Can Bitcoin Solve the US Student Debt Crisis?

“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.” — Satoshi Nakamoto

Educational philosopher and revolutionary Paulo Freire (1954) called the mainstream system of education the ‘banking system’ based on his critique of how the industrialized education system devalues critical and independent thinking much like a central bank debases fiat currency. Crypto-enthusiasts who have escaped the centralized banking system can quickly understand Freire’s ideas, as they parallel Nakamoto-san in relation to liberating the currency of knowledge.  

In Freire’s critique, each child is perceived by the industrialized education system as a “bank account” to be “filled with knowledge.”  The more knowledge that the child accumulates, the bigger the bank account. The bigger the bank account, the more happier the child becomes in life. And gaining educational currency from the more reputable “banks,” like universities, increases one’s “wealth” even more.

Like the outdated and easily corrupted global financial system, we can still see the banking system of education prevailing across the World from those who promote “get an education, get a good job” to “become more elite” narratives of education valuation. Neither of these narratives hold true, as more graduates are unemployed and in education debt than ever before.

Education Debt in the United States is 7.8% GDP

The clearest failure of financing education is found in the good ol’ USofA, where student debt is second only to property as the largest area of debt (Forbes, 2019). Students and their families often borrow large amounts of debt that earns an average of 8.7% p.a. interest for government-backed lenders, bankrupting education borrowers for life who cannot pay due to legislation that restricts defaulted debt to ever be forgiven. Students believe that having a qualification will increase their status and job opportunities, only to find out that with the salary of most jobs - or working in the post-automation “gig” economy - they are more likely to be paying off their debt and accumulated interest than buying a home, paying rent, or even financing lifelong learning opportunities for themselves and their children. The 2020 numbers show the extent of the education debt crisis which, if left to the existing ‘banking system’ of student debt, will only worsen:

• Over 45 million Americans are in Student Loan Debt, a total of over $1.6 Trillion Dollars  
• Student Loan Delinquency Or Default Rate: 10.8% (90+ days delinquent)
• Direct Loans - Cumulative In Default: $119.8 billion (5.5 million borrowers)
• Direct Loan In Forbearance: $122.9 billion (2.8 million borrowers)

The trend continues, to where the US student loan debt rose from $480.1 billion (3.5% GDP) in Q1 2006 to $1,683 billion (7.8% GDP) in Q1 2020:

Figure 1, Outstanding Student Loans in USA. Source: BEA Board of Governors

Black Student Debt Matters

If #BLM then why is this group so disproportionately in student debt? In relation to student debt, the New York Times reports "recent black graduates of four-year colleges owe, on average, $7,400 more than their white peers. Four years after graduation, they still owe an average of $53,000, almost twice as much as whites."According to 2019 data by thinktank Demos, even 12 years after entering a degree program:

• White men paid off 44 percent of their student-loan balance
• White women paid off 28 percent
• Black men saw their loan balances grow 11 percent
• Black women saw their loan balances grow 13 percent

If black people could have any justice, it would be justice of equal access and opportunity due to striving hard for a good education. But the student debt system clearly keeps this group behind. Yet, with only 44% of those 'evil' white males able to pay off their loans AFTER 12 YEARS, then cancelling the debt would seem - on the surface - to be the best government option, yet why would they shoot themselves in the foot? It's like saying "Use bitcoin instead of the US dollar" - there is a great benefit to the people but zero benefit to the government apparatus and existing banking system.

No Sensible Economist Would "Cancel Student Debt"

Some well-intentioned but economically-naive individuals argue the US government should “cancel” education debt, as if by printing money the problem would solve itself. But even socialist economists would agree that printing $1.6 Trillion would immediately cause a further recession, not create a single job, and create a new problem for the next generation whose debt would only increase due to the cancellation of the previous generation in a spiral downwards towards economic failure.

Now with COVID causing an already unsustainable burden on housing, healthcare, and the national debt, student loans - much lower on the survival scale - will noton’t be “cancelled” anytime soon. To add to this political point, many of the richest and most capable Americans do not even have a degree. Asking these US-American capitalists to pay for someone else’s education that inevitably would lead society into economic turmoil is like asking businesspeople to learn latin so they can read archaic academic whitepapers. It may be ad captandum vulgus but in the end it is only ad absurdum.

