Guest Post: Risk And The Indentured Servitude Of Student Loans

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

Risk And The Indentured Servitude Of Student Loans

Students stuck with gargantuan loans for life are bound in a bank-dominated "improvement" of indentured servitude.

Yesterday (Risk is Necessary for Adaptation, Innovation and Success) I discussed the inevitable failure of systems in which risk has been transferred from those who reap the gain to others. In the case of student loans, the risk has been transferred to students who enter decades of indentured servitude.

Indentured servitude has a long history in the U.S.; many immigrants accepted servitude of between two and seven years in exchange for passage to the New World. Orphans were indentured out of orphanages to the age of 21--potentially a much longer servitude. Indeed, the labor of anyone on the public dole could be auctioned off:

From Wilma A. Dunaway's Online Archive:

By the time of the Revolutionary War, indentured servitude had been a common practice in the United States for 150 years.


Following British laws established during the colonial period, post-Revolutionary public authorities indentured the labor of those who were likely to fall upon the public dole. Appalachian county governments bound out indigent adults and children whose families could no longer care for them. The age, gender, and racial trends are clearly documented in early records of Appalachian poor houses, for women and orphans represented more than two-thirds of the individuals whose labor was auctioned off by county governments.


Isaac Miller of Anderson County, Tennessee, advertised in 1819 for the return of Margaret Hutcheson who had been bound to him by the county poor house. Obviously, the seventeen-year-old girl had tried the patience of her master, for he offered only "a reward of 6 1/4 cents to the person who w[ould] deliver her to [him]," caustically adding, "but I will not thank any person for doing so."


When an orphan was bound out by the county poor house, the child was legally tied to the master until the age of eighteen or twenty-one.


Orphans were often bound to tradesmen or farmers until age 21, and indigent adults were typically bound for three to seven years. However, there is no way to document how many laborers were bound out by their own families. When parents indentured their own children, it was for "a usual term of seven years if a girl, or five if a boy."

Let us consider the modern form of indentured servitude, student loans, which now exceed a staggering $1 Trillion: "It's Going To Create A Generation Of Wage Slavery" (Zero Hedge), or perhaps more accurately, indentured servitude, because the debt cannot be dismissed via bankruptcy.

Student loans outstanding will exceed $1 trillion this year (USA Today):

Lenders have little risk of losing money on the loans, unlike mortgages made during the real estate bubble. Congress has given the lenders, the government included, broad collection powers, far greater than those of mortgage or credit card lenders. The debt can't be shed in bankruptcy.


The credit risk falls on young people who will start adult life deeper in debt, a burden that could place a drag on the economy in the future.


"Students who borrow too much end up delaying life-cycle events such as buying a car, buying a home, getting married (and) having children," says Mark Kantrowitz, publisher of


"It's going to create a generation of wage slavery," says Nick Pardini, a Villanova University graduate student in finance who has warned on a blog for investors that student loans are the next credit bubble — with borrowers, rather than lenders, as the losers.


The University of Phoenix, the nation's largest, got 88% of its revenue from federal programs last year, most of it from student loans.

In effect, students get A Mortgage with Every College Graduation (Dr. Housing Bubble, via Jed H.) with one key difference: there is no way to get out from underneath the student loans.

This is the perfection of indentured servitude. How many students pay off their $100,000 loans in a mere seven years? Modern banks and corporate "higher education" diploma mills have improved the old system of indentured servitude, extending the servitude from seven years to decades.

The key dynamic here is the transference of risk from the lenders, who stand to reap immense profits from these loans, to the students. This transference is enforced of course not by the banks but by their partner, the Savior State, which obliterated the right to bankruptcy for students while guaranteeing profits to the banks via Sallie Mae, another guarantor of private profits backstopped by taxpayers.

The feedback between risk and return has been severed. Lenders can extend massive loans to marginal students attending for-profit colleges, knowing their losses will be backstopped while the gains are theirs to keep, and the debt-serf students are indentured for life.

Imagine if risk were connected to gain. Maybe lenders would be a bit more careful about which students they deemed worthy credit risks; perhaps they would begin differentiating between low-market-value liberal arts degrees from hard-science degrees.

Maybe they'd start considering the students' incomes while in university. Maybe they'd recognize differences in risk between for-profit diploma mills protected by the rapacious, captured-by-corporations Savior State and state universities.

There can be no "fix" to our decline until risk is bound once again to return and gain. If risk is transferred to others, you're left with some type of indentured servitude and financial tyranny in service of the banks and their Savior State toadies.

