In these economic times, the reddening numbers amid American family ledgers cry out for relief. Whether we find our indulgences among debt related to credit cards, health care, vacations, mortgages, businesses, sporting interests, or shoes, we all want our red to go away. Everyone wants "theirs." Where's my stimulus? Why just the banks? Indeed.
Yet, one group may find such relief. In his first State of the Union address, Obama proposed a series of reforms and relief for college students and graduates struggling with overwhelming loan debt.
To make college more affordable, this bill will finally end the unwarranted taxpayer subsidies that go to banks for student loans. (Applause.) Instead, let's take that money and give families a $10,000 tax credit for four years of college and increase Pell Grants. (Applause.) And let's tell another one million students that when they graduate, they will be required to pay only 10 percent of their income on student loans, and all of their debt will be forgiven after 20 years -- and forgiven after 10 years if they choose a career in public service, because in the United States of America, no one should go broke because they chose to go to college. (Applause.)
The Path to Educational Debt: Of all the indulgences, education has long been viewed as a "responsible" investment, a value-adding debt which raises not only personal but also societal standards of living as an investment in the future and in the intellectual backbone of our country. American ingenuity, innovation, and critical thinking are dependable national treasures long proven as a necessary impetus toward our common healthier socio-economic future.
Like most loans, the student loan can be paradoxically characterized as both a gift and an albatross. The borrower has a dream for which he or she cannot pay, and as Pell and other educational grants thin to the point of passe', lenders cast the student loan albatross as a pot of gold. Faust could have told us it would go this way. . .
Sign here to make your American dream come true. Be anything, or any two or three things that strike your fancy. Just sign here; the interest is low, and should there be a problem later, there are safety mechanisms built into the fine print. Not to worry - it's the great low-interest program through which we Americans achieve our highest ambitions. Here's a pen.
The Unique Characteristics of Student Loans: The seduction of this particular albatross is one of the unsung culprits underlying our current nest of economic troubles. Holding much the same allure and toxicity as the infamous sub-prime mortgage, the student loan industry is saturated with private loan scams and predatory usury practices. The student borrows from a place of unemployment based on an expectation of higher yielding income than jobs requiring little or no education. One's "collateral" is the future.
Yet, unlike other loans, a student loan sticks to the borrower like super-glue. Not even bankruptcy separates one from the student loan obligation, because, of course, knowledge has become a part of the student's very being. The pound of flesh is the educated mind which can't be repossessed or undone, at least, not yet.
So, throughout America, educated borrowers struggle under the same economic challenges as the rest of their fellow citizens. Unemployment, foreclosures, increases to credit card interests, and a host of financial issues plague all Americans who, whether out of self-indulgence or desperation, have risked and chosen their way into debt. Yet, the average citizen can also choose to start over. Through the option of a fresh start, a chance to reboot and to begin anew, you can cut your losses, give the house back, erase gambling debts or settle credit card balances for a fraction. Although your credit may stink for a while, your income becomes your own again, and in seven years, you can become a brand new person . . . squeaky clean, debt free, and wiser.
Yet, for the student borrower, there's no divorce, no witness protection, no foreclosure, and no emancipation from the student loan - no way of divesting the loan other than repayment, whether in good standing or in default. You either pay it standing up, or you pay it lying down, from the mat. You escape only through death.
The stick-to-itiveness of the student loan permeates even the extent to which one can become accredited in one's field, for often, accrediting boards deny licenses or license renewals to a host of medical and legal professionals based solely on their student loan debt. Not so funny . . . all that work and debt to pursue the American dream, only to be turned away at the door of one's best hope to repay the debt. Writing at OpenSalon.com, David A. Love similarly drills into the complexities of the issue, calling student loans, "that hot mess known as the student loan hustle."
Grassroots Efforts Toward Student Loan Debt Relief: Despite critics' claims that student borrowers want something for nothing, most student loan borrowers understand the gravity of their obligation and want to repay their loans. They understand that they have benefited, and that the loan is of their own making. Those who are educated understand that they play an important role in society, and that their choices, in part, drive much of social change. So, what to do?
