Millennials like socialism. It’s no secret that many of them vote for “democratic socialists” such as Bernie Sanders, and a 2019 poll found that “45% of Generation Z and Millennials believe that ‘all higher education should be free.’” This trend includes a fair number of Catholics, who, as Brianne Jacobs wrote for America in 2018, feel that the existing economic order and its persistent inequality is “making it hard to own a home, get married, have children or pay off student debt.”
Jacobs and millions like her point to a real problem: birth rates are down, including among Catholics, and student loans are a heavy burden that contributes to that decline. Young people often feel gypped by a society that told them college was the only foundation for financial security, only to let them graduate at the bottom of a $100,000 hole. But are socialist policies such as tuition-free college and student loan forgiveness—which would ultimately transfer the costs onto other taxpayers—the correct response? Does the vast Catholic intellectual and moral tradition suggest more just and effective ways to solve the problem of student loans?
Loans and usury
Catholic teaching on loans is primarily focused on usury and whether or when it is acceptable to charge interest on loans. Although countless Church documents and saints have condemned usury as a mortal sin, there is some difference of opinion on what exactly usury is. Two main views prevail. Both views concern whether it is ever morally licit to charge interest on a mutuum. Mutuum is a Latin word that means a loan of a fungible or consumable thing. Literally, it comes from the words “meum tuum” or “mine yours,” because the nature of such a loan is that the borrower takes ownership of the specific units “loaned” and personally promises to pay back the same amount and type of thing instead.
Think of borrowing eggs versus borrowing a book. If I borrow a book from my neighbor and fail to return it, she could theoretically come over and take the book back. This is not a mutuum; her book does not become mine. If I borrow two eggs from my neighbor to bake a cake, those specific eggs become mine; my neighbor can’t repossess the same eggs if I fail to repay her, because I have cracked and eaten them. Instead, she simply hounds me to repay her with two other eggs. This is a mutuum. And it would be the same if my neighbor lent me five dollars; I would spend the five dollars and repay her later with different dollars.
In modern terms, we might call this a full-recourse loan or simply a personal loan. This is different from other types of contracts that might appear to be loans, such as a mortgage or a business investment, where an object—a house, land, or part of a business—is being sold or rented in some way, so the Church does not consider them when speaking of usury. However, student loans fall under the definition of a mutuum: a lending institution lends money to a borrower who will spend it on college, then pay it back later, generally with interest. And this leads us to the question of whether charging that interest is morally acceptable.
One view, which I’ll call the “strict” view, holds that it is always gravely morally wrong to charge interest on a mutuum. This view is supported by, among others, Aquinas. In De Malo, he explains:
But regarding the things whose use consists of consuming them, the use of the thing is only the thing itself…. Therefore, when a person lends money with the stipulation that the entire sum be returned, and the person in addition wants to have a fixed recompense for the use of the money, the person evidently sells separately the use of the money and the very substance of the money. And the use of money is only its substance, as I have said, and so the lender of money at interest sells nothing or sells the same thing twice, namely, the very money whose use consists of its consumption. And this is evidently contrary to the nature of natural justice. And so lending money at interest as such is mortal sin. (Thomas Aquinas, De Malo, Q. XIII art. 4c; emphasis mine)
A prolific Catholic blogger, who went by the pseudonym “Zippy” during his too-short life, sums up Aquinas’s view succinctly, saying, “Aquinas compares [charging interest] to attempting to sell wine and the consumption of the wine as two separate things.” Applying this to student loans, we could say that lenders who charge interest are selling money and the spending of money as separate things, which is inherently unjust.
Although different arguments for it were proposed through the ages, Aquinas was far from alone in his basic view that charging interest on a mutuum was per se unjust. A fifth-century document called Ejiciens, which was incorporated into Gratian’s 12th-century Canon Law, had already stated that money could not be leased in the same way as a house. This, the author argues, is because money is useless until you need to spend it: a lender is just as well off whether his extra cash is in the hands of a borrower or under his mattress. To charge “rent” on money is to charge for nothing. And, as late as 1745, Pope Benedict XIV issued the encyclical Vix Pervenit, which stated clearly that charging interest on a loan (mutuum) is a sin, even if the amount of interest is low.
Lastly, the aforementioned Zippy—whose strange pseudonym was used only to protect his family’s privacy and should not lead anyone to discount the weight of his arguments—also emphasizes the personal guarantee inherent in a mutuum and says that this “makes usury fall into the same genus as slavery.” It sounds extreme, but let us follow the logic. Lending for the sake of interest is an attempt to invest in a person the way one would invest in a property or business. It claims a right to the fruits of the borrower’s future labor, beyond what was lent. This objectifies the person and is akin to slavery.
With student loans, this point is very clear: a lender invests in a borrower’s education, expecting to gain back the cost of that education plus more when that borrower finishes his degree and (hopefully) gets a job. But, to invest in a person’s education and expect to profit from the person’s work is the same as investing in a person and expecting profit from a person. The education cannot be repossessed if the borrower defaults; his work cannot be separated from himself. Though admittedly in milder form, this is similar to how someone who buys a slave attempts to invest money in a person in order to benefit from that person’s future work.
So, the “strict” view holds that charging any interest on a mutuum is gravely sinful because: 1) it violates the natural law by trying to sell nothing, or sell the same thing twice, 2) the view that it is sinful has been confirmed repeatedly in saints’ writings and Church documents, notably Vix Pervenit in 1745, and 3) according to one recent author (“Zippy”), usury, in a sense, attempts to objectify and enslave the borrower. In this view, student loans should only be provided as an act of charity, interest-free.
The other view, which I’ll call the “developed” view, holds that usury is a sin of charging interest on a loan beyond what the lender is actually entitled to. In fact, this is also the “strict” view, as we shall see. But the difference between this and the other view is that the “developed” view emphasizes two major developments that influenced Catholic thought regarding what might justify the lender charging something above the principal.
The first development is that of what were called “extrinsic titles.” Many saints and Church documents in the late medieval period acknowledged the justice of extrinsic titles: circumstances extrinsic to the loan itself that entitled the lender to something beyond the principal. Even Aquinas acknowledged that a borrower owes the lender compensation if he fails to pay the loan back on time, thereby causing loss to the lender (De Malo, Q. XIII, art. 4c, ad. 14).
Second, the economic changes of the Commercial Revolution caused money to shift from being simply a sterile means of exchange to being used as capital—something that could always grow by being invested in a useful venture. Dr. Samuel Gregg summarizes this historical shift, and the many exciting economic possibilities that flowed from it, in his 2016 book For God and Profit: How Banking and Finance Can Serve the Common Good. (Dr. Gregg generously supplied me with an electronic copy for this article.) This growing, early-capitalist economy, combined with the concept of extrinsic titles, prompted Catholic thinkers to propose various situations in which collecting interest—which is literally Latin for “is between” or “the difference”—might be justified.
One proposed title related to the high probability of rising prices, which, in aggregate across a whole economy, equals inflation. Gregg notes that Pope Gregory IX’s 1234 decretal Naviganti, “stated it was permissible to charge a higher price where payment was being deferred over time if significant questions existed concerning the good’s future price.” He continues:
“The implications of this statement for charging interest were considerable. It suggested that a seller of money might be entitled to indemnify himself against the risk that a price rise might occur between the time of the loan and the time of the loan’s repayment. It also indicated that if the lender is entitled to receive back the full value of what was given at the time of the loan, more units of money might have to be paid back in the future.” (p. 53; emphasis mine)
This gives us an obvious reason why interest on student loans might be permitted. College tuition costs typically go up every year, and/or the value of the dollar goes down. Given this, a student who pays for his education several years after receiving it should pay the current price of that education, and/or return more dollars than he received in order to return the same value. Charging an interest rate equal to the inflation rate allows the lender to break even.
But lending institutions are not usually in the business to break even. Another title, proposed by the great 13th-century canonist Hostiensis, was known as lucrum cessans, or “profit ceasing.” John T. Noonan, in his extensive book The Scholastic Analysis of Usury, notes that Hostiensis was the first to propose that interest was due from the beginning of a loan, rather than as a late fee or compensation for damages. Hostiensis suggested that a merchant, “who is accustomed to pursue trade and the commerce of the fairs and there profit much,” might make a loan to a needy neighbor, and could then ask for compensation for the lost profits he would have made by using the same money in his business (Noonan, p. 118, quoting Hostiensis).
Adherents of the developed view understand lucrum cessans as the beginnings of the concept of opportunity cost: the idea that a lender deserves compensation for the profits he could have received had he invested his money elsewhere rather than lending it. In the new, growing economy, anyone could invest his money in legitimate business and receive gain, and this is even more true today, in the era of Robinhood and the stock market.
