organize a type of action that would allow the debtors to get personally involved. The Rolling Jubilee, Larson said, “was a neat hack of the debt system, good for educating the public about how the secondary debt market worked and doing a really great thing for the few lucky people who got their debt canceled.” But it was still a gift from above, a kind of charity, rather than a way to build power for and with debtors themselves. That’s how they came up with the idea of the Debt Collective, a union for debtors, where people who owed the same creditor could find each other and take collective action.
The idea of a debt strike had been floating around since the early days of Occupy Wall Street, but the original plans had been simultaneously too ambitious—a website where one could sign up to pledge to stop paying once a million other people signed up—and too nebulous. The Corinthian students were a better place to start. They were unambiguously screwed by a failing institution, and yet instead of simply forgiving their loans, the Department of Education had bailed out that institution—and was still demanding that they pay back their debts. The Consumer Financial Protection Bureau (CFPB) negotiated a 40 percent write-down on Corinthian’s privately issued “Genesis” loans, but since the vast majority of the debt held by students like Nathan Hornes was in federal student loans, that wouldn’t do very much to reduce their debt load.
Legally, student loans can be discharged if an institution closes, but the DOE was encouraging students to transfer elsewhere and continue—even if, like Bowers, they had used up all their federal student loans on credits that often wouldn’t transfer. And students were expected to continue under the new owners after their campus was sold—even if, according to the CFPB, their program of study was no longer on offer. The debt strikers filed legal “defense-to-repayment” challenges, but, as had been true of the foreclosure crisis, it was impossible to solve such a massive problem one debtor at a time.
In February 2015, the Horneses, Ann Bowers, and twelve other students went on debt strike and began a full-court press campaign, calling for all Corinthian student debt to be discharged. Their slogan was, “Can’t pay, won’t pay.” Their numbers quickly swelled to over two hundred strikers, and the Education Department granted them a meeting. In June 2015, the DOE announced debt relief for Corinthian students, but still in an individualized manner—students were required to apply individually for loan forgiveness. The department appointed a “special master” to review their claims, but months in, only a tiny fraction of the loans had been canceled. Students continued to be harassed by debt collectors. Just as with the mortgage crisis, Alexis Goldstein, who worked with the Debt Collective, said there seemed to be a fear that one undeserving person would get benefits. “I think they are afraid that there is going to be one story that Fox News is going to get a hold of: ‘This person got their debt canceled, and look at them living high on the hog.’ But because of the fear of that one person, we are just going to screw everybody else.”
The Debt Collective responded by creating an online “Defense to Repayment” tool to make it easier for students to file their individual claims. The Collective also continued to pressure the DOE to do better. “It has been interesting to learn that there are all of these places in the Department of Ed’s authority to cancel debt,” Goldstein said. “There are a bunch of different ways they can do it. It reminds me so much of the problems we have with financial reform. It is all about will, regulatory will.”
Sociologist Tressie McMillan Cottom pointed out that the for-profit students’ problems were also indicative of broader problems in higher education. “This is not a problem isolated to the for-profit college sector. You see it there first because these are the institutions and the populations that are the most fragile,” she said. “This is the rest of higher ed in ten years. Even if you’re not in trouble right now with your $100,000 in debt and your Harvard degree, you could be in an instant.” She pointed to the twenty years of shifts in higher education policy, from privatization to bankruptcy law changes, and noted, “Everything that for-profits say they’re doing are all things being proposed for the rest of higher ed. No faculty governance, high enrollment, centralized curriculum, diminished [study of the] humanities for applied, job-oriented credentials. It’s only our hubris that says that’s not us.”
The Debt Collective didn’t plan to stop with the for-profits, either, though they were making plans for another, broader debt strike across the entire for-profit college sector, with students from schools like ITT Tech and the University of Phoenix ready to join. On their website, other debtors could sign up to find each other and strategize; there was an active message board that included Sallie Mae and Navient borrowers as well as Corinthian strikers. “We’re definitely looking to expand,” said organizer Laura Hanna.
The students who chose to attend the for-profit schools, McMillan Cottom pointed out, were often very aware of how bad the labor market was, and how little remained of the social safety net. That was why they had gone into debt to get an education in the first place. Education, too, failed them, even though they had tried to do everything they could to live up to society’s expectations.
Their determination kept them pushing even as the Obama administration appeared to be dragging its heels, attempting to propitiate the strikers with promises of eventual reform. Ann Bowers was appointed as student representative to a committee the DOE assembled to set standards for how and when the department would cancel loans for students who attended schools that broke the law. The committee was also looking at ways to crack down on schools that receive federal funds. Bowers hoped to use her position on the committee to press for broad reform, and meanwhile, she and the others remained on strike.
“I want big changes in the whole education system,” said Bowers. “I don’t think big business belongs in education. People are getting rich off of schools like Everest that are predatory, preying off people who want a better life for their family.” On a more personal note, she said, “You’re told you should go that way your whole life; you go and you end up in worse shape than you were in to begin with. It makes it hard to trust anyone. They destroyed our trust, they destroyed our faith in education. What do we have? Nothing but debt.”