Last year, Huffington Post's Jon Chattman wrote of the Forgive Student Loans Debt campaign launched by attorney Robert Applebaum, whose Facebook group now includes over 260,000 supporters of his proposal, Forgive Student Loan Debt to Stimulate the Economy. Applebaum argues that forgiving student loan debts would allow a large population of the middle class to spend their earnings as consumers. The lower one's income, the less likely one is to spend beyond necessities. Whether the loans are ultimately forgiven, partially forgiven, or traded through a program of public service, Applebaum maintains that the cumulative effect would be to render stimulus to the American economy in times of crisis. Apparently, President Obama has seen some merit in this.
Obama's Proposed Elimination of Taxpayer Subsidies for Banks Providing Student Loans: In September, 2009, the House voted 253-171 that the government should stop subsidizing the banking middlemen and use the money for direct loans and grants. Indeed, why should banks get free government subsidies to provide loans for which they are guaranteed repayment? For any other private loan, the bank assumes risk, but in addition to the government subsidy and the guarantee, private student loans carry the worst terms not only prone to lender abuse, but to university kickbacks from the lender. Succumbing to lobbyist pressures, Senator Ben Nelson of Nebraska has threatened to block passage of the Senate bill.
Unfortunately, it may be too late to save students from the private loan debacle, unless they are given a dose of the sub-prime mortgage medicine. On the other hand, Senator Sherrod Brown of Ohio has introduced a bill that would allow a "debt swap" in which private loans could be refinanced as lower interest federal Stafford Loans. Well, it's something.
Obama's Proposed Increase to Pell Grants and $10,000 Tax Credit for Four Years of College: Students not only struggle with their course load, but they often hold two or more low-paying jobs which barely keep them in Raman noodles. Thus, tax credits and increased Pell Grants offer a welcome relief for students who face ever increasing tuition costs despite the dark economy. Thankfully, Obama's tax credit proposal extends to incoming students not yet under the burden of stifling student loans.
Obama's Proposed Student Loan Repayments Capped at 10 Percent of Income: For most student loan borrowers, there are no extras - no big screen televisions or extra cars or vacations in the Hamptons, for the borrower is often underemployed or working outside his or her field of training. Under the current circumstances, monthly payments of $500-$3,000 preclude purchases beyond basic necessities. As health care and mortgage debts compromise one's ability to repay, late payment penalties and compounded interest jack up the debt by exponential leaps and bounds. A 10 percent monthly payment cap most immediately returns the indentured educated class to the consumer pool, effectively lightening the burden of the albatross.
Obama's Proposed Student Loan Debt Forgiven After 20 Years or After 10 Years if the Student Enters Public Service: Though full loan forgiveness may have the potential to stimulate the economy even more than the American Recovery and Reinvestment Act of 2009, it's unclear when the first students would experience their newly cleaned slates. Would those who have already been paying for 10 years find immediate relief, or would clock start only for the newly graduating?
Indeed, federal loan forgiveness is already linked to service professions like government workers, teachers, nurses, and Peace Corps volunteers, but Obama's proposal offers a visible horizon for all such borrowers. If one pays only 10% of the debt over 20 years, a lucrative career may be feasible, while the 10 year forgiveness mark for public servants offers a reasonable balancing incentive to remain in less lucrative jobs.
Robert Applebaum views the president's remarks as an amazing step in the right direction, he posts his initial questions: "will it include private loans or just federal loans? Will the forgiven amount be treated as taxable income? What exactly is a "livable wage?" What about restoring basic consumer protections to student loans? Will interest rates be capped as well?"
Despite President Obama's State of the Union admonishment that we should all get along, Republicans will react with typical humbuggery to this idea. Surely you jest! Handouts that promote intellectualism, progressive endeavors, and scientific investigation? Not in MY belief system! Something for nothing? Boo, hiss. My outrage runneth over - again.
Yet this is change in which we can believe. Money left in the pockets of the educated class finds a direct path to entrepreneurial business investment, mortgage payoffs, and the resolution of other debts, all of which ultimately regain consumer credit strength. Student loan relief may affect a specific population of debt holders, but it's a population with the potential buying power critical to the economic recovery of our local and national endeavors.
Time will tell if Obama's proposals for student loan relief will come to pass. Relieving the albatross of student loans for the educated poor is only one step in a series of institutional reforms which can provide a healthy stimulus for our long term prosperity. Across America, the impoverished educated class can only hope that the stigma and burden of their debt will at last be recognized as a national investment which, if relieved and partially forgiven, will bring more immediate health to our shared economy than their continued long-term servitude to personal debt. To quote President Obama, "no one should go broke because they chose to go to college."