How does this apply to student loans? A lender could invest $100,000 into the stock market for four years and expect to make a profit on it, but instead, the lender lends the money to a student to pay for college. The student owes the borrower some compensation for those foregone profits.
Lastly, the developed view points to the Church’s pastoral approach to the issue of usury as shown by some decisions of the Holy Office in the early 1800s. Many documents, including Vix Pervenit, stated that usurers had to make restitution of the money they had gained through usury in order to be considered repentant and admitted to the Sacraments. However, there was much confusion about what types of contracts were usurious and which could give rise to legitimate profit, especially if civil laws allowed for some interest to be taken on a loan.
Bishops submitted questions to the Holy See, asking whether confessors could absolve penitents whose contracts were questionable under Vix Pervenit, and the Holy See responded with several decrees. These decrees essentially stated that confessors could absolve any penitent who was sincerely willing to submit to any future judgment of the Holy See, even without making restitution or changing his doubtful business practices.
These decisions, combined with the relative silence from the Magisterium on the specifics of usurious contracts in the nearly two centuries since then, imply that perhaps charging interest on a mutuum is not always inherently wrong, as the strict view argues—or, at least, that there are so many just titles to interest that most contracts that are civilly legal can be presumed to be non-usurious. Gregg writes of the 19th-century decrees, “The working assumption was that the loan was just, and usury the exception rather than the rule” (p. 65).
To sum up the “developed” view: usury is the sin of taking interest where the lender is not entitled to that interest. However, many just titles to interest have been proposed, allowing lenders to charge interest to make up for inflation and even the loss of the potential profits they could have made elsewhere. The Church implicitly acknowledged the justice of charging interest in many scenarios and the complexity of the whole situation by declaring that penitents suspected of usury could be absolved as long as they were open to the judgments of the Holy See. Because of this, charging a reasonable, legal rate of interest on student loans is perfectly justified.
Complexities and practicalities
If we take the “developed” view, we might still recognize that the burden of student loans is a practical problem, but we will not be able to use Catholic teaching on usury to lighten that burden at all, not even by the weight of the 3-15% interest rates typical of our time.
However, the “strict” view makes some objections to the “developed” view that are worth our attention.
First, those pastoral decrees in the 1800s were just that, pastoral. As we all know, pastoral decisions can be either practical and reasonable or problematic. The Holy Office probably took the best practical step at the time; the cardinals couldn’t review every possible type of contract and declare it to be usurious or non-usurious. Plus, the questions they received show that there was still considerable confusion in the lowest ranks of the Church about what was and wasn’t usury according to Vix Pervenit. Zippy points out:
Aquinas and the Popes who addressed the issue in bulls and encyclicals may have understood the difference between non recourse (societas) investment and full recourse (mutuum) loans, but many priests at the parish level did not. The spectacle of a penitent, innocent of usury, hounded and denied absolution by an overzealous confessor who doesn’t properly understand the subject, may be a risible fiction now; but that was not always the case. (“Usury FAQ,” question 29)
Zippy also makes an argument against charging interest to cover inflation, relating it to his point about slavery and investing in people. He notes that all property (including money) is always subject to decay (e.g. inflation) and always requires some amount of work to maintain its value. A house needs repairs to preserve its value; money must be combined with work in order to maintain its value in an inflating economy.
An investor may invest his money in a business or property to maintain its value amid inflation, but if a lender charges interest on a mutuum to maintain his money’s value, he profits from the borrower’s labor. He does this without paying him, too, because he demands the whole principal and interest back. If the borrower exchanges his wealth-maintaining work for a loan, it is not really a loan anymore, but a way of getting free work out of that borrower.
This leaves the issue of lucrum cessans and opportunity cost. The shortest objection to the “developed” view here is to point out that lucrum cessans and opportunity cost are not the same thing. When Hostiensis suggested that a lender could charge for foregone profits, he severely limited the scenario by saying the lender had to be a merchant habitually engaged in trade, and not habitually a moneylender. In other words, the lender had to have real grounds for claiming that he almost certainly would have made a profit by using that money in his business.
Let us take a modern example. Suppose Mary knits scarves and sells them online for $30 each. She spends $20 on yarn and $5 on shipping per scarf, and collects $5 profit. A friend comes to her and asks for a loan of $100. Mary takes the $100 out of her yarn-buying fund and calculates that, because she would have bought yarn for five scarves with that money, her friend owes her the $100 back plus $25 to cover the profits that almost certainly would have resulted from the five scarves that never were. This is obviously not the same as if I, who cannot knit, lent $100 of my personal money to a friend and claimed that I could have made $25 profit by selling scarves. And it certainly is not the same as a financial institution, which can freely invest its money anywhere, choosing to lend to a student at interest.
The words almost certainly are also quite important, because profits in business are never completely certain. In a real sense, Mary is not so much lending money, as selling her friend five scarves that don’t exist (and kindly giving her free shipping). Aquinas backs this up: “But the lender cannot enter an agreement for compensation, through the fact that he makes no profit out of his money: because he must not sell that which he has not yet and may be prevented in many ways from having” (Summa Theologiae, II-II, Q. 78, art. 2, reply to objection 1).
Aquinas also bluntly points out that, if a lender considers that he would lose anything by lending, he should choose not to lend—or at least, not hold the borrower accountable:
[W]hen the borrower returns the money lent within the specified time, … the borrower is not obliged to pay compensation, since the lender ought to have taken precautions against loss to self, and the borrower ought not incur loss regarding the lender’s stupidity. (De Malo, Question XIII, article 4c, reply to objection 14)
Lastly, in case anyone objects that the borrower freely agrees to the interest payments, I answer that many, many people consent freely to things that will harm them. God’s law, as we know well from the sexual realm, does not lean solely on human consent; rape is a mortal sin, but so is consensual fornication. Besides, most 18-year-old college students agree to their loans under a sort of duress, thinking that student loans at interest, and college in general, are the only way to move into successful adulthood.
In short, without any disrespect to the authors above from whom I have learned so much about the “developed” view, I firmly believe that the strict view wins. It is more internally logical and takes a more precise view of the Church documents. It is, like so many moral truths, a “hard saying,” but only because we have become so accustomed to its opposite. Catholics who are involved in finance should glorify God and gain just profits by making legitimate investments in businesses and property. But they should do whatever they can to prevent the charging of interest on mutuum loans, including student loans.
Further challenges and questions
But what about the rest of us who do not work in finance or banking? What effect would a ban on student loan interest have on society?
First, no lending institution would want to provide student loans without making a profit, so private student loans—except for a few interest-free loans from charitable institutions—would disappear. Two possibilities then arise. First, the government might fill the gap, offering more of its own low-interest or no-interest student loans, or funding more free college, thus shifting the burden from a student loan burden to a tax burden. In this scenario, we’re no better off.
But our hypothetical government that just outlawed interest on student loans because of a strict interpretation of Catholic usury doctrine seems unlikely to take this socialist approach. Suppose the government did not fill the gap?
Student loans would become more scarce. It would become harder for the average high school graduate to go to college. Scholarships, grants, and charitable loans would likely go to students who particularly merit them and/or have an interest in specific causes. (For example, a donor with an interest in cancer research might provide a loan to sponsor a student who hopes to enter the oncology field.) College would practically be limited to those students who showed enough intention and capacity to merit charitable aid, or whose parents could afford to pay for college outright: the very smart and the very rich.
This might have good effects—reducing the number of students who attend college with no apparent intentions besides drunken frivolity—or bad effects—preventing those who were smart, but not quite as smart as the scholarship winner, from having any chance at the education and career they had hoped for. Because most companies think anyone without a bachelor’s degree is incapable of anything above minimum-wage work, many of those not rich enough to pay for college and not lucky enough to get charitable financial aid would simply stagnate in low-paying jobs for life. They would be just as incapable of financial stability for themselves and a future family as college-educated adults today are with their debt. Again, perhaps we are no better off.
But perhaps the market would adjust. Perhaps creative ways of funding education would come into existence that do not involve profiting off a mutuum. Businesses who found themselves lacking qualified, educated workers might pay to educate such workers. Large companies such as Amazon and Publix already have on-site classes or tuition reimbursement benefits to help entry-level workers expand their careers; other companies might imitate them. Perhaps apprenticeships in the trades and even some professions could make a comeback. Perhaps colleges with dwindling enrollment would find creative ways to reduce tuition costs: expanded work-study programs, for example. Perhaps, even, our hypothetical government might help to improve high schools so that college is not so crucial for a comfortable life.
