Many Americans have no choice but to take on debt to survive: to access necessary medical care, a basic education, essential transportation, and to cover other basic needs in the midst of a housing affordability crisis. And once they’ve fallen into debt, many find it nearly impossible to claw their way out of it. One out of every three adult Americans has a debt that has been turned over to a collection agency. Over $1.7 trillion in student loans are currently outstanding. Half of all Americans carry medical debt, and more than half of Americans (57%) with medical debt owe at least $1,000.
But rather than shift priorities to ensure Americans can get by without turning to credit, lawmakers continue to throw credit at the problem, and then punish borrowers when they struggle to repay. The credit lobby has convinced Congress to erect barriers to debt relief for families and households that have “consumer debt” based on the myth that people are strategically running up debt on their credit cards, buying frivolous consumer goods, and then “abusing” the bankruptcy system. Meanwhile, many still believe that if you only take on “good debt” and avoid “bad debt” you can avoid default and financial collapse. These myths are all based on the libertarian belief that debtors are just individuals exercising their free will in a free market.
In truth, the “free market” is not so free. The U.S. banking system could not function without government intervention. The question is not whether the government will intervene in the market, but to what end. Historically, government interventions have disproportionately aided financial institutions and corporations; when the government did extend aid to households, white households disproportionately benefited and Black households were often explicitly excluded from gains. In the wake of the 2008 financial crisis, for example, the government bailed out financial institutions rather than households. Millions lost their homes, and Black households lost more than double the wealth that white households did. As another example, millions of mostly white American property owners can trace their wealth back to the Homestead Act or subsidized Federal Housing Administration loans, both of which excluded Black and other marginalized Americans.
In my recently published book, Dignity Not Debt, I argue that when it comes to debt, policymakers should turn away from the free-market framework and toward the principle of human dignity. The free market approach, which is grounded in an ideal of efficiency, has been effective in large part because it purports to offer a clear and universal north star to guide debt policy. Therefore, if we are to replace it, we must choose a new guiding principle that is equally clear and universally understood. The principle of human dignity is the best candidate because it captures our shared understanding that everyone possesses an inherent dignity which others must respect. At its core, the principle of human dignity recognizes the intrinsic worth of every person. A foundational concept in human rights law, the principle is already deployed around the globe and codified in dozens of human rights instruments. It carries substantive human rights obligations, including rights to privacy and due process, rights to be free from discrimination, and rights to housing, education, and water, among others.
What would America’s household debt landscape look like with human dignity as our north star? How would we decide what credit to encourage and what to discourage or abolish? I offer three tenets, based on the overarching principle of human dignity, that are applicable to debt policy. These tenets serve as a foundation for a new taxonomy that reflects the reality of household debt and provides policymakers with tools for crafting just and sensible debt policy. First, respect for human dignity requires that each person be able to meet their needs and enjoy life without degradation and fear. Second, respect for human dignity requires that no person be treated as a means to another’s end. Third, respect for human dignity requires true equality—not just equal treatment, but a redistribution of power, wealth, and resources to ensure equal dignity for all.
The first core tenet, creating conditions under which each person can meet their needs without degradation or fear, suggests the need for a category of debt I call survival debt. Survival debt, as I define it, is debt incurred to enable the debtor or members of their household to survive and achieve a standard of living consistent with human dignity—to be able to access housing, food, clothing, and care. Examples of survival debt include medical debt, a payday loan incurred to avoid having utilities shut off, groceries put on the credit card when income falls short, and debt incurred to acquire an education sufficient to earn a living wage. Because so many Americans struggle to make ends meet, millions of households turn to survival debt to close the gap between income and the cost of necessities, especially in the wake of an emergency such as job loss or illness.
The second tenet, that no person should be used as a means to another’s end, suggests the need for a category of debt I call extractive debt. No one should have to incur debt that only benefits someone else. As such, extractive debt is predatory debt that: 1) primarily benefits someone other than the borrower, and 2) is substantially likely to harm the borrower. Examples of extractive debt include payday loans, subprime home equity loans, and high-cost education loans. Extractive debt, as I use it, also includes debt incurred to acquire a resource or opportunity that in actuality lacks any substantial value, such as a car that is a lemon, or a dilapidated home that will require more funds to repair than the value it will provide, or a degree at a for-profit college that is unlikely to lead to better job prospects. Extractive debt also includes municipal fines and fees that have a primarily revenue generating purpose—for example, the city of Chicago’s use of parking fines.
