Monday, November 23, 2009

The Debtor's Prison of Today

Imagine yourself as a farmer in the early 1800s. You probably own a 40-acre farm with a 1/2 dozen milking cows, a few heifers, a team of horses and some crops in the field. You’re a farmer. Unlike today where you get your guaranteed-to-germinate seed from Monsanto in 1840 it was a hit or miss situation. A few years of bad harvests, animal disease and you find yourself in debt. Your creditors come after you for payment and after a while a few persistent ones get a judgment against you. The judge orders you to pay. They liquidate all your possessions, but there is still money owed. You and your entire immediate family are put in a jail. In some cases they would keep you in the jail until your debt was satisfied.(1)

The jails were dirty being nothing more than large rooms broken into cells with steel bars to keep the debtors in. Disease was rampant and typhoid was known to spread from person to person. Many times more than one family lived together in a cell. They would let family members go out to work and then return every night until the bill was paid. The local court or town would put up markers to delineate how far away from the jail a debtor could go to get a job to pay off their debts. Any farther away and they would be charged with escape. Those with large debts could be living in debtor’s prison for years. Sometimes only the head of the household was imprisoned leaving the rest of the family to satisfy the debt. The family would also be limited in their travels.(2)

Until the mid 1800s a person could be jailed in the US for failing to pay off debts, fines and even taxes. Many times you were not only expected to liquidate the debt to get out of jail but also to pay for the cost of your imprisonment.(3) Originally, the whole idea of a debtor's prison was to encourage repayment of the debt as quickly as possible. Imprisoning people was incentive enough however many simply did not have the skills to take care of the situation. Debtor’s prisons were legal in the US until 1833 when the government passed laws to end the practice.(4)

Most would say that today debtor’s prisons no longer exist. You cannot be jailed because you owe money on your JC Penny charge card or that you are 3 months behind with the pool guy. They just don’t treat debt that way any more. The only way you can be imprisoned for a debt is if involves certain types of fraud, alimony, or child support. Otherwise there are bankruptcy laws and reorganization programs to take care of debt. However, this is starting to change.

Just recently a judge “in Southern Indiana, decided that debtors’ prison needed a comeback. In one case Herman Button, who owed $1,800 to a former landlord but had no assets or income beyond social security, was summoned to court where a … judge threatened him with contempt and imprisonment if he did not pay.”(5) Although a higher court overturned Button’s imprisonment the precedent has been set. Additionally, just as in the past where not only would you have to serve and pay off your debt many prisons are charging prisoners for room and board.(6)

I am not worried about the debtor’s prison of the past coming back into vogue. The idea of going to jail in our modern society is not very reasonable. There would be no way to obtain satisfaction on the debt. Debtor’s prisons today are more much more insidious. There are no bars on the windows or jailer’s keys to unlock the door and yet we find ourselves locked in today more than ever. And although the signs are no longer there at the edge of town to draw a line in the sand there are walls now which lock us in and we can’t see. Today our credit scores limit us. They control the types of loans we can acquire and the interest rate we are locked into if we successfully get a loan. Many will say that this is our own fault, that we are the masters of our credit score. This is a true statement in many cases, however there are those who have befallen on hard times because of no fault of their own.

How many of us have gone for a car loan and heard the salesman say something like, “Listen, the payment seems a little high now, but remember you’ll be getting a raise in the future and today’s dollars won’t be worth the same in the future.” To many the logic was there. In the 1940s my father worked for about $35 a week and could feed a family of three, own a used car and pay rent on an apartment. What’s $35 today? Lunch for two. A sale was made and a car was bought on the promise of the future. But how fast things could change with the loss of a job, or with a prolonged illness or hospitalization and the debt rises fast. The only loser is the debtor. The car dealer and the salesman were paid. The bank will eventually get its money back through repossession of the car and the forced repayment of the debt. The only options for the debtor are repayment or bankruptcy.

This is the situation with student loans. Men and women of all ages decided to go back to school with the promise of a better future. Certainly in our society the higher your education the better your chances of a better life. The “good times” would have been limited to the wealthy if it was not for the federal and state student loan programs and the compliment of private student loans. Many of those who took loans out were following the logic of the used car salesman. Student borrowers, because of their lack of experience about finances and interest rates, were taken advantage of by the banks that will always get their money. The colleges had great degree programs that are expensive but have the promise of a fantastic life if you succeed. Banks with the help of the federal governments willingly gave out money telling their borrowers not to worry. Students/debtors would have to repay but once they got their fabulous job because of finishing their degree, the loan repayments will be negligible over time.

It all works until there are bad economic times. Just as with the car owner, the student is the only one who will get hurt. The difference is the banks can’t repossess the degree, but they can put you in a virtual debtor’s prison. (At least it’s virtual for now.) If the student defaults on his loans, the universities have already been paid. Whatever portion of the loan isn’t guaranteed by the federal government, the banks will force the student to repay over time. While the repayment is occurring the student is branded with their credit score. It locks them into a life of sub-standard housing and transit. In some places mass transit is non-existent and good personal transportation almost impossible. Then there is the situation of a student that hasn’t finished their degree but cannot get a loan because of their credit score. Because of this the banks ensure repayment regardless of the hardship the debtor is going through or the suffering of their family. These are not people who were greedy trying to have physical possessions but went on a journey to better themselves and those around them.