My thought experiment contains many layers of “perhaps.” I confess that the final scenario—no interest, no government loans, no tax increase, and a lot more thrift, practicality, and charity—appeals to me the most, and yet seems the most far-fetched. But if my scenario is impossible, Catholics must propose a better one, and soon. As so often happens, the world is asking the right question—how can we help those who are struggling to pay off student loans and enter financially stable adulthood?—and giving the wrong answer—bloated, socialist government policies. The Church must provide the right answer, for the good of Catholics and everyone else.
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Interest payments on student loans are a SUBSET t of a much more malignant problem that never entered the mind of Thomas Aquinas.
First, the barter economy has long ago been replaced, such that interest is justified to compensate for currency OPPORTUNITY COSTS foregone by the lender. (The fair amount of is another question.)
But, second, the correct understanding of “inflation” gets us into the central role absorbed by the State, and the printing of monopoly money that no longer has much relationship to goods exchanged in the economy. DEVALUATION of the currency; this is modernday usury on steroids.
And, third, the printing of money by the Federal Reserve costs no more than the paper and ink, and yet the banks charge interest even for this—for NOTHING. Until recently, with zero interest economics supposedly to stabilize “the economy” in short-term (!) slack times.
And, fourth, back to student loans. Academia fronts for the banks which then serve/exploit a new market segment, thereby feeding what is called “RENT SEEKING. That is, the cost of education adjusts upward to match the influx of cash (eventually replacing education with specialty-shop course descriptions (e.g., identity politics instead of solid core requirements) and always a greater percentage cut for layer-cake and palatial Administration.
ADDING IT UP, ours is a total economy of “usury” (a) because the Federal Reserve (private banks) deserve no markup for paper and ink, (b) because “inflation” is actually a fiscal and monetary policy of currency devaluation by the State (eventually to write off $27 Trillion in national debt), and (c) because the whole system leads secondarily to overpriced education (not to mention grade inflation to keep the indentured servants in ample supply).
There was a lot to be said for the discipline of the gold-standard (!), abandoned by President Nixon in 1972 on the heels of President Johnson Great Society binge. (Gold was $35/ounce; now $1,816/ounce—go figure). But ANY such standard fails to support vote-buying amateurism in government—yet another kind of inflation or devaluation of lost statesmanship.
Economists will probably shred these points, but I’m just sayin’…
Mr. Beaulieu, thank you for reading my article and for pointing out that usury is a much bigger problem beyond just student loans. I had to pare down quite a bit to make this article remotely short enough to be published, so I focused in on that particular instance of usury (student loans). But I would love to continue researching and writing more about the other areas where usury has invaded our economy.
I notice that nearly everyone I know thinks you have to buy everything on a credit card, for example; it’s rare to be debt-free, which means it’s rare to avoid being the victim of some amount of usury these days. I do think most economists would disagree with some of my points and yours, but that’s in part because we are so accustomed to usury now that we don’t see it as the evil it really is. We think it’s just how the economy has to work, which shows that the Church should perhaps speak up more about what usury is and attempt to combat it.
Thank you for your interest and comment.
If you read the contract when you borrow money, you know up front how much interest the lender will collect. If you don’t want to pay, don’t contract for the loan. The problem today is that few people are willing to work for a benefit. I graduated from the University of Colorado with no debt. Sure, it took me eight years to earn a four-year degree, and the first four years were spent at a community college that transferred my credits to the university. The day I graduated was one of the most exhiliarating days of my life. The sense of accomplishment was unparalleled. I don’t think I would have felt as good about graduating, if I had contracted for a long-term loan to pay my way through. But, if I had, I would have worked just as hard and diligently to get it paid off. Borrow money and pay it back. Don’t like the interest? Don’t contract the loan.
Exactly! But your position operates under the basic assumption that we should assume responsibility for ourselves, our lives, our choices, and the consequences of those decisions. An important life principle that is entirely foreign to young people today, sad to say.
Mrs. Farrell, thank you for reading my article and your reply. How wonderful that you were able to finish college debt-free!
I agree that reading contracts carefully is good common sense, and that, once we’ve contracted to pay a loan and interest, we should follow through with that payment. The Church documents and saints I cite are in agreement that sometimes a person might have to take out a loan at interest for some good reason, e.g. to feed his family or even gain an education in a short amount of time, and it would clearly be wrong to back out of paying it back, with the interest, later.
The problem is that the lender should NOT be charging interest on student loans or other personal loans in the first place, according to perennial Church teaching. It’s still a sin for the lender to charge the usury, even if the borrower consents. As I mentioned in the article, people often consent to be sinned against (e.g. in fornication or assisted suicide, or by selling themselves into slavery), and that does not excuse the sin at all.
Borrowers should pay off the loans they have already contracted, but lenders should stop charging interest going forward. My last few paragraphs acknowledge how much this would change society, but perhaps it could change for the better, if Christians are willing to work at it.
And yes, people are often unwilling to work hard now in order to pay for something up front, but rising tuition costs (driven, I think, in part because of usurious student loans) have made college so expensive that it truly takes working a full-time job for several years to pay for it, and most full-time jobs require a degree (at least on paper), so students take out loans thinking they HAVE to in order to make a good living, and the vicious cycle continues. Catholics should do our part to break that cycle.
A family member went to a midwestern public university in the mid 1960’s. About $1,000 per year paid for umlimited (hours) in tuition and also room and board — a student could work full time in the summer and part time during the school year and fairly easily cover the bill.
I’m glad you were frugal with your higher education decisions, and spent some valuable time in community colleges myself. But perhaps you’ve missed society’s push/insistence over the last 5 or 6 decades that you need to go to college to do well in life — this has pushed up the demand for higher education — which for many, is a waste of time.
The cost per hour since the early 90’s is bordering on ludicrous, while the education has tilted left of center, definitely with grade inflation and little underwriting as to who should get kicked out. Not to mention the billions in endowment funds being held tax free by universities that are teaching their students to hate the United States.
Modernism’s “! want it and I want it now!”
Being in my fifties, your mind starts trending towards the retirement funding question.
Fairly obviously, the elders now are getting the best deal (based on what they paid in and their current life expectancy). The ‘youth’ not only have high costs of living and students loans from overpriced educations (e.g.), but are subsidizing the elderly now, both in terms of cash out of their pay, and assumed liabilities for overpayments being made now for social programs such as Medicare and S Security. With them not having many children, who will pick up the subsidy tab when they cannot work anymore (physical or obsolete?) You can only print so many dollars before that backfires.
“Fairly obviously”, the ‘elders’, as you call them, not only suffer the same high costs of living as the ‘youths’, but have a comparative actuarial reduction in future earnings potential, (less time available to earn). Inflation is less of a concern for the ‘youths’, who are compensated with pay raises and COLA increases, than for the fixed income ‘elders’ who, by the way, have paid into Soc-Sec and Medicare for their entire working life with dollars that were far more valuable than the meagre payout they now receive. Here are some suggestions for these poor ‘youths’:
– Get a job. Get two if necessary, or even three, as some of the ‘elders’ did.
– Have kids. Have several, if you want someone to cover YOUR “subsidy tab” when you become the ‘elders’.
– Don’t borrow money if you don’t like paying it back.
– Move out of your ‘elders’ basement.
Welcome to the real world.
You do understand that their is way too little money being collected to cover Medicare and Social Security payouts? Just last week or two, the projections for both programs being insolvent was moved up a year or two.
The money we’ve paid in does not go into a retirement “fund” per se, but is loaned to the general fund.
The problem with the birthrate and elders support is not unique to the United States.
You cannot keep printing money (DOLLARS) and have the world use you as the ‘gold standard’ for the economic system forever. Eventually, your standard will become worth less and less and your citizens will revolt against the tax increases to pay for prior generations’ overspending.
It takes two to make the rent now, for most people; it the ole days that was not as necessary as it is today.
I find this whole article to be one where the author stretches arguments from a very learned man to justify the author’s opinion. The best example is there Aquinas argues against interest on a loan saying “When the borrower returns the money lent within the specified time, … the borrower is not obliged to pay compensation, since the lender ought to have taken precautions against loss to self, and the borrower ought not incur loss regarding the lender’s stupidity”. How does the lender “take precautions against loss”? In today’s world, that’s called insurance, which has a cost to the lender. What the authors seems to be saying is that the lender must undergo costs to loans but cannot charge interest to cover those costs. This very relativistic article seems mainly a away from the author to show off their intellect, devoid of common sense.
Hi Jay,
Thank you for reading my article and commenting. I appreciate your opinion, and I’m sure you’re not alone. I was actually very willing at one point during my research to be wrong and revise my opinion, but the deeper I went into the sources, the more I had to go back to the basic statement that Aquinas and many other Church thinkers have made throughout the ages: making a healthy profit on a business investment or anything else is perfectly fine and good, but charging interest on a mutuum (personal or full-recourse loan) is morally wrong.
