History Shows Debt Relief is All-AmericanRoundup
tags: debt, student debt, Debt Relief
Chloe Thurston is associate professor of political science and Institute for Policy Research faculty fellow at Northwestern University. She is author of At the Boundaries of Homeownership: Credit, Discrimination, and the American State and co-author (with Emily Zackin) of The Political Development of American Debt Relief, to be published in 2024.
Emily Zackin is associate professor of political science at Johns Hopkins University and author of Looking for Rights in All the Wrong Places: Why State Constitutions Contain America's Positive Rights, and co-author (with Chloe Thurston) of The Political Development of American Debt Relief, to be published next year.
On Friday the Supreme Court ruled that the Biden administration’s plan for student loan debt relief exceeded its statutory authority. In addition to the legal challenges the plan faced, prominent Republicans — who cheered the ruling — have argued that the concept of student debt relief runs counter to our country’s deepest commitments. As Arkansas Gov. Sarah Huckabee Sanders tweeted, for example, we should not require taxpayers to “pay off $300 billion of other people’s debts … It’s un-American.”
But history reveals that such claims are false. For much of the country’s history, Americans have pressed their governments for relief from debts — and often, legislators granted it. This long tradition suggests that today’s ruling won’t put an end to the debate over debt relief, and the activism associated with it may yet pave the way for new protective policies.
Even before the U.S. Constitution was adopted, indebted Americans sought relief. Over a six-month period between 1786 and 1787, thousands of armed farmers, calling themselves Regulators, marched on courthouses in organized regiments, preventing judges from issuing judgments against debtors and freeing them from prison. Although this insurgency, known as Shays’ Rebellion, ended in military defeat, the Massachusetts state legislature ultimately issued a moratorium on debt collection, as did the legislatures of several other states.
Other debtors pursued similar ends through less violent means. In 1819, for instance, when the United States entered an economic depression, Kentucky was particularly hard hit, and many residents urged the state legislature to provide debt relief. Lawmakers responded with zeal. In 1820, they chartered a new bank, and authorized it to lend up to $1,000 (almost $26,000 in 2023 dollars) to individuals for the repayment of “just debts.”
The Kentucky legislature also went further, stipulating that creditors must accept repayment of debts in the form of (badly depreciated) notes from one of two state banks. If they refused, a debtor could delay repayment for two full years. When the state Supreme Court declared this law unconstitutional, the legislature passed a statute creating an entirely new court. Unsurprisingly, the old court deemed this move yet another violation of the state's constitution, and for three years, both high courts remained in operation, each refusing to acknowledge the legitimacy of the other.
While Kentucky’s court standoff was extraordinary, the legislative effort to protect over-indebted borrowers was common throughout the 19th century during times of economic hardship. State legislatures also prohibited the sale of mortgaged properties at too great a discount from their former value, and passed “redemption laws,” extending the time available to debtors to buy back their mortgaged properties once they had entered foreclosure. Some even closed their courts temporarily to prevent the issuance of judgments against debtors. State legislatures were also responsible for the proliferation of homestead exemptions, which shielded a portion of debtors’ assets from collection even if they could not repay their debts.
Courts deemed many of these measures unconstitutional, but state legislatures continued to pass them, calculating that the political benefit to passing these laws outweighed the risk of a judicial determination that they overstepped. One pro-debtor newspaper in Kansas urged its legislature to enact a stay law in 1890, remarking that “if in the opinion of the Supreme Court it should prove unconstitutional, no harm will have been done.” Chiding legislators for their “fear,” the columnists pointed out that, “Legislatures [had] passed unconstitutional laws before.”
Crucially, farm organizations repeatedly mobilized their members to fight for debt relief. They also worked to ensure that Americans did not perceive over-indebtedness as a personal failing.
These efforts shaped the politics of the issue.
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