Student Loan Debt: To Pay or Not to Pay?
In his second report this week on student lending, economics correspondent Paul Solman examines the challenges that indebted college graduates face and the debate over whether to forgive some or all of their loan burden.
RAY SUAREZ: Now: the ever-rising burden of student debt.
Last night, "NewsHour" economics correspondent Paul Solman looked at the consequences for millions struggling to pay off their loans in a tough job market.
Tonight, he explores the question of whether major debt should be forgiven.
It's part of his ongoing reporting Making Sense of financial news.
PAUL SOLMAN: Some million-and-a-half students will graduate with a four-year degree this spring, another 700,000 with a two-year associates degree. And yet, despite a debt load averaging nearly $25,000, says Robert Applebaum:
ROBERT APPLEBAUM, ForgiveStudentLoanDebt.com: There's five applicants for every job opening. And the jobs that do -- are available don't pay enough to allow people to repay their student loans.
PAUL SOLMAN: Applebaum is a lawyer in Staten Island, New York, and a student loan activist arguing for substantial debt forgiveness.
ROBERT APPLEBAUM: What I initially proposed was full, across-the-board student loan forgiveness for all Americans.
PAUL SOLMAN: Applebaum has since moderated his position. His initiative, however, has begun to change student loan policy in America.
But what is the policy right now? What's happening to it? And should we really contemplate forgiving debts legally and knowingly assumed? Even some highly indebted grads have trouble with that concept.
Maryland teacher Beth Hansen, who also works three part-time jobs to make ends meet, owes more than $60,000, on total income of about $45,000.
BETH HANSEN, Middle School Teacher: As a member of society, I have certain rules and obligations. And when you enter into a contract, you have to fulfill that contract.
PAUL SOLMAN: With a bachelor's and law degrees, Jack Cazir is a $100,000 in the hole.
JACK CAZIR, Owes Student Loan Debt: I did take the money knowingly. Like, I knew it was a loan. And, I mean, not paying it back at all just doesn't -- it doesn't seem right.
PAUL SOLMAN: Recent Brandeis grad Benjamin Beutel (ph), who did everything he could to avoid debt, says he would resent loan forgiveness.
MAN: I am graduating in three years. One of those years, I went to a state school. Suddenly, I will wish that I had had debt, because it would have saved my family and myself a lot of trouble.
PAUL SOLMAN: Even Robert Applebaum is committed to paying his loans back. He graduated from Fordham Law School in 1998 with a $65,000 debt that grew, unpaid interest added to principal, to $88,000 when he deferred payments to work a low-paying public service job.
ROBERT APPLEBAUM: Ever since I left the DA's office in 2004, I have been in repayment. I have not missed a single payment, nor do I intend to. I have never defaulted, nor do I intend to.
PAUL SOLMAN: But he has motivations besides morality.
ROBERT APPLEBAUM: Student loans are treated unlike any other type of debt in America, meaning they have no consumer protections, no bankruptcy protections, no statute of limitations on the collections of those debts.
MARK KANTROWITZ, FinAid.org: They can garnish up to 15 percent of your wages without a court order.
PAUL SOLMAN: Mark Kantrowitz is a financial aid expert and founder of FinAid.org. He points out that, of the trillion dollars in student loan debt, 80 percent is in the hands of the federal government.
MARK KANTROWITZ: The federal government can also intercept your federal and state income tax refunds; they can even offset or intercept 15 percent of your Social Security disability and retirement benefit payments. So, one way or another, the government gets its money.
PAUL SOLMAN: And that's just wrong, says writer and NYU faculty member Lawrence Weschler.
LAWRENCE WESCHLER, New York University: If I were to go and lose all my money at a gambling casino, I can declare bankruptcy. If I were to be a criminal and do some horrible thing, I can declare bankruptcy. Students are not allowed to declare bankruptcy.
PAUL SOLMAN: We caught up with Weschler and other activists at a recent conference at the New School for Social Research in New York, where the Occupy movement was plotting its next steps. A mass movement to repudiate student loan debt has been on their agenda since the fall.
BIOLA JEJE, College Senior: A lot of the way people talk about, it's like, well, then you shouldn't have took out that debt. You should have known better.
PAUL SOLMAN: Brooklyn college senior Biola Jeje:
BIOLA JEJE: We were told that, go to college whatever the cost, get an education, you will be able to get a job after. And that's not -- and that's not what's happened.
STEVE MAX, Midwest Academy: We have to get rid of this level of debt.
PAUL SOLMAN: Steve Max has been an activist since 1951, when he organized his fifth grade Anti-Discrimination and Firecrackers Club.
STEVE MAX: It just defies logic that we keep on going the way we're going and hoping to be a competitive country.
PAUL SOLMAN: But the people who took out the loans made a contractual commitment to pay it back.
STEVE MAX: They made a contractual commitment in a very different economy. And you can say, well, it's their tough luck, they should've known it all wasn't going to last. But their elders and betters and wisers told them to do this.