Of necessity, I had to quote only little bits of Aquinas here, but reading his full discussions of usury are very enlightening. He and countless others, including councils and popes, make clear that charging interest is wrong and then give various reasons why. And, even if Aquinas’s arguments don’t satisfy, papal declarations and council statements agree and must count for something! As a Catholic, I bow to the authority of the Church, even if it’s “a hard saying.” I know her wisdom and experience are far greater than mine.
Your question about the lender protecting himself against loss is a good one. Based on the context, I think Aquinas simply means that a lender shouldn’t lend money that he needs to use for some other profitable endeavor. If the lender thinks he would lose anything by lending, and he’s not willing to lose anything, he should not lend. Mutuum loans should be an act of charity, not an investment. The borrower could decide to give back a little more than what he borrowed, also out of charity and gratitude, but the lender cannot expect or require that without sin.
I sincerely hope and believe I’m not twisting Aquinas’s words here or the overall teaching of the Church. The article could only be so long, and there are whole books written on this topic that dig deeper and cite all the many sources that I did not have room for.
Thank you again for reading and taking the time to respond.
But is it infallible by the Ordinary Magisterium as it is not by Ex Cathedra?
As great as Aquinas is via a Doctor of the Church, he was not a pope and did not have the charism of infallibility. Pro-aborts often use his thoughts on when the unborn receive their soul for their justification of that barbaric practice.
Hi Ramjet,
I used Aquinas a lot here because of his thorough and clear way of stating things, but he is not alone. The papal encyclical Vix Pervenit holds the same view of usury, as do many other papal and council documents from the earliest days up through the 1700s, too many to reference here. While any individual document or saint’s writing can arguably be considered fallible on its own, the sum total of all these Church statements throughout the centuries definitely seems to carry some weight.
But you’re making an outrageous argument on how YOU see usury and assume – where there is no consummate encyclical or papal exhortation that agrees with an infallible interpretation of teaching on usury – that the Church has and continues to be using your argument but just doesn’t know it.
Where in the Catechism does it objectively condemn so many Catholics, whether in immediate or distant cooperation, in the last few centuries up to the present where their economic lives via countless transactions including houses, cars, business-in-general, etc. are in every instance a matter of grave sin?
Because Rachel Hoover says so and because so many past councils and popes are her support and yet no Ex Cathedra proclamation or the – absent – constant teaching of the Ordinary Magisterium can be presented at this time or any other regarding a unified doctrine on usury?
I remember seeing a program on the history of money that clearly stated the massive change that took place when lending with interest began to be an acceptable practice and prior to this it was rarely if ever practiced. I know this is hardly an academically acceptable contribution to this debate but thought it of some relevance.
Ramjet, I am confused by your comment. There are many, many magisterial documents that touch on usury. Some of them give fuller explanations of what usury is, Vix Pervenit being probably the most important one in recent centuries, and a 12th-century Code of Canon Law being another important one. I couldn’t possibly quote every Church document on the subject in this article; I just didn’t have space. So I focused on a few that I think carry the most weight and/or make the arguments the most clear. You can look up a book called The Scholastic Analysis of Usury (Noonan) or Denzinger’s famous compilation of Christian dogma to find more Magisterial teaching if you like. When I set out to write the article, I was sincerely open to changing my initial opinion on usury, but the more I read the actual Church documents and important thinkers such as Aquinas (who don’t have Magisterial authority in themselves, but have been promoted and used by many Popes through the centuries), the more I became convinced that the view I support here in the article is actually correct. I am sorry if I didn’t explain that well enough. I definitely don’t expect anyone to take my word for it that usury is defined a certain way! I actually hope this little article will just lead people to go to the Church sources themselves to learn more. God bless.
You make the most arrogant of an argument when you claim usury – as you definitely define it – is a ‘hard saying’ in company with the Gospel of John concerning the Holy Eucharist.
Incredible, again.
I have read your sources and am familiar with the popes and councils. I think you have a mistaken understanding of ‘Magisterial’ and the spiritual weight of an Encyclical or Exhortation.
Nowhere is there this certainty – rising to an infallible teaching – on usury as you claim as you continue to read. What pope sat down and with the bishops of the world solemnly proclaimed your argument as what the faithful must hold as infallible? But then violated it as the economics of the day continued as money had changed long ago and the idea of interest relative to usury as originally understood. The same popes and councils and Vatican administrations you cite as well all the ones in the interim have not followed your interpretation of usury by any credible measure. I can find no data where these popes and their administrations have acted as such.They have and, in the present, continue to practice financial dealings with loans and interest.
Since you are absolutely convinced of your understanding on this, then the Church has failed fallibly on a grave, moral issue…and the Gates of Hell…you know the rest.
Yes, as far as I can tell, neither the “developed” view nor the “traditional” view has been formally, infallibly defined. Neither have lots of other teachings we all know to be true. As far as I know, the Church actually only defines things at the infallible, ex cathedra level very rarely.
So, I’m not claiming that “my” view of usury has been infallibly defined! I simply observe that, whenever the Magisterium has given an actual definition of usury, it has been the definition I lay out in the “traditional” view above; and, other times when usury is mentioned in papal or council documents, it is simply mentioned, without a specific definition (possibly because it was such a familiar topic to people back then they didn’t feel a need to define it again). So, I do think the ordinary Magisterium has taught consistently on this topic. Of course, there have been plenty of Catholic thinkers who have thought differently, and plenty who act differently, but those thoughts an actions don’t rise to an infallible level either. So, at most, we can say that this issue is a debated one.
So, I look at both sides of the debate and express a reasoned opinion (as Catholic World Report wishes its writers to do). My reasoned opinion from looking at all the evidence–the internal logic of the arguments, the number and weight of the different sources, the consistency I perceive throughout the ages, etc.–is that the “traditional” view is correct. And the Church authorities have never, ever recanted or condemned that view! They have merely gone silent on the topic of usury and pretty much completely stopped teaching about it at all for the past 200 years. That doesn’t mean the gates of hell have prevailed, of course! Infallibility simply prevents the Church from formally teaching something untrue; it doesn’t guarantee that the Pope and bishops will teach everything that they ought to teach in the clearest and best possible way. So, it’s perfectly possible they have failed for two centuries to teach us something we ought to know, even omitting it from the catechism. (Two centuries is a very short amount of time in Church terms.)
I am glad we agree at least that this is important. The implications are certainly grave: either everything is fine because charging interest the way we do today is perfectly fine, so usury is not a major issue; or, charging interest the way we do today is usury, so it’s a grave moral evil, so we have to repent and try to work toward a more just economy. I’m sure you and I both want to do what is right. Thank you for being so engaged in this debate.
Fr Pesch SJ defined usury thus: “Usury in a business transaction is the contractual appropriation of obvious surplus value in the process of buying and selling.”
The way to test for usury is to treat the contract for the principal and the contract for interest as two distinct contracts.
For the principal, the rule is, any two quantities of the same fungible good are of equal value if, and only if the quantities are equal.
For anything charged in excess of this, is there a promise to pay it supported by some valuable consideration other than the principal.
Mr. Petek, thank you for reading and commenting on my article!
I am not familiar with Fr. Pesch, but I like this “usury test” you’ve mentioned. It’s a good illustration of how usury/interest is actually payment for nothing (no REAL thing, that is). If you separate principle from interest in a mutuum contract, you get 1) a contract in which Joe loans John a sum of money, and John agrees to repay it at a certain time, and 2) a contract in which John has to give Joe some money. That second contract is only half a contract; what is John getting for his money?
Thank you for sharing and God bless!
The test for usury is applicable only in relation to contracts in which the agreement of the parties is not sufficient to establish commutative justice. A loan of a fungible – anything sold by measure, number or weight – is but one example, because equal quantities are of equal value by definition.
Another example is the wage contract, which is governed by its purpose in enabling men to provide for their families. Obvious underpayment of wages relative to this standard discloses injustice by which the employer extracts usurious surplus value.
In the loan contract, the levying of interest is usurious where there is in law no contract for it. For a contract to exist, the borrower must promise to pay interest AND some valuable consideration must move from the promisee: this could be any act, forbearance or promise of economic value.
So, a lender might legitimately charge interest in return for a forbearance or promise to exact repayment only in instalments payable in stipulated amounts and on stipulated dates.
Mr. Petek, I find this argument interesting. I can’t say I fully understand it though. Why does a promise only to ask for repayment in specific installments over time have economic value?
