Stimulate the economy with student loan forgiveness?
The group currently boasts more than 160,000 members. Founder Robert Applebaum told BusinessWeek that after graduating from law school and earning a salary too low to make payments, his student debt load has grown to $100,000. "Despite having a law degree, I'm middle class and I don't have any money at all," he says. "I don't own a house or a car. My only assets are my couch and television," he said.
Forgiving student loans as part of a stimulus package has a certain appeal to it -- It's definitely a better idea than paying bonuses to the losers at AIG. And as Applebaum writes, it would certainly increase consumer spending:
"Forgiving student loan debt would have an IMMEDIATE stimulating effect on the economy. Responsible people who did nothing other than pursue a higher education would have hundreds, if not thousands of extra dollars per month to spend, fueling the economy NOW. Those extra dollars being pumped into the economy would have a multiplying effect, unlike many of the provisions of the new stimulus package. As a result, tax revenues would go up, the credit markets will unfreeze and jobs will be created."
In the long run though, it's a terrible idea (although my colleague Josh Smith disagrees). Student debt loads for graduates continue to increase at an alarming rate, a rate of increase that will, I believe, set the United States up for a complete disaster: a generation of educated people with no retirement savings or assets -- a nation of 50-somethings with nothing but a couch and a television. We need to be sending the message to young people that student loans are an evil to be avoided. Forgiving current loans creates a moral hazard and could have the unintended consequence of stimulating increased borrowing among today's students: Why not, if Uncle Sam's going to come and bail you out?
Still, I applaud Applebaum for his efforts. If nothing else, it will draw attention to the devastating consequences of excessive educational debt. Even if he's unsuccessful in his quest for a bailout, his work may encourage high school seniors to pursue affordable educational options.