The current economic situation has collapsed academia in significant ways. Some colleges are cutting back on classes, which means fewer professors hired and fewer students attending because of lack of loans. Graduates are finding themselves with fewer job prospects but with the debt of school hanging over their head. Even if they get a job, it may not be in their field or the salary has been reduced for new hires. Unfortunately, the cost of living continues to rise without any relief in sight. At times graduates can find work to live on but not to cover the school loans. They find their credit scores not just keeping them out of the housing market, but out of the running to rent decent apartments. The problems are starting to compile. If the situation continues you will see bankruptcies in the student population rising. Even though the school loans can’t be discharged they will cause students to default on the others. The worst-case scenario would be a large educated disaffected class of people who are without work and in debt with nothing to lose. They’re in debtor’s prison and may be there for years.

1) Michael Pollick, “What is Debtor’s Prison?” Wisegeek, what-is-debtors-prison.htm (assessed November 19, 2009).
3)MyVesta US, “History of Credit and Debt,” MyVesta US, history_debtorprison.html (assessed November 10, 2009).
4) Pollick, “What is Debtor’s Prison?”
5) Marlys Harris, “Could Debtors’ Prison Make a Comeback?”, (assessed November 11, 2009).
6) Ibid.


  1. That is a very good article! I am glad there is no debtor's prison, but these days going to prison might be luxurious to some people! You can study, get a degree, get 3 hots and a cot, get some buds to hang out with and form a gang.. I myself have fallen in the the credit card trap and my score is terrible! Amazing how much your score is checked now, sometimes even by an employer!

  2. As Noam Chomksy said in a recent email to me, it's a debt trap. A debt trap has been effectively created to strip students and progressive intellectuals from dissidence.

  3. Another brilliant essay, Dr. Rugenstein. You couldn't possibly be more correct.

    I just fundamentally don't understand what is going on and why the Powers That Be allow the situation to continue as it is. Consider:

    *The President has set a lofty goal for increasing the percentage of Americans with post-secondary degrees by 2020, yet those with degrees now can't find work - or wind up woefully underemployed (i.e. a cashier at a grocery store).

    *A recent edition of "On Point with Tom Ashbrook" centered around a discussion of how Asian countries are rapidly catching up to us in higher education; the People's Republic of China already produces more engineers than the United States does.

    *During the same program, a caller questioned one of the panelists about increasing the number of engineering graduates in the USA because of the shortage of job openings for those that we already have. The panelist (former president of MIT) dismissed the argument - in his opinion, we have to produce more engineers (his obsession) in order to produce jobs. (Does that sound backwards to anybody else?)

    *Some career fields were already in dire straits before the Great Recession. The Recession has just made matters worse. For example, recent projections indicate that last year, there were four times more MLIS graduates than there were job openings for them.

    *Despite everything, most universities appear to have their heads in the proverbial sand. My alma mater, a small state-owned institution, tore down all of its old dormitories and replaced them with new, state-of-the-art dormitories. The trouble is that there are fewer rooms available for students than there were with the old dorms and the cost of room and board has increased substantially. A university that is theoretically dedicated to affordable, quality education is deliberately becoming less affordable.

    Whatever happened to the ideals of fairness and social justice? When did it become acceptable for capitalism to take over our entire society? Is there no longer any such thing as an intrinsic good, like art or music or all of those other "impractical" fields? (History?) When did the wealthy decide it was acceptable to abdicate their responsibility to those who have less than they do?

    I just don't get it.

  4. Nice blog. I "OWE" you a "DEBT" of gratitude for exposing me to it. It reminded me just how insidious universities can be with regards to entrapping a student into ever deeper debts during hard times. That is, when the purse strings are tightened, tuition goes up quickly, at a rate perhaps not matched by the loans. I wish that all universities would lock in a set rate of tuition (having an annual 3% cost of living adjustment is fine, with a cap of a 5 year term) so that the student does not have to decide whether to finish one's degree or eat every day. (And don't tell me that a university can't financially plan ahead -- they are an institution of higher education... hello?!) Instead, imagine that at the onset, a student can decide whether the loan terms are agreeable for the expected entirety of the degree. Car loans work this way. Fixed rate home loans work this way. Why not also the school loans? As for the student who needs extra time to finish the degree, then treat it just like any other refinancing (using the rates of the day, for better or worse). Seriously, it's just another layer to the virtual debtor's prison of which you wrote.

    Submitted to Facebook by Tenebrus

  5. "You cannot be jailed because you owe money on your JC Penny charge card..."

    Unfortunately, it appears that this is already no longer the case. As Minneapolis Star Tribune writer Chris Serres says in the video accompanying his informative article "In jail for being in debt":

    "One woman, for instance, was trying to park downtown one afternoon, and she was arrested on the street, all over a $250 dollar J.C. Penney credit card..."