Education Debt Around the World is Unsustainable 

“In problem-posing education, people develop their power to perceive critically the way they exist in the world with which and in which they find themselves; they come to see the world not as a static reality, but as a reality in process, in transformation.” - Paulo Freire

Although it is easy to decry the unsustainable costs of education in the US where the problem is most significant, student debt around the World is also significant especially when taking into account the associated costs of housing, food, and transportation. For domestic students and public universities worldwide, the cost is far less than for international students, yet in every case the financing of education comes from taxpayers, which is unsustainable in its current form.

Furthermore, the cost of education in a democratic country like the USA is the main deterrent for international students wishing to study abroad and bring back a wealth of knowledge to improve their homeland. Thus upward mobility, intercultural understanding, and increasing 21st Century skills is halted due to education debt. To put this into perspective, the following infographic from HSBC bank indicates some average costs for international students around the World:

Figure 2, Average Cost Per Country, Higher Ed. Source: International Business Times, 2019

The Corrupted Banking System of Education

Besides failing to create inquisitive, independent thinkers who improve life on the planet and achieve greatness, the problem with the ‘banking system’ of education is that knowledge is controlled by the bank.  It is the bankers (i.e. existing power structure) that determines what knowledge is, who can obtain it, and how it is used in society. As Freire pointed out, the banking system recreates oppressive centralized structures that privilege a few and keep the majority under their control, because the only way upwards is to literally be indebted to the education banker rather than become an independent thinking human being. Freire’s solution was to teach the working class in low-income economies how to “rename the World” based not on the banking system, but on helping them understand self and collective interest. 

We can easily make a parallel with Paulo Freire and Satoshi Nakamoto, the inventor of Bitcoin.  In Nakamoto’s view, the financial system requires a large amount of public trust in the centralized bank. This system, as he pointed out, not only determines value and perpetually limits the free flow of value across borders, but also changes at the whim and fancy of government actors only focused on their own temporary power interests. 

As we can see with the global financial crashes, rampant corruption, and mismanagement of resources literally destroying the environment as well as keeping millions in unserviceable education debt, that i’s no way to run a bank! But like Freire, the only solution Nakamoto saw was an alternative mechanism that does not require trust in the bank or national governments and has no central authority to determine its interest. Therefore, the reinvention of how education works through these new systems can be seen as the first move towards a trustless, decentralized financing of education. 

Education, like Bitcoin, is High-Risk for Poor People

The key element of financial success is managing risk. In financial markets or Bitcoin, people take risks, but education is still falsely seen as "safe." For most graduates there is no safety. Investing in your child's education is now a bigger risk than Bitcoin. How many millions of graduates are working way below their abilities? How many new jobs for graduates are being created? If you invested in Bitcoin yesterday, last year, or anytime since it's beginning your financial position would be 1,000% higher than the financial value of a Bachelor or Master's degree. Education is a much higher risk than Bitcoin yet people are still taking a lifetime of debt in order to get educated and still reluctant to embrace cryptocurrencies as alternative finance.

So "Bitcoin" by itself cannot solve the student debt crisis, unless the students in debt have enough disposable income to invest and take the risk in Bitcoin. Since they don't (hence the 1 million people per year in the US who default) they remain both in debt and lack any investments. The poor stay poor, no matter how good they are educated.

It's nice to think of "Bitcoin" and other cryptocurrencies as a solution to the issues surrounding the current financial system, but the only way Bitcoin would even get close to minimizing this deficit would be if UNIVERSITIES ACCEPTED BITCOIN FOR TUITION AND THE US GOVERNMENT ACCEPTED BITCOIN AS A PAYBACK FOR LOANS. Unfortunately this unlikely to happen, and low-income populations will continue to be oppressed by their simple goal to become educated.

My Solution: Smart Contracts that Pay for Education Achievement

But there is good news. Like Bitcoin for financial markets, a well-conceived decentralized blockchain system for education will create interest for stakeholders and initiate alternatives to the existing dysfunctional education finance systems. Bitcoin is only a digital currency and store of value, but Ethereum has pioneered "Smart Contracts," which if used properly, could reverse student debt completely. We are already getting started. With open badges and smart contracts enabled by DeFi, GetSmart aims to solve three crises in education: 1) reverse trillions of dollars in student debt  2) easily verify credentials, and 3) sharply increase learner engagement.

*Note* The full "GetSmart" Whitepaper can be commented on or downloaded here: https://get-smart.net/whitepaper/