1. Why do students deserve a "bailout"?
They don't. Nobody "deserves" a bailout - not students, not Wall Street, the banks, insurance companies or auto companies. The American economy, however, needs to be rebuilt for the 21st century. During the past 2 years, we've seen jobs disappear at rates not seen since the Great Depression. Fewer jobs mean that the average American worker has less disposable income and, thus, spends less money on goods and services. 70% of the U.S. GDP is fueled by consumer spending and unless and until that critical aspect of our economy is restored, we're going to continue to spin our wheels in a dragging economy [my emphasis].
A recession is as much a psychological phenomenon as it is an economic one. The driving factor in today's economy is fear. Fear of losing your job or income, fear of losing your health insurance, fear of not being able to keep up with mortgage or rent payments, and, yes, fear of not being able to keep up with student loan repayment obligations. When people are afraid of such things, they tend not to spend money on anything but the bare necessities. While savings is generally a good thing during prosperous economic times, it's what perpetuates the retraction during tough economic times.
The trillions of dollars that have already been spent and will be spent by Washington to try and dig us out of this hole have not had any appreciable effect on the middle class - and certainly not on the middle class student loan debtors who, regardless of income or ability to pay, are expected to repay their student loans ahead of any other concerns, including food, shelter and clothing.
Trillions of taxpayer dollars have been, and continue to be handed over to the very institutions that were responsible for the near collapse of our economy last fall. This is the very type of "trickle-down" economic practice that has led to the ever-widening gap between rich and poor over the last 30 years. For a fraction of the cost of what has been and will be spent, forgiving the student loan debt obligations of all Americans would have an immediate and continuing stimulative effect on our economy - one that seeks to rebuild our economy from the bottom up by helping real people with real struggles. Thus, while nobody "deserves" a bailout, new and unprecedented solutions are required to solve new and unprecedented challenges.
2. What are the benefits to non students?
The proposal is not limited to current students. The proposal advocates the forgiveness of ALL outstanding student loan debts, both public and private, regardless of the degree sought or when the degree was obtained, if at all. Ultimately, the goal of the proposal is to stimulate economic growth. By forgiving student loan debt, millions of Americans who are currently struggling month to month would have hundreds or, in some cases, thousands of extra dollars every month with which they could buy goods and services from the very sectors of our economy that are currently ailing (e.g., housing, autos, durable goods, travel & tourism), spurring economic growth. When the economy grows, everyone benefits. Jobs are created, consumers start to spend, credit unfreezes, prices stabilize, and the fear referred to above starts to dissipate. Therefore, everybody benefits.
3. How would this proposal help stimulate the economy?
Think of the proposal as a tax cut. The Republican/conservative theories on taxation suggest that if you cut tax rates, the aggregate amount of revenue collected by the government would actually go up, due to economic growth. Here, instead of cutting taxes in the form of a $44 per month reduction in one's payroll taxes (which is what the average American worker got out of the American Recovery and Reinvestment Act of 2009), the millions of middle class Americans saddled with student loan debt would suddenly have hundreds and, in some cases, thousands of dollars extra EVERY MONTH. The removal of this debt repayment obligation would also remove much of the fear discussed above as consumers will start to regain confidence that they will have enough income in the future, allowing them to start spending money now. Again, 70% of the American economy is made up by consumer spending. The key to restoring our economy, therefore, is to get people to start spending money again.
4. Why should student loan debt and not credit card debt be forgiven?
Choices have to be made. In a perfect world, I'd love for everyone to be debt free so that they can go on to have completely prosperous lives. But that's simply not feasible. Accepting the premise that there is only a finite amount of debt forgiveness that could be implemented, as a public policy choice, I believe that student loan debt is more deserving of forgiveness than other types of debt for several reasons. First, practically all students who have ever borrowed money to pay for school were encouraged to do so under the assumption that student loan debt was "good debt" - an investment in one's future. That promise is significantly less true today than it used to be, considering today's job market and declining wages. Second, unlike all other types of debtors, student loan borrowers have suffered inequitable hardships such as the stripping away of nearly all consumer protections, including bankruptcy, statutes of limitations, truth in lending requirements, etc. Further, as many student loan debtors will attest, the amounts originally borrowed by the students differ markedly from the amounts those same borrowers are expected to and often wind up paying. Fees, penalties, compounding interest and economic disincentives for lenders to help keep student borrowers out of default have caused millions of Americans who thought they were doing the right thing by borrowing money for their education to disproportionately bear the burdens of a lending system that is both predatory and inescapable.