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GeneMarchbanks's picture

Obama will rescue them. Probably by offering government jobs to pay off the loan.

AldousHuxley's picture

where most law degreed liberal arts majors get jobs nowadays anyway.


In some dysfunctional countries, quarter of the graduates got a job with the university they graduated from!


Talk about a ponzi scheme.....


Look at how much "private" non-profit universities donate to political candidates and promote slave research labor on H1B (PhDs in STEM for $35,000 which is less than a truck driver's wage). Time to tax universities and cut off government subsidies.

MachoMan's picture

The pay, when considering student loan forgiveness and other perks (e.g. health insurance), can be much higher with .gov...  aside from the whole "no responsibility" thing (certainly a good perk).

AldousHuxley's picture

competition is for suckers!


private workers are like gladiators who get a "prize" if they manage to kill each other only to live to fight another day.


public workers are spectators in a gladiator match....they don't get the glory of victory, but have the security of enjoying the competition without having to participate in such a brutal cutthroat activity.


elites are the ones making the bets on a gladiator

and wall st. workers are the bookies


there is the loyalty oldmoney folks writing the rules of the game at the very top


and of course immigrants and foreign laborers are slave class where they do real productive work but can't afford to pay to see the gladiators.

tarsubil's picture

Wow, what a comparison. Disturbing and hard to deny. No one wants to admit where they stand.

Harlequin001's picture

So wehat happens if they don't pay? The banks will bankrupt them? Evidently not, so don't pay.

Set up a trust and have the trustee buy your next house, car clothes and everything else. Set up a company and contract for income through that, take a company credit card, it doesn't even need to be a domestic company; there may be no tax benefits but so what? You don't even need to use a professional trustee.

Give the State and the lender the middle finger and go forth, as they say.

When there's no way out, stop looking...

When there's no way to pay, stop trying. Bankruptcy doesn't matter overseas, go figure...

Bicycle Repairman's picture

A series of perfect metaphors.  Now pardon me while I grab my armor and sword. 

halflink123's picture

No they don't get jobs. Haven't you read anything about the job market for lawyers? It's terrible. 


No one's getting jobs now. Wake the fuck up.

Henry Chinaski's picture

This is not news to ZH readers, but student loans are just another racket that funnels money to the banksters and academia so they can pay off the politicians who will protect the racket.  It's no wonder TOTUS nationalized the student loan program.  Look at Obamas top election contributions. When you apply for a student loan, you get inducted into the banking system, not just for student loans but for credit cards, debit cards, the whole shebang... 

2008 Presidential Election:

Barack Obama
University of California $1,648,685
Goldman Sachs                 $1,013,091
Harvard University          $878,164
Microsoft Corp                 $852,167
Google Inc                          $814,540
JPMorgan Chase & Co   $808,799
Citigroup Inc                       $736,771
Time Warner                      $624,618
Sidley Austin LLP              $600,298
Stanford University         $595,716
WilmerHale LLP                 $550,668
Columbia University       $547,852
Skadden, Arps et al         $543,539
UBS AG                                $532,674
IBM Corp                             $532,372
General Electric               $529,855
US Government               $513,308
Morgan Stanley                $512,232
Latham & Watkins           $503,295

*Groups in bold also cited in the Sanders Report on conflicts of interest at the Federal Reserve:


LasVegasDave's picture

What a shock!  Govt. sponsors something and private enterprise angles in to make a profit.  Can't be!!!!

Well, that is as good an excuse as any not to pay back your student loans!

"They tricked me, see, I really shouldnt have gone to college, cant do nuthin with the education they gave me, so fuck the lenders, Im not payin!"

Paying your mortgage is optional in America. Why not add student loan repayment to the list.

Thanks to thieving bankers, corrupt politicians and half brained parasites America is toast.

tarsubil's picture

So it is morally wrong to exit from a contract like a mortgage? Are you one of these people that equates killing with murder? Might as well equate speaking with lying (I know that is true for you here, but it isn't all the time).

LasVegasDave's picture

whose morals?  yours?

Were the home buyers immoral for buying more house than they could afford?  Or for not understanding what they were signing?  Or for using taxpayer money (via FNMA) to subsidize their home purchase?

You pays your money, you takes your chances

tarsubil's picture

What the heck, the bank gets the house if they did their job correctly and the person doesn't pay. If that ends up screwing the bank because it took part in fraud on a massive scale so the value of the house was fraudulent, screw the bank. The person has every right to walk away! There is nothing immoral about that. You are an idiot!

