Letting students off the hook

Forgiving federal education loans is advocated as economic stimulus

April 01, 2009|By Stephen Kiehl | Stephen Kiehl,stephen.kiehl@baltsun.com

The banks were bailed out, and automakers got help, too. Even some people who bought more house than they could afford are getting relief.

But as the economy still sputters along, Robert Applebaum thinks he has a better idea: Cancel all the outstanding student loan debt. The impact would be immediate, he says, as people paying hundreds of dollars a month on their student loans could instead spend that money elsewhere.

The seemingly fanciful idea has hit a nerve. Since Applebaum, a New York lawyer, started a Facebook group on Jan. 29, more than 156,000 people have joined and 40,000 have signed a petition intended to be sent to Congress. Applebaum, who owes about $96,000 on law school loans, has become a full-time spokesman for the cause.

"I see it as targeted relief to people who are obviously lower and middle class, and it rewards responsibility," said Applebaum, 35. "These people didn't take out these loans to live high on the hog. They did it to better themselves."

He estimates that all private and publicly held student debt in the country totals about $600 billion - far less, he notes, than what has gone to banks that have used the money, in part, to pay out unpopular bonuses.

But economists are not as enamored of the idea. If student loan debt is forgiven, they say, why not car loans or credit card debt? And they say that the graduates who took out the loans are benefiting considerably from them in the form of higher earning power and that most are able to pay off their debts over time.

"Let's talk about forgiving everybody's loans. Anything along those lines would stimulate the economy, but at some point we have to say enough is enough," said David Ribar, professor of economics at the University of North Carolina at Greensboro. There's also a basic fairness issue, he said.

"Think of the poor kid who for one reason or another refused to take out loans, didn't go to college and is now making decent money," Ribar said. "That person now has to pay taxes so somebody else's loan can be forgiven? That doesn't seem very fair."

But for those who have student loans, the burden could keep them from buying a house or starting a business. Josh Lampman of Hampden is getting his master's degree this spring from the Maryland Institute College of Art, in photography and electronic media. Between his four years at Virginia Wesleyan College and two years at MICA, he has racked up $180,000 in debt.

"I'm extremely worried," said Lampman, 26. Like many graduating this year, he doesn't have a job lined up. "I'd like to start a video production and video installation group. But an investment like that is so far beyond my reach."

Applebaum's plan to outright cancel all student loan debt does not have a realistic chance of becoming law, experts said. A spokeswoman for the U.S. Department of Education had not heard of the idea and said the department has "bigger fish to fry."

The federal government is already responding to concerns that, as higher education has become more expensive, student loan debt has gotten out of control. Starting in July, the government will offer an income-based repayment plan for those with federal loans. The plan will cap payments based on income, often at less than 10 percent. And after 25 years of making the payments, whatever is left to be paid will be forgiven.

Some are taking extreme steps to deal with their debt. Kelley Holiday, 42 and a member of Applebaum's Facebook group, met with a real estate agent last month to talk about selling her house in Austin, Texas, to help pay down her $75,000 in student loan debt and start a college fund for her 11-year-old daughter.

When Holiday, a social worker with the state of Texas, earned her master's degree in 1995, her loans totaled $35,000. Because of interest, the amount she owes has more than doubled. She'd be happy, she said, if the interest could be forgiven and she could just pay off the principal.

"I'm not trying to get a free ride. I made this choice," she said. But she wonders whether, financially, her education was worth it. "If the whole step up [in income] you get with a college degree is taken away with debt, then you're back at square one."

For his part, Applebaum said he left a public service job, working as a prosecutor in Brooklyn, to join a private firm so he could start to pay down the debt. He points out that many borrowers work as teachers, lawyers, doctors - jobs that benefit society.

To that end, said Joseph Cordes, a professor of economics and public policy at George Washington University, the government could expand programs that forgive a portion of student loans for working in public service jobs. Already, he said, student loans are treated differently because they are government-subsidized and borrowers can deduct some or all of their interest payments.

He noted that other kinds of debt can also be seen as socially beneficial - such as taking out a home equity loan to put an addition on a house for an elderly relative. "The notion that student loan debt is good and has social value, and other debt isn't, is a very fuzzy line at best," Cordes said.

Others said Applebaum at least was raising awareness of the problems with how higher education is financed.

"Loans are absolutely the biggest part of the federal aid system," said Edie Irons of the Project on Student Debt, a nonprofit dedicated to making college more affordable. "Student loans are a heavy burden for millions of people in this country. The more people who join this group, the more people who are paying attention to this issue - borrowers and policymakers - the better."

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