Moreover, a well-educated citizenry benefits society as a whole, not just the students themselves. In order for the U.S. to compete on a global scale in the 21st Century economy, we need a workforce that is not only well-educated, but adaptable to the dynamics of our ever-changing economic challenges. To the extent the American worker is shackled by debt, we, as a society, potentially stifle innovation, entrepreneurship and growth. Removing these hurdles can lead to unleashing an entire generation, allowing them to realize their full potential in the new economy.
5. What would happen to student loans that are several years or possibly decades old?
They should be forgiven as well to the extent they have outstanding balances. This proposal makes no distinction between new loans or old loans, private loans or public loans, loans in default versus loans in good standing, loans for trade schools versus loans for liberal arts schools, etc. A hundred dollars spent on goods or services by a person whose 20 year old loan was just forgiven will have the same stimulative effect on the economy as a hundred dollars spent by a recent graduate whose loans were just forgiven.
6. What would happen to future students, would they be entitled to loan forgiveness as well?
Inherent in this proposal is a belief that, going forward, the way we fund higher education in America needs to be fundamentally changed. 40 years ago, a higher education was obtained mostly through grants and scholarships with small amounts of student loans making up the difference. Today, student loans are the primary source of funding for school. As tuition rates continue to soar at more than twice the rate of inflation, more and more students necessarily have to borrow more and more money just to obtain a degree that no longer has the same value it once did. This is a recipe for disaster as it is inarguably unsustainable. Moreover, I recognize the "moral hazard" element to this proposal - why should future students feel obligated to repay their loans if everyone's loans today were forgiven? As such, part and parcel of this proposal is that, going forward, fundamental changes to the way we fund higher education in this country need to be made.
7. What is the difference between federal and private loans?
Federal loans are guaranteed by the government, meaning, if the borrower were to default, the lender would be paid by the government, minimizing the risk to the lender. Private loans have no such guarantee and, therefore, are usually accompanied by much higher interest rates. As tuition rates continue to soar at more than twice the rate of inflation, students are required to turn to private loans with ever-increasing frequency, subjecting themselves to even higher repayment obligations down the road. All student loans, both federal and private, have been stripped of consumer protections mentioned above and, as such, private loans are nearly completely unregulated, potentially subjecting the borrower to many unforeseeable legal and financial pitfalls down the road.
8. What is predatory lending and how is it destroying the economy?
Predatory lending is essentially going after target demographics with promises of affluence for borrowing more than one should. We've seen it in the sub-prime mortgage crisis where millions of Americans were sold houses they could never hope to afford because predatory lenders convinced them that repayment would not pose a problem. The same problem exists in the student loan industry to a degree that, one could argue, is much more insidious because the target demographic is essentially kids aged 17-22. What on earth do 17 year olds know about economics, debt, earnings, compounding interest, deferrals, forbearance or any of the other hard lessons that are eventually learned the hard way years later? Promises of easy repayment schedules, advanced earning potentials, and guaranteed jobs, not only by the lenders, but by their witting accomplices in every financial aid office in every college and university in America is, in my opinion, the very definition of predatory lending.
9. What benefits do you see from stimulating the economy from the ground up as opposed to a top-down trickle effect?
We have over 30 years of evidence that the trickle-down approach only works well for those already at the top. Sure, our economy grew during the 1980s and 1990s thanks to tax cuts, corporate subsidies and low interest rates, but the gap between rich and poor grew exponentially, too, and real wages adjusted for inflation have actually gone down for middle-income Americans. The middle class is the backbone of this country and since we're already standing in the ruins of more than 30 years of greed and excess, the rebuilding process should focus on the very people who drive this economy and who make this country work.
10. What do you suggest should happen to the students who have paid off their loans prior to this proposal?
I fully recognize that this isn't fair to them. I'm sorry that many of them will see the implementation of this proposal as punishment for their having done the right thing. I could only hope that they look beyond their own self-interests to see the benefits of this proposal to all Americans if it achieves the goal it's designed to accomplish - economic growth.