LasVegasDave's picture

and if the bank bargained for recourse debt, what then?

Since when is enforcing a debt immoral?

halflink123's picture

The key point is that it's NOT DISCHARGEABLE.

Do you know the difference between "recourse" debt and "nondischargeable" debt? Holy shit...

Omen IV's picture

no one  - including the students  - has to pay back on any bank loan of any kind - the banks are there to be taken down - they have committed massive fraud - the houses in many cases are worthless and the upkeep and taxes horrendous - if the banks dont want the properties screw them - if enough students just say: hell no we wont pay - they have millions of people to go after - impossible task  - civil disobedience is the answer to tyranny - bring on the chaos


TheSilverJournal's picture

Most of these student loans will never get payed back and they should be counted in the national debt along with all of the other off balance sheet debt which much of won't be payed back, which would have put the US over the 100% debt / GDP long ago.

mayhem_korner's picture



In the "student" loans racket, the students are a simply a transfer vehicle for the gubbmint to subsidize university administrators & teachers.

GeneMarchbanks's picture


Transactionism at its purest.

AldousHuxley's picture

The moonies have figure that one out long time ago. They own a univerisity in the east coast. They have revenue raising operations in eastern soviet bloc where poor people are prime for religious brainwashing. How do you transfer money from Russia into US without IRS detecting?


You have one of your brainwashed deciples in Russia go to church owned college in US. This person is poor so they can't afford it, so you give them a "scholarship" from church branch in Russia. This person takes the money into US and "pays" church owned school a tuition. Church owned school transfers the money back into church banks. Tada! have transferred $30,000/year legally! multiply that for 100 "scholarships" and easily a $3M/year money laundering scheme per country.


By the way moonies paid big bribe to ivy league school so their kids can get in. And they own majority of fish suppliers to top sushi places.


Church checking account is just a non-profit tax-exempt bank account for the moonies business just like the MORMONS who is about to get their chosen one become president of the USA.

mkkby's picture

Don't cry for the students.  They made their choice freely.  They could have gotten a useful degree or planned to learn a trade.  Instead, many took the "easy" money to party for a few more years instead of growing up.

To those who whine "they were duped" -- they knew better.  Deep down everyone knows a degree in culinary arts, fashion merchandising or art history ain't gonna pay off the loan.

cranky-old-geezer's picture



Student loans: The new subprime.

mayhem_korner's picture



Hyperinflation: like the soon-to-be USD, a college degree is a worthless, $200,000 piece of paper.

Tangurena's picture

One of the older students in my class has college age children herself. She said that she was required to co-sign her childrens' student loans and put herself into debt bondage forever.


I suspect that the final act will be to make student loan debt inheritable, and thus ensure the slavery of future generations. Hope you liked that degree in underwater basketweaving, as your grandchildren will be sold into slavery to pay for it!

dizzyfingers's picture

Wasn't student loan fix in the health care bill, and didn't Obama fix it a few weeks ago; pay not over 10% of annual income (whether $5,00 or $500K) for 20 years, then they're finished? I'm sure we read that article.

If not, go to grad school on Sallie then don't collect a paycheck. 

Hohum's picture


You mean income based repayment?  I think you can get the balance forgiven at the end of 20 years.  Of course, the forgiven debt is treated as income by the IRS.  Go IBR, get a tax bill!

Peterpaul's picture

And that will be a hell of a tax bill, too! If you "paid off" $4,000 a year (10% of your income at the average wage) on a $100,000 loan at 8%, in twenty years or so you are gonna owe about $150,000. So, with a tax bill now at about 39% of that, you would still owe Uncle Sugar almost $60,000! Thus, you might have written off $90,000, but you still end up paying $80k ($4k x 20 years) plus $60k (and interest) to the IRS. Thus, your debt still covers the loan principle and decent interest.

And to think, you end up paying $140k plus for a loan that cost the entity nothing!

Peterpaul's picture

And that will be a hell of a tax bill, too! If you "paid off" $4,000 a year (10% of your income at the average wage) on a $100,000 loan at 8%, in twenty years or so you are gonna owe about $150,000. So, with a tax bill now at about 39% of that, you would still owe Uncle Sugar almost $60,000! Thus, you might have written off $90,000, but you still end up paying $80k ($4k x 20 years) plus $60k (and interest) to the IRS. Thus, your debt still covers the loan principle and decent interest.