The third core tenet, true equality, suggests the need for a category of debt I call opportunity debt. Opportunity debt, as I use it, is debt incurred to acquire additional resources, assets, or opportunities that will create more household value in the long run. True equality depends on the allocation, distribution, and acquisition of wealth, resources, and opportunities. Therefore, a taxonomy centered around respect for human dignity must be cognizant of the relationship between the debt and the opportunity it might provide. Opportunity debt includes debt incurred to acquire an asset or resource, such as a home or car, or debt incurred to acquire a non-tangible opportunity, such as an education.
The principle of human dignity not only helps us distinguish one debt from another, but it can also inform policymaking. That is, it helps clarify the appropriate treatment for each category of debt. Specifically, I argue that to preserve human dignity we must take an abolitionist approach to both survival and extractive debt. Survival debt subjects us to degradation and fear, and extractive debt treats us as a means to an end—these are incompatible with the tenants of human dignity. In addition, the tenet of true equality mandates a reparative approach to opportunity debt.
In advocating for an abolitionist approach to survival and extractive debt, I take inspiration from the prison abolitionist strategies of grassroots organizations like Critical Resistance. An abolitionist approach to household debt policy requires us to ask questions like: Does this policy reduce the reliance on debt as a means for survival? Does this policy challenge the notion that debt is a solution to poverty and inequality? Does this policy reduce the scale of credit-based dispossession?
An abolitionist approach to survival debt requires the government to ensure access to basic needs such as affordable and dignified housing, transit, medical care, and education. There are some cities and states taking steps in the right direction. For example, Minnesota now offers free school meals to children, free tuition at public colleges for families earning up to $80,000 per year, up to 18 weeks of paid family and medical leave, expanded health insurance access, and a child tax credit of $1,750 per child for households making up to $35,000 per year (gradually phasing out up to households earning $96,250). Minnesota’s approach is consistent with an abolitionist approach to survival debt in that it provides direct resources to households, reducing the need to rely on debt for survival. Since the enactment of these policies, 670,000 Minnesotans have been lifted above the poverty level.
What about an abolitionist approach to extractive debt? The abolition of survival debt would largely abolish extractive debt, since much extractive debt is also incurred out of necessity. As long as people rely on debt to survive and access opportunities, there will be a market for extractive debt. It’s just too profitable for lenders to quit pursuing, and regulators will constantly be playing catch-up. For example, when some states banned payday loans, lenders just switched to small-dollar installment loans that caused many of the same harms. Reformist measures such as increased consumer education and disclosures will not work; one study of borrowers who took out abusive payday loans found that over a third of participants would have taken the loan no matter how costly or unfair the terms were. Disclosure-based reform is at odds with an abolitionist approach because it suggests there are situations where it’s acceptable to borrow for survival. Such measures also give the illusion that extractive debt can be rendered safe by reading the fine print.
While I urge an abolitionist approach to survival and extractive debt, I propose a reparative approach to opportunity debt. Historic and ongoing discrimination—public as well as private—means that Black and other marginalized households are more likely to incur survival debt, and more likely to be offered extractive debt. Since much of white wealth can be traced to homeownership or land policies that the government extended to white households while excluding Black and other marginalized households (the FHA and Homestead Act are just two examples), government policies must now extend actual resources, like grants—not just credit—to those historically excluded. Evanston, Illinois, for example, has taken a step in the right direction by providing housing grants to Black residents.
It’s entirely possible that equity and capitalism are wholly incompatible. But the U.S. hasn’t actually tried a version of capitalism in which we the people refuse to prioritize profits. Voters can insist that our tax dollars fund households, not corporations. Voters can also demand that federal, state, and local governments redress the historical theft of wealth from Black households and communities. If policymakers followed the principle of human dignity rather than the myth of the free market, Americans would not need to turn to debt in order to survive, and a just and equitable economic landscape could emerge.
