Wednesday, March 21, 2012

Forgive all student loan debt: Interview with Robert Applebaum

Credit: J.C. Rice
[This is a series in which I talk with experts on the topic of student debt.]

What if we got rid of all student loan debt? This is the question Robert Applebaum posed to himself in the midst of the housing bubble and Great Recession. Robert's answer: it would create millions of new consumers who could then stimulate the economy.

Among student debtors, his idea, needless to say, was popular. He had over 300,000 people join his Facebook group. Over 660,000 people signed his petition that expressed support for a loan forgiveness bill. He's been featured in The New York Times, Huffington Post, and The Economist.

The idea has gained traction over the years and he's been working with Representative Hansen Clarke (D-MI) who has recently introduced legislation to forgive student loan debt on the condition that the debtor pays 10% of his discretionary income over 10 years. If there's any debt remaining after those 10 years, the rest of the debt is forgiven.

I recommend watching Hansen Clarke deliver his speech below, if just because it'll make my interview with Robert easier to understand. (Clarke misspeaks when he says that only "federal" loans will be absolved; private loans, under this legislation, would be absolved as well.)

Here's my interview with Robert, along with an abridged transcript below:

Why did you start the organization, Forgive Student Loan Debt?

It was January 29th of 2009, a mere nine days after the inauguration of president Obama—a candidate who came into office on a platform of hope and change. And there we were, debating the Obama stimulus plan, which consisted of more tax cuts, corporate welfare and trickle-down economics. Frankly I got pissed at the terms of the debate. Here we were going back to the same failed policies that got us into the mess in the first place.

It occurred to me that if the goal was really economic stimulus then I had a much better, more efficient way of accomplishing that goal. At the time my monthly [student loan] payments were about $500 per month. It occurred to me that if my student loans were forgiven, I would had $500 per month, every month, with which to spend on ailing sectors of the economy. And if you multiply that across the millions of people who have student loan debt, you have a recipe to a bottom up approach to rebuilding the economy.

On your website, you point out that the bank bailouts rewarded bad behavior and haven’t done much to encourage institutional change, but wouldn’t student loan forgiveness do the same?

I readily admit that there is a moral hazard inherent in what I proposed: that future generations would expect to get bailed out because we were bailed out. That is a perfectly legitimate concern. My point is that amassing massive amounts of debt and placing that debt on the shoulders of those who can least afford it is not the only way we can pay for education in this country. Inherent in what I proposed is a strong belief that we need to fundamentally overhaul the way in which we pay for higher education in this country; and what I mean by that is public education—public funding of higher education. Education is not a commodity that benefits only the individual. Rather it is something that should be viewed as a public good and an investment in our nation’s future.

In the case of my friend Josh—he graduated with $66,000 in student debt. Over the past six years, he’s paid off about $50,000. So let’s say, in a couple years, his debt is gone and we pass student loan forgiveness legislation… Would he get any compensation or is he just unlucky?

Well I wouldn’t say he’s unlucky because he has a job that pays enough to let him pay off his debts. In that respect, he is lucky. No he would not receive a benefit from [Hanson Clarke’s] bill. But he’s not the one who needs help the most. Is it perfectly fair? No of course not. But nothing ever is. I pay property taxes yet I don’t have children. I pay Social Security. Who knows if I’ll ever be able to avail myself of social security. There are lots of things that everybody pays with their tax dollars that they don’t directly benefit from. The point is that this would benefit the country as a whole…to get consumer spending back up again so we can restore our economy from the bottom up.

Do you hold out hope that legislation will be passed?

I have hope that we’ve been successful enough in raising awareness, so that members of Congress will see a need to act proactively…I’m cautiously optimistic that Congress will have gotten the message that this is something we need to attack proactively. We cannot wait for the bubble to pop the way we did with the housing market because we saw how devastating that was. Now... I’m a realist as well. I know that Congress doesn’t act unless they have to act, so chances are we’re going to have to wait for the bubble to pop before action is taken.

Previous installments of "Interviews with the indebted"
#1 Interview with $200,000-in-debt grad, Kelli Space. 

#2 Interview with Alan Collinge, student debt guru who wants to reinstitute bankruptcy protection for student borrowers


Lee Ann said...

Are you guys serious? I'm sorry but I do not support this idea at all. Just who is going to pay for all of this loan forgiveness? I've already paid for my own education I should not have to pay for others. I am just speechless.