We in the present day tend to assume that everything has economic value, but it’s worth examining that premise. For example, the Sacraments, blessings, prayers, etc. do not have economic value; they cannot and may not be purchased. Human beings do not have economic value and cannot and may not be purchased. Similarly, aspects of a human person, such as their honesty or honor, must not be purchased; they are part of the person. So, can a promise to exact repayment only in certain installments at certain times be purchased? I’m honestly not sure, but I lean toward no.
If the terms of the loan agreement say that the loan must be repaid in monthly installments for the next year, both borrower and lender are agreeing to that schedule of repayment. Should the lender be PAID to stick to the agreement? If so, the borrower should also be paid to stick to the agreement! But that doesn’t happen; the borrower is penalized with a late fee if he does NOT stick to the agreement, but not given any economic benefit simply for holding up his end of the contract.
Well, actually, the borrower gets the economic benefit of temporarily having some money, which is why he borrows in the first place, while the lender does not get any benefit from lending unless he charges interest. True, but now we are back to the arguments I made already in the article: exacting economic benefit from a mutuum monetary loan to a person is exacting economic benefit from a person, which is akin to slavery. It treats the borrower as a business investment rather than a human being of honor and dignity. We have normalized it now, but to our medieval ancestors, this was a disgusting practice.
One of the beautiful things about the ancient teaching on usury is how well it preserves equality between lender and borrower. It expects honesty and honor equally from both and thus preserves the dignity of both. It’s extraordinarily Christian.
I would hold it to be beyond controversy that an act, a forbearance and a promise could all qualify as consideration to support a contract.
Whether any of them has economic value so as to constitute valuable consideration is debatable.
The Vatican has been – for a long time – contracting loans and paying interest.
Is the Vatican in a state of ‘sin’ and further, the grave sin of scandal?
The author seems to seriously downplay when money started having a value in itself and moved beyond being a simple metric in determining barter.
Hi Ramjet, thanks for reading and commenting!
With all that’s currently going on, can we rule out the possibility that top clergy and Vatican officials are indeed in a state of grave sin and scandal?
You are avoiding the question.
Let me put it differently:
My relative has worked and continues to work as a loan officer for a financial institution for decades. She is very much a practicing Catholic; familiar with the Doctors of the Church and the Catechism of the Catholic Church.
According to your thoughts on this, she would be formally cooperating with serious, manifest evil. And ignorance could not be an excuse as she understands the Faith but not the interpretation in regard to usury as you assert.
How does she recognize her sin on your authority and the invaluable, but fallible Aquinas…and atone?
The Catechism condemns usury but in a very generalized definition.
Again, how do you account for the many popes, cardinals, bishops, priests involved from Vatican administrations down to the parish – over centuries – involved with countless financial transactions with interest…?
Hi Ramjet, sorry if my first response was avoiding the question.
I cannot speak to the state of soul of your relative or any specific pope or bishop. I would GUESS (cautiously) that many, many Catholics who are otherwise well-informed in all other aspects of the faith are objectively cooperating with grave evil, but are truly ignorant of it, because the Church hasn’t taught us anything of substance about usury in two centuries. So, I think many could be experiencing invincible ignorance and be subjectively innocent.
But the goal of my article was actually to bring this issue to light, start to “vince” some of that ignorance, and encourage all Catholics who are involved in finance to start reforming their own part of the sphere in whatever way they can. It won’t happen overnight, but if enough Catholics understood the grave evil of usury and refused to cooperate, we might see some things change for the better… but even if we don’t, the Lord will judge us not by our success, but by our faithfulness.
Let us both pray for an end to usury, even if we interpret it in different ways. It certainly could be that I am wrong, and if so, I pray God will help me see the light. But the more I research and consider, so far, the more I am convinced. It’s a “hard saying,” just like the teachings on divorce, contraception, the Eucharist, etc., but that doesn’t mean it can’t be true!
There are a few things at play here. One, NOBODY is going to lend you money for free unless its a close relative like a parent or grandparent. Odd discussions about “usury” notwithstanding.(Usury?? Really?) Second it has been my observation that too many unqualified people are entering college. According to reports many are barely literate at a grammar school level and cannot express themselves in written English. Such people do not belong in ANY college. These folks would be better directed toward vocational schools for which they may have a better aptitude and for whose graduates there is a significant need. However the topic of college has been politicized and racialized to such a degree that a coherent discussion about it cannot be had. Next, many students get WELL into debt because they are reaching for a big name school which carries with it no better education, but much more serious costs due to it’s name recognition. Guidance counselors will tell parents that their child can likely get as good or better an education at a lesser known school and in many cases can be granted at least a partial scholarship to that school to do so. Lastly, YOU or your PARENTS, knew exactly what you signed up for in terms of debt. If you had no plans to re-pay the debt you had no MORAL business contracting it in the first place. Suggestions by this administration to forgive all student debt is unfair to past students who struggled to rightfully pay off their loans. And it is nothing more than blatant vote buying. Anyone who denies that is lying to themselves.
Hi LJ, thank you for reading and commenting on my article! I’m glad to see we agree on so many important points. The Church teaching does seem to encourage loans only as an act of charity, so yes, friends and family might be the most likely candidates. As for your points about people unnecessarily getting into debt for college, yes, we need a society where a college degree-on-paper is not deemed necessary to make a living wage, and where college is reasonably priced for those who really should go. I touch on all that in the last few paragraphs there. I think usurious student loans are a major reason why 1) the college prices are going up dramatically, and 2) everyone thinks they can and should attend (because it’s easy to get a loan). And yes, we should pay off all principal AND interest we have already agreed to rather than trying to shift the burden to others via the government, but that doesn’t negate the sin incurred by the lender by charging interest in the first place. If no one had committed usury, we might not have so many socialists looking for loan forgiveness now.
Rachel, given the extreme cost of college at this point, its not practical to suggest school loans from the government should be interest free. It puts that student’s loan on the back of every American who pays taxes. The cost to attend the private college my son once attended on a partial scholarship in a major US city now sits at close to $82,000 per year with boarding. This is not your Auntie loaning you $100 bucks til you get paid next Friday. If the government puts up the money interest free it does nothing but jack up the national debt. Remember that once that $82 grand goes to the college, the feds no longer have it to spend on roads, bridges, social services,national security, or a myriad of other necessary things.They only have a debt on the books and a hope that the student will repay. As has been said, there is no free lunch. I have observed some shrewd parents send their children to inexpensive non-boarding local community college for the first 2 years to help defray the total cost of educating their child, and then transfer afterwards to a bigger name 4 year school for the last 2 years. That is one way to husband resources. In the end the one with the decision to make is not the government. It is the student and parent. As long as the bulk of the population see a diploma from a big name school as their ticket to economic success nothing will change this equation.Students, even unqualified ones , will continue to sign up for loans. The church has done a poor job of explaining that who you are as a person and the positive contribution you make to the world is more important than your income figure.For many, money is sadly the only measure of life success they recognize. That being said, if a student takes a big loan in quest of an education, it is most certainly THEIR job to pay it back. Its not my job to subsidize them.
Hi again, LJ. I think we agree. It’s definitely not your job to pay for some stranger’s education through your taxes! The ideal state, in my opinion, is that student loans (from the government or private lending institutions) are nonexistent, college tuition reasonable for those who do attend college, and a good, respectable life possible for those who do not attend college. Getting rid of interest certainly would not solve all our economic and educational problems.
But my real focus here is the moral problem of usury: something that has been repeatedly condemned as a grave sin by the Church has become deeply embedded into our economy, which means, most importantly, souls are at risk, and secondarily, economic problems have arisen. (Student loans and the resulting rising cost of tuition itself and all the problems those rising costs and loans entail are merely one example of the economic problems that have arisen from the moral problem of usury.) Until we follow God’s laws, we will have problems. Following God’s laws won’t make this world perfect and easy, but it will be a step in the right direction.
Thanks again for reading and engaging. I am really glad to see that anyone is interested in this topic. God bless.
I agree with the author’s conclusions, but Catholics could reject usurious money lending categorically immediately and it would remain a huge problem for society. The overwhelmingly predominant usurers in the world do not have any particular regard for Church teaching on this topic or any other. They have entire nations in their grip, including the USA, and they have no intention of loosening it, with our without appeals to Aquinas. Certainly our bought and paid for politician are not going to battle against them. If the bribes don’t work, the threats certainly will. An academic discussion of this issue that does take into account this uncomfortable reality will not have much effect.
On the immediate question of what to do about the student loan crisis, a one time partial forgiveness seems like the least bad option, subject to a few conditions. First, the banks and colleges, with their fat endowments, should be made to feel some (or most) of the pain. Their greed and recklessness have caused this fiasco and they should be held accountable. Tuition and fees are outrageously high and continue to sky rocket. Secondly, the racket that brought us to this point must end immediately. Otherwise, in ten years, we’ll be in exactly the same place. Finally, no borrower should have his debt completely written off. Like the home buyers who bought houses they could not afford by getting mortgages they could never hope to repay, these students bear some responsibility for their predicaments.