And to think, you end up paying $140k plus for a loan that cost the entity nothing!

ebworthen's picture

Most of the student loans can't be paid, and won't be paid.

The income and the savings are just not there.

rbg81's picture

Relax.  Its just another mechanism to compel them to be productive citizens of the Empire.

SilverIsKing's picture

Everyone will be off the hook when the dollar goes to zero.

cranky-old-geezer's picture



Yep, paying off a $100,000 student loan will be easy when bread costs $100,000 a loaf.

SilverIsKing's picture

When bread costs $100,000 a loaf, student debt will disappear.

mayhem_korner's picture



Yes...just send your loaf to the Student Loan Administration.  Come to think of it, I think I'll send 'em a loaf now.

SilverIsKing's picture


Yes, pinch one off and Fedex for morning delivery please.

James-Morrison's picture

I don't have a loan.  So send 'em an extra loaf for me.

CH1's picture

When bread costs $100,000 a loaf, student debt will disappear.

Sadly, it won't.

The whores in DC will just reset loan values, ex post facto.

The laws will be passed and the banksters protected, in the name of all that is holy.

Hohum's picture

Problem is many student loans have variable rates.  Uh-oh!

Catullus's picture

Except many of the student loans have variable interest rates. Killer.

Yardstick of Civilization's picture

Tyler, would you please tag this post with "student loans." I like to keep all these posts at my fingertips to send to younger generations believing that student loans are "no big deal."  Thanks.

NotApplicable's picture

In case it doesn't get tagged, you might just have to remember "Sallie Mae" as well.

I've found Gary North to be an invaluable source on this topic. Although, since he writes a lot of stuff from a hardcore Christian perspective, some people might not be receptive to his ideas (even though they are still applicable, as his focus on debt slavery and wasted time (as compared to an apprenticeship where you learn while you get paid))

Here's one of his articles over at

nodhannum's picture


Amen, we have a winner.  I live in the glorious peoples demoKratic republic of Chapel Hill, home of the UNC.  If one goes to Whole Foods during the day, one would think they are attending a reunion of the "3.SS-Panzer Division Totenkoph" for all the BMWs and Mercedes in the parking lot with profs buying "organic junk" at triple the price of Harris Teeters.  You got it mayhem_korner, the left elites that care so much for the downtrodden feeding at the governments trough.


ffart's picture

Hey that's not fair, those SS troopers actually had to work for a living.

daveeemc2's picture

you are uninformed. Go read up what certified organic means.

Me personally, i am not as hip as you. I personally dont like to eat stuff grown from my neighbors toilet

If you prefer farmers using human sewage ( on farm fields, then please, by all means, continue to ignore labels.  Go read up on HR254 - Sewage Sludge Notification( and EPA Title 40, Section 503 - Land application of sewage sludge($FILE/503-032007.pdf).  Its real, its happening, and u dont have a clue.

I think it is directly related to all the MRSA in meat, and ECOLI in raw cookie dough. 

Enjoy the stomach craps, that, of course, is if u survive.

Its amazing what your government doesnt tell u, no?

Rearranging Deckchairs's picture

I think its ironic you bring this up given your avatar. He had a bit about being proud to eat food off of the floor and only washing his hands after a number two.

DaveyJones's picture

not sure Whole Foods is not a hypocrite in this arena as they continue to refuse to label the food they sell that is genetically modified. I am the first one to fear modern industrial food but Whole Foods could be more consistent

Lednbrass's picture

Youre both a bit off and overstating things here.

Getting certified organic isnt a bad thing and it does prevent chemical and sewer sludge usage, but not being certified hardly means it is grown with sewer waste which is not common practice though it does happen.  As it stands, organic certification is set up to benefit the very large farms (generally using illegals) with its 20 page application and $600 annual fee that pushes small farmers out of the market.

On the flip side, organic certification does require that you use animal waste if you want any hope of growing with sufficient yield to make it financially viable.  Be clear that you are eating food grown the majority of the time in untreated cow, horse, and chicken shit/piss as opposed to treated and processed human shit/piss.

No matter which way you go, there is excrement involved.  Nitrogen doesnt magically appear, and while using crop rotation and nitrogen fixing green manure in the winter can help it comes down to shit or chemicals- and since you cant use chemical fertilizers and get certified organically it comes down to animal crap and urine.

In the end, its a pick your poison.