Debt is the new four-letter word. As the credit-fueled housing bubble comes ever closer to bursting, Democrats in Congress and on the stump are denouncing predatory lenders and their "Wild West" ways. The potential industry blowback extends far beyond NINJA (no income, no job, no assets) mortgages and "liar loans." A whole new debt-industrial complex -- high-interest payday loans, deceptive credit card practices, creditor-friendly bankruptcy laws, and an oversubsidized student loan business -- is undermining Americans' economic security.
Access to capital through flexible, fair credit lets responsible people make needed investments, whether in a home, a new business or a college degree. Overabundant, high-priced, high-pressure credit turns good investments into unacceptable risks. We need to restore that ugly word usury to describe some of the prevalent lending practices of today, along with the principle that creditors share a responsibility with borrowers. Halting abuses like 500 percent interest on payday loans and universal default on credit cards (where one late payment is enough to raise interest rates on all your cards) won't be enough to restore the listing foundation of middle and working class economic security, but it will at least reduce the insult of exploitation added to the injury of inequality.
The looming question is what will happen to our consumption-fueled, flat-wage economy when the leaky faucet of easy credit is finally tightened. Recession, foreclosures, bankruptcies, and abandoned educational dreams are all on the menu of possibilities. Credit card delinquencies are up because people are finding it harder to use their home equity to pay off debt, and an increase in the bankruptcy rate may follow.
Perversely, people with poor credit are apparently targeted with more credit card solicitations than the squeaky-clean. High interest rates, penalties and fees are so lucrative that the industry has an incentive to seek out borrowers who are more likely to get in trouble. According to a study by Mintel International Group, cited in the Boston Globe, "Direct-mail solicitations to subprime borrowers were 41 percent higher in the first six months of 2007 than they were in the first half of 2006. At the same time, solicitations to the most credit-worthy consumers fell by 13 percent." Similarly, a recent survey by the Consumer Bankruptcy Project showed that families reported receiving an average of more than fourteen credit offers per month one year post-bankruptcy -- compared to just six offers per month for the average American.
Voters will likely have something to say about the need for debt reform in the upcoming election. And one surprising -- and surprisingly important -- group attracted to the message of economic security is young people. Kat Barr of Young Voter Strategies, a research firm that recently merged with Rock the Vote says their polling since 2006 shows strong economic concerns among young people. "Education and college affordability were always really high up there among the things young people wanted Congress to take care of," she says. "We also saw all of the cluster of economic issues that are financial-security related—jobs, the economy, health care."
By 2008, those aged 18 to 31 will outnumber the Baby Boomers. This age group has higher proportions of ethnic minorities and immigrants and skews heavily Democratic. Though still lagging behind older cohorts, youth voting rates rose in both 2004 and 2006, and summer polls suggest that young people are following this election even more closely than the last. In the most recent national young voter poll, by Democracy Corps, voters 18 to 31 in all income brackets far preferred Clinton, Obama, and generic Democrats on every issue. And echoing the Young Voter Strategies polling, they continue to place emphasis on the importance of economic issues. Thirty-nine percent volunteered "the economy" when asked for the leading issue facing the nation, beating all other contenders (Iraq scored only 19 percent.) Fifty-eight percent of young people said they were "one paycheck away from having to borrow money from their parents or credit cards," two-thirds were working for an hourly wage and 60 percent were worried about their own debt.
The Democratic presidential candidates are all talking about debt, opportunity, and restoring the American dream, and young voters are listening. Hillary Clinton and Barack Obama have proposals to limit mortgage foreclosures, tighten lending rules, and clean up student loans. Barr points out that all three Democratic front-runners have already hired youth outreach directors and staff, whereas in 2004, Kerry and Bush let it wait until after the nomination. (The Republican front-runners have not been as fast on youth outreach, though Mitt Romney's son did start a fundraising campaign for college students.) Obama, who hired Rock the Vote's political director and Facebook's co-founder to help with youth and online strategy, has the best youth organization, with a lively Students for Obama blog, a Generation Obama campaign to reach the non-college majority, and not surprisingly, a 350,000-member Facebook group.
Clinton, whose support is much higher among non-college youth according to a spring Harvard Institute of Politics poll (Obama shows much the opposite) has what she calls a "youth opportunity agenda," for once she is in office, including a few hundred million for summer internships, job programs, and support for local efforts to track and re-engage high school dropouts (the term of art is "disconnected youth.")
Edwards, who has made economic populism key to his campaign, has the most extensive debt plan. He gets the idea of a debt-industrial complex, talking about a credit "sneak attack" on the middle class. Edwards would ban payday lending, limit certain credit card charges, and create a new unified regulatory commission with broader powers to police all types of consumer credit. The first in his family to go to college, Edwards would cut bank subsidies entirely from the student loan program and extend a program he calls "College For Everyone." Based on a pilot program he started in Snow Hill, North Carolina, it would pay for four years of public university tuition, fees, and books in return for students earning good grades, working part-time and staying out of trouble.
The good news for younger debtors is that in the arena of college debt, an important principle of fairness has just been established. In early September, Congress cut almost $21 billion in excessive subsidies to banks from the student loan program, and President Bush has pledged to sign the bill. The money will be used to increase need-based grants, expand loan forgiveness programs, and to lower the cost of loans. Most importantly, a new provision called Fair Payment Assurance will allow all student loan borrowers to limit their repayments to a percentage of income, preventing anyone from sinking below the poverty line or otherwise being unduly burdened by student loans.
Although "youth issues" are often stereotyped as social ones, the Millennial generation will likely be voting their pocketbooks. The student loan reforms just passed by Congress have shown what can be done to comprehensively remedy one form of outsized debt. If the Democratic candidates are serious about targeting the youth vote, this type of reform will be the first of many.