On the the immediate question of what to do about the student loan crisis, a one time partial forgiveness seems like the least bad option, subject to a few conditions. First, the banks and colleges, with their fat endowments, should be made to feel some (or most) of the pain. Their greed and recklessness have caused this fiasco and they should be held accountable. Tuition and fees are outrageously high and continue to sky rocket. Secondly, the racket that brought us to this point must end immediately. Otherwise, in ten years, we’ll be in exactly the same place. Finally, no borrower should have his debt completely written off. Like the home buyers who bought houses they could not afford by getting mortgages they could never hope to repay, these students bear some responsibility for their predicaments.
As Ms. Hoover states, with the easy money loan spigot turned off, colleges would adjust accordingly and make receiving a genuine education without all the nonsense and unnecessary extras that add so much to the cost of an higher education attainable for people of ordinary means. If it does mean that many of them go out of business, the world will be a better place for it. Given the power of the interests who benefit so handsomely from the system currently in place, the chances of a just settlement are practically non-existent.
Hi Tony, thank you for reading and commenting! I really appreciate it.
Of course, even if all Catholics took a stand, we would still have problems for years to come. There are lot of practical things that would get messy before this whole system of student loans and high-tuition universities and worthless educations could be reformed. Fortunately, the good Lord will judge us not by our success, but by our faithfulness.
Instead of forgiving student loans, the universities should be required to give full refunds to students for the worthless degrees they studied for (like gender studies) that don’t help them get jobs.
Dear Rachel, thank you for the thought provoking article! Outside of the issue of the value of a college degree, I could never understand why charging interest was a sin. If you left your money in the bank you’d be guaranteed half a percent interest. If you loaned the money it would seem you should be compensated for the lost bank interest, otherwise your loan would be a losing proposition from the start and more like a gift. If you’ve got a family member you don’t want to ever hear from… loan them some money! Better make it a gift upfront.
Mr. Caufield, thank you for your reply and encouraging comment! My goal was certainly to provoke thought, if nothing else!
Your argument assumes the bank is giving you interest legitimately. If the bank is charging interest on mutuum loans and giving all its account holders a cut of that interest, then the bank is guilty of usury to begin with. Usury can hardly justify usury!
But, let’s assume the bank is making legitimate business investments, mortgages, etc. that are morally acceptable and profitable, so all of the people with bank accounts are getting a perfectly ethical cut of those profits. This is great! That’s what banks are for, or should be.
But now, if I take $100 out of my bank account that makes me half a percent profit and lend it to a friend, I still shouldn’t charge my friend a half percent interest. The argument that I can charge that half percent is based on the idea, “I could have made a half percent interest on this money if I had left it invested in the bank.” To that, Thomas Aquinas says (albeit in different words), “Tough. If you wanted that half percent interest, you should have left the money in the bank. It is not your friend’s fault if you don’t make your half cent off this money, so don’t take it out of him.” Besides, the words “could have” are key: it’s a hypothetical, a potency, so it has no real value. Hypothetical future money isn’t something real that can be paid for.
Also, we go back to the argument I pointed out in the article, that to treat your friend like a business investment (or bank account) is to treat him like an object, which is immoral.
It was mind-boggling to me too when I first starting reading about this stuff, but once you see it, you can’t “unsee.” We are thoroughly accustomed to usury, in part because the Church hasn’t made any strong statements on it for nearly two centuries, but that doesn’t make it right.
Oh yes, and the Church teaching throughout the ages does pretty much assume that a loan is an act of charity–a gift of sorts. That’s why it’s a “loan” (you give something and then get the same thing/amount back) and not a “purchase” or “rental” or “investment” (you trade or risk something in hopes of getting more in return).
By concentrating on student loan interest, this article misses entirely the real problem of staggering student debt: government involvement in education. By guaranteeing the availability of almost unlimited funds through a variety of loan programs, the government is making it possible for universities and colleges to charge whatever they want for tuition, room and board. It is simple supply and demand. Administrators know the supply of money is there, and that the economy creates a demand for a college degree. No matter what they charge, universities can force students to either borrow heavily, or essentially drop out of the economy, at least in regards to many professions. Universities can waste money on anything they wish, and they do so recklessly without concern for student indebtedness. The far greater part of a university or college budget is spent on non-academic pursuits. Until the money supply dries up, this piracy will continue, and institutions will go on squandering money, energy and time on athletics, “Student Life” programs, resort-like dormitories, country club campuses, excursions, and above all, ever-expanding, self-propagating administrative bureaucracies.
Mr. Williams, thank you for reading my article and commenting! Indeed, student loan interest is not the only problem in the realm of higher education and its costs. This is a complex issue. I am personally interested in the topic of usury, and used student loans as one particularly pertinent example. But there is certainly a lot more to explore, related to usury, college tuition, and government involvement. Thank you again for reading, and God bless!
When we no longer can manufacture money, it’s going to get interesting in this country. An recent engineering student told me about 10 years ago she fully expects that “the Walton’s” living type arrangement will one day be standard fare even in more well to do communities
I agree with St. Thomas Aquinas. Charging interest is wrong. A person may need money, and those who refuse to lend except with interest are taking unjust advantage of that person. They are attempting to, and typically succeed in subtly expropriating the wealth of the debtor.
In fact, it is possible to extinguish debts. One will find that God mandated a debt jubilee every six years in Israel. Would such a measure be popular today? It certainly wouldn’t with banks.
Hi Shawn, thank you for reading my article and commenting! It is interesting that, these days, we assume interest and debt are normal because we are so used to them, whereas, to Aquinas and the ancients, loans were assumed to be an act of charity to someone in need. It would be interesting to consider a debt jubilee, though I agree that it would be difficult to make that happen. I’m also curious what society would look like if loans were always a strictly charitable endeavor for people truly in need. Lenders probably wouldn’t lend to anyone except those they personally known and trust; thus, borrowers would perhaps be less likely to default on the loan or borrow unnecessarily, because they wouldn’t want to put stress on a personal relationship. Perhaps the more fortunate among us could make a habit of lending interest-free (or simply give) to our less fortunate friends and neighbors to help them avoid becoming victims of usury, as an act of charity.
I understand – hopefully correctly – that loans were mandatory in ancient Israel. Provided that a person isn’t completely impoverished, it would be possible to mandate loaning.
I don’t think that loans are a matter of charity. Eventually, you should get the principal repaid.
The difference between justice and charity is the difference between two of the acts. An exchange (e.g. “contract”) is a matter of justice – where both parties – ideally – benefit equally. Charity is when one gains while the other voluntarily loses – except for any eternal rewards.
Hi Shawn, these are interesting points you make. I am not sure about the mandatory loans in ancient Israel, but that may be so. I suspect God commanded a lot of things to be done among the Israelites as a way of bonding them together as His chosen people and helping them stay out of entanglements with pagans. Perhaps mandatory loans to a fellow Israelite were a way to keep that fellow Israelite from being forced to borrow from a pagan and be beholden to someone who didn’t have the same Godly standards? Just speculating.
Anyway, aside from that, I think maybe we have different understandings of the words “charity” and “justice.” Justice, I’ve always learned, is giving a person what is due to him. Charity is willing the good of the other for the other’s own sake. They are both virtues, so they are not opposed at all, but must go hand in hand.
Absolutely the principal must be paid back! If you aren’t expecting to be paid back, it’s not a loan. So, absolutely nothing in the Church’s teaching on usury prohibits the lender from asking for his principal back: that’s justice. It gives the borrower what is due him–the loan he needs–and gives the lender what is due him–what he loaned, back again.
Usury comes in only when the lender attempts to profit by the loan–that is, charge interest, ask for something more than his principal back–, because it is unjust to make a profit off a person. (I tried to explain in the article itself why 1) interest on a mutuum is an attempt to profit off a person, by its nature, and 2) it is unjust and wrong. So I won’t go all into that again here.)
Lending and expecting the principal, and only the principal, back is therefore an act of justice. It is also an act of charity, because obviously, there’s no material gain in it for the lender, so he loans because he wills the good of the borrower.
If there were gain in it for the lender, it would be both unjust (again, see the explanations above) and uncharitable, because the “loan” would be given not out of desire for the borrower’s good, but out of desire for a profit.
If a person with money wants to increase his money, there are plenty of other legitimate ways to do that, like investing in the stock market or buying real estate; it just can’t be done by loaning to a person and requiring that person to pay back more than what was borrowed. That’s unjust, uncharitable, usurious, and therefore immoral.