Ken said...

Phoebe--Please do not confuse my discussion with Robert as an endorsement of his ideas. At this point, I'm merely talking with people who have ideas so I can be informed enough to form my own.

That said, I do not think the newly proposed bill that Robert supports is completely ridiculous. Ten percent of income over ten years is no small amount, and that seems way more responsible to me than simply forgiving everyone's debt automatically, which Robert is not endorsing.

The money to pay it off will come from taxpayers. I have paid my loans, and I, too, do not want to reward laziness and irresponsibility, but I really don't think laziness and irresponsibility are the main factors of the problem. Last I checked, there are 36 million Americans in student debt, 1/4 of which have experienced severe difficulty in paying back their loans (based on default rates). Something needs to be done on the national level.

Lee Ann said...

My point is just as many people bought homes when they knew they could not afford them even though banks were willing to loan the money........many students went to colleges that were way out of their budgets. They knew what they were getting into. Just because someone offers to finance our futures, we should be smart enough to figure out what could happen. I read an article re: a girl who attended NYU and amassed a huge amount of student loans. NYU was her "dream" school. She did not want to go to a state university. Now she feels that she should not have to pay back her loans. No......I do not think that taxpayers should be paying these loans. I guess next is I should have to pay someone's car loan because they can't afford the monthly payment on their BMW. NO one wants to be held responsible for THEIR decisions.
I went to college and paid for it even though my mother only had a high school education and my father was disabled and I did it with no loans whatsoever. How, you may ask? I worked my tail off, that's how. At a golf course. Morning, noon and night. Every day during the summer and when I went home on the weekends and holidays. I'm just so tired of being told that somehow I should have to shoulder their relief. Where is my relief?

Ken said...

Phoebe--I hear ya. And maybe "no relief" is the best policy. Still, though, I think it's important to acknowledge how many students got into this situation: there was nothing preventing them from borrowing almost limitless amounts of money. There was no one telling them not to. And they were 17. Maybe student loans shouldn't be forgiven, but we definitely need to take some "preventative" measures, like high school financial education or stricter loan limits or simply finding a way to make college more affordable.

Jacquelyn White said...

I'm currently paying off student loans and I have friends doing the same. My mom is still paying on student loans. I understand what Phoebe is saying and I understand where Robert is coming from. Granted my payments are as high as his is, but I wouldn't turn down a lower payment. I don't think the answer is to forgive loans for people who might have huge bills. Someone going to a state school is not going to have the same loan debt as someone who goes to a private school.
I think Robert's idea is a little one sided. There are a lot of people who have large student loans who have sacrificed and paid them off with jobs that they didn't go to college to obtain. Do we need to rethink higher education costs? Yes. But education costs need to be reform from the ground up starting with daycare and up. Do we need financial education happening in schools...most definately. He's right what kind of an example will we be if we got bailed out and the future generations are still looking at the same problems. I understand that a lot of people are in jobs that are not capable of paying back their student loans, but at the same time that's a risk you take on your future. I'm not in a high paying job but I don't want to be.
I'm not buying that a plan to forgive high amount student loans and shuffling that debt onto a nation already straining under debt is the answer. It's still not helping the people who need it, it's not just about the college grad who went to an out of state college because it was their dream college and they figure they would land an awesome job as soon as they graduated so a few loans is no big deal and those few loans turned into big loans with big interest rates attached to them. It's also about the kid who went to a local college because going to college was their dream, to get a better chance in life and now they've graduate a recession has hit and they're doing whatever job they can to make $ for their daily bills and knowing that soon they are going to have to add in another bill for those loans they took out for their future and they don't know where it's going to come from.

Thank you Ken for interviewing this person as I had no idea this bill was out there. It's a great idea for a small group of people who are part of a larger problem.

ST said...

It is vitally important for parents to educate their young "adult" children about money, finance and DEBT before pursuing any post secondary education at their dream private college. I have already told my kids they should set their expectations at a reasonable level and plan to attend a state college (which by the way in the USA are quite good in most places!) and work part time during the academic year (as I did) to help pay for it. I do not advocate loan forgiveness except in the most exceptional of cases. Credit in and of itself is not bad. If managed properly it's a useful instrument allowing one to invest in the things they need to improve their skill set.