Letter to a Skeptical Friend

A friend of mine and I were recently emailing one another and, not surprisingly, we were discussing the topic of student loan forgiveness.  Needless to say, he's a bit of a skeptic.  While he did raise some valid concerns about some of the assumptions I've made about human behavior in order for this proposal to work as predicted, I did my level best to justify and explain why I believe this approach was not only viable, but equitable as well.

As you can imagine, over the last 9 months or so, I've started to sound a bit like a broken record.  There's only so many ways I can articulate the same thing in a clear, logical and persuasive manner, but I suppose that just comes with the territory when you're trying to convince a nation to take a wholly novel approach to rebuilding our economy.

By the time I had hit "send," I was rather proud of the way in which I had addressed a number of his concerns.  As I'm sure many, if not all of you who've been following and supporting this endeavor have encountered many of the same type of skepticism amongst your friends and family, I thought it might be helpful to share the response I gave to my friend so that you may incorporate some of my arguments into your own, should you so desire.  So, here it is:

Most of the people I talk to and advocate for are duly employed - but making far less money than they were "promised" when sold on the idea of college.  I largely agree with the points you made about the costs of higher ed.  That, combined with an endless source of "free money" in the form of student loans have jacked up the costs so high that the value of said educations are wholly inflated - much like the housing market was a year and a half ago.  The real problem, the way I see it, is that for the last 30 years, middle-class income has largely remained stagnant while the value of the dollar has plummeted.  When you adjust for inflation and determine real wages, middle-class Americans make far less money than they used to, but they carry a lot more debt to make up the difference.  At the same time, those at the very top of the socio-economic ladder have seen their incomes increase over that same time period by many orders of magnitude.  The result: the gap between rich and poor has never been greater.

Did you know that you can declare bankruptcy and have your debts discharged or rescheduled for almost any type of debt, including housing, auto, credit card, business, medical and even gambling debts but NOT student loans?  It's the only form of consumer debt exempted from bankruptcy protections as well as truth in lending laws.  As a result, lenders have basically given money away to prospective student borrowers without ANY evaluation or consideration of the risk involved.  No requirements are made on the type of degree allowed to be sought - whether such a degree is likely to result in enough income later on to repay the loan.  Since the lenders know that these debts cannot be discharged in bankruptcy, and because of the federal guarantees on such loans if the borrower were to default, the lenders have made billions of dollars off the lower and middle class student borrowers for decades without facing ANY risk.  For all the talk of predatory lending in the housing market - the problem is so much more pervasive and insidious in the student loan industry.  Moreover, the target customer for student loans is aged 17-24 - hardly the most financially savvy demographic.

Again, none of this has anything to do with why I started this movement.  It was, and remains to this day, an alternative to economic stimulus.  You're absolutely right about the stimulus and bailout money going to the banks and other financial institutions being hoarded - that's precisely the problem, although it was completely predictable.  Trickle-down economics are faulty at best on the macro level.  Rather than rewarding those who nearly destroyed the economy in the first place, forgiving the student loan debt of millions of middle class Americans would rebuild the economy from the bottom-up for a change, rather than the other way around.  Just think about it: an educated, middle-class wage earner who pays, for example, $500/month in student loan payments would have an extra $500 a month EVERY month.  It's not a one-time tax rebate like what was done under Bush and which did almost nothing to stimulate the economy.  This would be a mechanism for a sustained, long-term recovery.  Plus, it would do something that few other economic stimulus proposals have ever done: address the psychological factors inherent in a recession.  Psychology plays just as large a role as fiscal and monetary concerns in a recession - it's all about perception.  Can you imagine how perceptions about the strength of the economy would change if millions of Americans suddenly were to have a guaranteed extra hundreds, or in some cases, thousands of extra dollars per month, every month?

As for your points about mortgages or credit card debt: I think there needs to be a recognition of good/responsible debt vs. bad/irresponsible debt.  Student loan debt falls into the former category in that it was incurred with the expectation of higher earnings upon completion of one's education and a resultant increase in contribution to society.  People who max out their credit cards and buy way more house than they could ever hope to afford, on the other hand, are victims of their own poor choices.  Nobody who took out student loans and went to school did so with an expectation that the economy would fall apart or that they wouldn't be able to easily pay their loans back.  The same irresponsible actors who gave out all of these reckless loans without regard to risk are the same irresponsible actors who caused the economic meltdown resulting in a crippled job market.  I don't believe that the lower and middle class borrowers who merely sought to better themselves should have to continue to shoulder the financial burdens of those at the very top.

-Rob

 So, there you have it.  Obviously, it doesn't address each and every concern of every skeptic who has considered this issue, but I think it adequately addresses some of the more persistant ones.  Feel free to adopt any or all of these points as your own in defense of student loan forgiveness, and feel free to share your own such retorts in the comments to this blog entry.

Thanks again to everyone for your continued support.  Until next time. . .