My understanding is that a loan isn’t an act of charity. If a person gives that which he doesn’t need to someone else who does – with the understanding that he will be repaid – then how is that charity? I suppose that it is true that there is no absolute requirement that he does this (Unless there is a law.), but this may not always be the case. If a person gives to someone else who is in extreme need and who demands aid – with the understanding that he will be paid, eventually – then it is an act of justice, and not charity.
It may be that a loan is a matter of justice if it is minimal and if the need is great. Any extra amounts to charity.
While you are correct about the definition of charity, there are a number of definitions. The most obvious one, nowadays, is charitable giving. It certainly is the case that a person who donates to a charity isn’t expecting something in return.
I read an interesting article about colleges and their role in employment. It is titled “Busting the College-Industrial Complex.” The URL is:
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https://nationalaffairs.com/publications/detail/busting-the-college-industrial-complex
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The article generally characterizes colleges as playing the role of de facto employment gatekeeper employer-sanctioned cartels. It is the employers who are requiring a college degree on the job applicant’s resume. Many resumes and job applications are handled digitally. Computers can send the resumes and applications to the bit bucket if they lack a college degree during a keyword search. The article also points out how their employment gateway status helps to fuel the college campus culture wars.
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There used to be a time when a taxpayer-funded high school diploma was enough to get a reasonably decent paying job. No student debt required. To restate in current terms what was covered in the article, the modern financing model for a college education is similar to both the housing bubble, and the LBO(leveraged buyout) method used by Wall Street. But there is one big difference. A college education has no cash surrender value, there is no equity position. Student debt leaves the student financially underwater. Who outside the student debtor has any direct financial skin in the game? How do you hold the colleges and the employers responsible for representations as to the career enhancing aspects of a college degree? How do you prevent puffing the goods about the employment prospects that works to the detriment of the student debtor? Student debt levels for many students is approaching that of luxury cars and getting into the range of house mortgage payments.
Only scanned through the article. Won’t go into the concept of urusy as such except that interest is the value of money, and for better or worse one of the foundations of a prosperous economy. Getting to education loans, there are two actors that cause the situation. First the student, probably along with parents, who do not really think through the earnings they might get from the education they are paying for. Not to offend anyone but to spend tons of money for a useless degree such as art, French Lit, etc., is for lack of a more better word stupid. Next is the educational establishment that foster degrees of no value but are glad to gobble up the student cost, which the loans subsidize. Parents need to guide their kids, and make it clear that the primary purpose of college is build their economic value in the market place. Simple put education is building Human Capital. Any Degrees value is determined by the market, that is the hard truth, so each kid needs to know that. Also for the most part the educational system sees them as a money tree, they, not all, don’t care if the student spends tons of money for something the market sees at no value.
Some final thoughts, college is seen by way too many as parties, sports games and of course drinking. So easy degrees are the option taken and too easily given by education institutions. Also there are ways to reduce cost: 1) Community colleges for the first two years. My experience is that they can be excellent and instructors are focused on teaching. 2) On line courses is another option to consider. Actually in today’s world the websites offering good on line courses such as Coursera is amazing.
Finally when it comes to economics/interest discussions F.A. Hayek, Friedman and Thomas Sowell should be in the discussion.
One final side note, when I started college at Grand Rapids J.C in 1967 the cost was $7.00 a credit hr. Can you believe that! So I was able to easily fund college on my own at JC and even afterwards at WMU.
Mr. Grand Rapids Mike, thank you for skimming my article and taking the time to comment. Based on your comment, if it isn’t too self-centered of me to say this as the author, I think you would find the article very interesting and thought-provoking if you were to read it more closely. Not because of my writing, but because of the much more knowledgeable thinkers I’ve quoted and tried to arrange in a readable format.
Anyway, I have some questions regarding your comment:
1) You have said that “interest is the value of money, and for better or worse one of the foundations of a prosperous economy.” That “for better or worse” honestly frightens me. God has commanded us, through the Scripture and through the Church, not to commit usury. Usury for many centuries has been defined as charging interest on a mutuum loan (as I go into in more detail in the article itself). We cannot dismiss a moral teaching as something that “for better or worse,” is foundational to our current way of life. If our current way of life rests on something immoral, we must change our way of life (for better or worse, although I suspect following God’s law would actually make things better; call me naive if you like!). That is Christian morality.
There are those who say that Roe v. Wade is foundational to the liberation and equality of women in our society. Imagine someone shrugging his shoulders and saying, “For better or worse, abortion is the only way to make sure women have reproductive freedom.” This person would be completely mistaken about the real nature of women, freedom, etc.; his whole view of the world is wrong, because it rests on the wrong foundation. Of course, I do not accuse you, Mike, of intending to say anything like that! But I point it out because I think we have all become so accustomed to usury as a major part of our economy, that we don’t see its ugliness and repugnance that was apparent to our medieval ancestors. The Church hasn’t reminded us of its wrongness, and we are reaping the consequences. We must not be blind to this grave evil; it’s a mortal sin to exact usury. (Not to pay it, but to charge it.)
2) I think you’re largely correct about the whole higher education business being corrupted by greed and taking advantage of students. Students and parents should certainly consider carefully before signing up for four years of education that may or may not do the student any good. And it is wonderful that options like online classes and lower-cost colleges exist now.
But I got scared again when I read, “the primary purpose of college is build their economic value in the market place.” I see what you’re driving at, because we all have to earn money to live, and college is supposed to help with that. But part of the reason charging interest on student loans is so evil and wrong to begin with, is that human beings cannot be economically valued. We are precious and priceless in the eyes of God. So, it is immoral for lenders to profit off of human beings, and that’s what usury is. I think keeping in mind that the economy exists for man, not man for the economy, and that humans can’t be quantified with an economic value, is key to understanding usury and combatting it.
Incidentally, a GOOD education is actually about forming the human person, molding the soul to think well, act well, communicate well, love the good and avoid the evil. (And honestly, those are good job skills. I was an English Lit major who had a full-time job offer the day before graduation and have done well ever since, because every company needs someone who can think and write clearly!) But most colleges have certainly forgotten the true goal of education in their greed to get students in the door at high prices. And lending institutions benefit from that too, because they exact interest no matter what the student chose to study, whether or not the student became a better and more well-rounded human being OR gained any job skills. Luckily, a few smaller, Catholic, liberal-arts colleges remember it, and they try to keep tuition lower and help out with scholarships and such. I am grateful I was able to go to one. (And although I did have student loans, I already paid them off, interest and all, so that didn’t skew my views in this article!)
Anyway, I am probably rambling a bit here, so I’m sorry if this comment is unclear at all. I think my edited, polished, and re-edited article above is at least a little better. Thank you again for your contribution, Mike, and God bless.
In reply is that comparing my comment on interest “better or worse” to Roe v Wade is way out of bounds to my point. I could be snarky to and say if you are against interest and think it is usury and condemned by the Church cut up your Visa, Master Card, American Express Cards and other cards. By having such instruments you are abetting the evil of usury. By the way, I did loan my brother the funds at no interest to earn his MBA in Finance, resulting in a nice career. But will always say both my brother and myself benefited in many and unknown ways from my mothers prayers and I’m sure those of the Carmelite Nuns at a GR Monestary where served as Alter Boys.
“….if you are against interest and think it is usury and condemned by the Church cut up your Visa, Master Card, American Express Cards and other cards…”
That’s actually a sound idea, especially if you are paying exorbitant interest on them. These types of instruments weren’t even available on such a scale until the 1960-70s. We seemed to manage just fine before that. “Capitalism today has become nothing more than state-sponsored usury.” – EMJ
Hi Mike, thanks for the reply. I have actually never used a credit card, so I fully support that idea! (My parents raised me listening to Dave Ramsey in the car, haha.) And yes, interest on a credit card is usury, as is interest on payday loans and lots of other things (at least, according to the definition of usury I believe and argue is the accurate one).
It’s wonderful that you loaned your brother funds for his MBA interest-free. I think anyone who has the means should do the same for their family and friends, whether it’s enough money for a college education or just a few hundred dollars until next payday. That would be a praiseworthy act of charity and would prevent borrowers from becoming victims of usury.
Whether due to a fear of committing professional suicide, a distorted moral perspective, or simple ignorance, there is an angle to this issue that no respectable Catholic intellectual will explore and is indeed missing from this very fine piece. By leaving it out, the effort to find a solution or even fully understand the problem is severely handicapped. This same deficiency exists in almost all of the analysis of so many other important topics, such as American foreign policy in the Middle East, the rise of Communism, and the causes of the Cultural Revolution of the 1960s in the West. Usury and the general financial exploitation of entire peoples by a ruthless money lending elite is one of the major crises of our time. Christians, practicing or lapsed, are more victims, or in some cases, the unwitting accomplices (who derive little benefit), than perpetrators, of these particular crimes.