LAWRENCE WESCHLER: The reason they were told to take on $100,000, $150,000 is because they would get great jobs. There are no great jobs. Even the finance industry isn't hiring anymore.
PAUL SOLMAN: Though the average student loan debt is some $25,000, six-figure obligations are common among those with graduate or professional degrees, even among children of Federal Reserve chairmen.
BEN BERNANKE, Federal Reserve Chairman: My son in medical school recently informed me that he expected to have $400,000 in debt when he graduates from school.
PAUL SOLMAN: Since he's becoming a doctor, the borrowing may well pay off, as it often does. But, sometimes, it doesn't.
JACK CAZIR: Yes, I mean, I came from a family with not a whole lot of money.
PAUL SOLMAN: Jack Cazir aced high school, won scholarships to college and law school, only to wind up facing today's jobless legal market $100,000 in hock.
JACK CAZIR: Yes, at least $100,000. Yes. So even though I got like a 75 percent scholarship to a pretty good school, once I got there, the market collapsed.
PAUL SOLMAN: Some law grads have begun suing their schools, claiming outright fraud, that the schools misrepresented their job placement record. Fraud or not, though, students are not getting what they expected and borrowed for.
So what's a highly indebted, un- or under-employed grad to do?
MAN: If there's no jobs, we can't pay those student loans back.
PAUL SOLMAN: The Occupy movement tried to organize a mass repudiation of student loan debt. It failed. No wonder, given how firmly the law is on the side of lenders.
But it turns out that many of the un- or under-employed protesters are probably eligible for substantial relief that they don't even know about.
MARK KANTROWITZ: Once a borrower graduates or leaves school, it's very hard to counsel them on all their options.
PAUL SOLMAN: According to Mark Kantrowitz, because most student loan debt is federally guaranteed, most is eligible for a federal assistance program, in place since 2009, called income-based repayment. But hardly anyone is using it.
MARK KANTROWITZ: Right now, about 2.25 percent of borrowers are actually taking advantage of income-based repayment.
PAUL SOLMAN: Two-and-a-quarter percent, that's all?
MARK KANTROWITZ: Two-and-a-quarter. So out of 37 million, we're talking 600,000, 700,000.
PAUL SOLMAN: But why isn't everybody taking advantage of this? It would seem like a no-brainer.
MARK KANTROWITZ: Well, partly, it's a lack of awareness. And one of the benefits of President Obama's announcement is it raised awareness not just of the new plan, but of the existing plan.
BARACK OBAMA, President of the United States: Hello, North Carolina.
(CHEERING AND APPLAUSE)
PAUL SOLMAN: The headlines from the presidents recent whirlwind college tour were about the interest rate on a popular federally subsidized loan for low- and middle-income students, which is set to double, from 3.4 percent to 6.8 percent, on July 1.
BARACK OBAMA: That's basically a tax hike for more than seven million students across America.
PAUL SOLMAN: Mr. Obama called on Congress to keep the rate low in his speeches, even on "Late Night With Jimmy Fallon."
BARACK OBAMA: Now is not the time to make school more expensive for our young people.
(CHEERING AND APPLAUSE)
JIMMY FALLON, Host, "Late Night With Jimmy Fallon": Oh, yes.
JIMMY FALLON: You should listen to the president.
PAUL SOLMAN: And when you listen to Mitt Romney, he also wants to keep the rate low.
MITT ROMNEY (R), Presidential Candidate: Let's not kids ourselves. We're in the midst of a national education emergency.
PAUL SOLMAN: But efforts to halt the interest rate hike have stalled in Congress, since Democrats and Republicans disagree about how to pay for it.
Lost in the debate over rates, however, is a big change to income-based repayment, which applies to borrowers who incur new student loan debt in 2012 or later. Anyone who earns less than $17,000 a year -- that's 50 percent over the poverty line -- will have a monthly payment of zero.
Those who earn more -- how much more depends on a formula -- will pay only 10 percent of their so-called discretionary income. After 20 years, all remaining debt will be forgiven. Make that 10 years for anyone working in a public service job.
The plan is more generous than the one already in place for borrowers with older debt -- details on our Making Sense page -- and is a response to a petition for student loan debt relief on the White House's We the People site that drew 32,000 signatures last fall.
That petition had been started by Robert Applebaum. He's now got 950,000 signatures on a new petition for an even more generous program: the Student Loan Forgiveness Act of 2012.
ROBERT APPLEBAUM: Ten years at 10 percent of your discretionary income, and the remaining amount is forgiven.
PAUL SOLMAN: The ultimate hope, of course, is that the U.S. economy revives, jobs abound, wages rise, and student loan payments become increasingly manageable.
Meanwhile, there are people like Robert Applebaum, who after eight years of faithful loan payments, still owes $88,000 on his own student
RAY SUAREZ: Online, you can figure out whether it's still possible to work your way through school. Use our college cost and income calculator. That's on Paul's Making Sense page.