Interesting article but I think it misses two main points about our current student loan system.
First, the government is the lender in almost all circumstances. It took over the student loan business in 2010 during the Obama administration as a way to fund Obamacare. Banks are paid a fee by the government to administer the loans and have no money at risk.
Second, the government is an abusive lender. Its loans are disbursed indiscriminately to all comers. It simply assumes that the loan will benefit the borrower by providing an education which will enable the borrower to earn an income adequate to repay the loan. Recent history has proved that assumption wildly optimistic and false in many cases. Then to compound the problem, the government excludes its loan from bankruptcy so that borrowers with the inability to repay will have the loan obligation existing for their entire lives. There are even provisions for Social Security benefit payments to be reduced by 15% to repay student loans. Akin to a form of slavery….
Hi Bruce, thanks for reading my article and commenting! There is definitely a lot more to say on this topic, as so many commenters are pointing out. I could barely scratch the surface. My initial goal was actually to explore the topic of usury doctrine, so that was the focus of my research, and student loans were a good, timely example to use. I think whole other articles could be written on government involvement in funding education, certainly. Thanks again and God bless.
Rachel, people can find a brief compendium of Zippy’s thinking on the matter here:
https://www.amazon.com/Usury-Frequently-Asked-Questions-Zippy/dp/1544688873/ref=sr_1_4?dchild=1&keywords=Usury&qid=1631046740&sr=8-4
It’s very compelling stuff.
Mr. Luse, thank you for adding this link! Zippy’s blog has the whole FAQ available on a webpage, which I used here so I could link to the specific questions and answers, but he did fortunately have it turned into a book as well for those who prefer that format. That’s probably a good investment in case his blog ever gets taken down someday, now that he cannot post there anymore. (Requiescat in pace.)
Indeed. The anniversary of his death approaches.
In summary,
The only prohibition on interest – in the Old Testament- are two verses that indirectly forbid the taking of interest between two Jews.
The New Testament is silent on usury except for a very generalized passage in Luke that amounts to nothing.
For the first four and one-half centuries the only denunciation, by Fathers and theologians, on interest was the scenario of the uncharitable demand for interest on a poor man usually on an immediate consumable.
Centuries later, nothing definitive is said on usury except for the sin against charity…purposeful exploitation.
The Council of Nicaea and Elvira forbade interest but only among clerics.
Carthage and Aix did indeed condemn usury – any lending with interest. Lateran and Lyons and Vienne condemned usurers.
No canon law – even with the Fourth Council – has directly condemned interest.
Mutuum means the immediate consumption and this type of loan has always been condemned if it involved interest but only among the original definition and that has never been absolutely defined.
Benedict’s Vix Pervenit was addressed to Italian bishops and therefore not infallible.
The Holy See in every century that maintained records, by its financial transactions involving loans and interest, implied the lawfulness of loans and interest.
Money has value and the refusal to understand this dooms any absolute prohibition on the extrinsic interest collected on a loan.
Ultimately, this issue is a matter of justice. Usury certainly exists if the loan designed will destroy the man in direct exploitation as in some instances of pay day loans that promise help for practically nothing but the reality is ruinous.
Let the borrower and lender beware.
For the sake of anyone else reading this: Ramjet summarizes a number of important Church documents and declarations, and I recommend looking them all up to read more! I’ll just point out three things:
1. Gratian’s 12th century code of canon law condemns interest and gives an argument for why interest on a mutuum is inherently wrong. The condemnation and argument are actually taken from a 5th-century document called Ejiciens. So, the idea that interest on a mutuum is usury was already in existence in the Church AT LEAST by 600 A.D. and was reiterated in Canon Law in the 1100’s.
2. Vix Pervenit, one of the strongest and clearest papal statements on usury ever, was originally written to the Italian bishops in 1745, yes. Later, in 1836, the Holy Office stated that it applied to the entire Church. Ramjet is correct, of course, that it’s not infallible, because encyclicals aren’t generally infallible. But, “not infallible” doesn’t necessarily mean “we can ignore this.” There’s got to be some reason the Holy Office pointed to this encyclical 91 years later and applied it to the whole Church, no?
3. “Money has value”: yes! A dollar is valued at the rate of exactly one dollar, just as the value of a fresh egg is equal to the value of another fresh egg of the same type. If I lend my neighbor two eggs to bake a cake, I can’t demand three eggs back and say, “I need another egg because eggs have value.” Likewise, if I loan a friend five dollars, I can’t demand six dollars back and say, “I deserve another dollar because money has value.” That’s the usury argument in a nutshell.
Yes, money is different than eggs because it can be used as capital. But if you want your money to be capital, you have to invest it into a business or a piece of property or some other OBJECT, not a PERSON. It is morally good or at least neutral to put money into the stock market or buy land or purchase inventory or even “lend” to a corporation and expect a profit/interest in return. It is morally evil to lend money to a PERSON and expect a profit/interest in return. As far as I can tell, that’s what the major Church statements on the subject have always said, and those statements are based on natural law and logic as well as Church authority.
I think I’ve made my case, so I don’t plan to respond further to Ramjet. We are not getting anywhere with our discussion. (No one ever does in comment sections anyway, right?) But I am putting all this here so that anyone else reading the comments will have this information as well as what Ramjet provided and be able to make their own judgement.
Interest is not always usury, and not all usury is interest. If there is no genuine contract to pay interest (because there is no valuable consideration to support a promise to pay it), then the levying of interest is usurious. If there is valuable consideration, then prima facie, there is no usury.
In ancient Israel, however, even genuinely contractual interest was forbidden, because such contracts were contrary to public policy.
And Ramjet’s conclusion, “Let the borrower and lender beware.”
What should we be aware of ?
The following 22 minute read may well save a young man/woman from a lifetime of student loan debt, “What No One Told You About Student Loans” :
https://www.ramseysolutions.com/debt/what-no-one-told-you-about-student-loans
There are other factors to consider besides whether or not usury is permissible. It’s the poorest and most vulnerable young people among us, those without parents and/or proper upbringing, who were offered loans, that they might better themselves and be part of society. But many, if not most, of these were not properly equipped to handle the demands of college nor of paying back massive loans. Most these kids knew nothing of the world before they were thrust into it at the age of adulthood, and then it appeared alien to them. Lending money to poor and orphans who desire a better life, with the promise of a better life, while offering no help besides that money, is basically setting them up for failure. Profiting from their failure is immoral, but turning a blind eye to their unpreparedness so that one might profit either way is immoral. What we’ve done to poor and orphans in this nation is our greatest condemnation. We show a few success stories as evidence of our righteousness and our right, but this is mere chance. Toss a handful of seed over a rock garden and one or two are bound to sprout while the vast majority fail to take root that might have under better circumstances.
To boot, the economy has changed dramatically and is changing ever rapidly, constantly. And we have lately realized our ideas about leadership and good work and healthy environments has been faulty and opened the door to toxicity.
Who benefits from educated citizens? The entire nation. Therefore, tax-funded, free education makes the most sense. We all contribute to what we all have access to and which benefits all who partake and allows those who do to benefit their communities, as well.
Lastly, why should corporations determine the economy over citizens? We should be dependent one them educating us according to their ways? How generous. Should we dislike the job, we are stuck. Our education has limited us to this company. We will have to begin again elsewhere, hope they’ll train us according to their ways? With an education of our own to take where we feel most suited, we have more to offer and to gain. The world doesn’t build us, we build the world. We are formed to already existing mechanisms but free to change and influence and better those mechanisms.
The concept of student loans is against the declaration of Catholic Social Teaching that education is not only a universal right due every individual, as a condition of his human dignity and required for his spiritual and moral growth, which is his duty to God and his first duty. It is also wholly within the best interest of a society that education be already funded by that society and build-in as one of many paths for any individual, with the recognition that it is the individual’s right and responsibility to seek his unique vocation determined by God. The society who denies this to its members, who places heavy burdens or debt and potential debt, based on this and that arbitrary reason, begs for destruction. It’s like cutting off your own feet to drink poison. There is nothing good that will come of burdening youth and the poor and orphans, all the most vulnerable, or anyone, for that matter. When all you reap is money to fight and argue over, without and need to, then you are literally choosing to reap the whole world while forsaking God, and that’s literal suicide and we know that because look around.
https://www.vatican.va/content/john-paul-ii/en/encyclicals/documents/hf_jp-ii_enc_14091981_laborem-exercens.html
Education is not a right. If you take loans out to finance your education, you are responsible for paying back those loans. Case closed.