Albany, New York Becomes Center of Loan Forgiveness Movement

This story is getting play in the New York Times Blog "The Choice" today:

"The City Council of Albany, N.Y., would seem an unlikely champion for college graduates struggling to repay student loans in the midst of a slumping economy.  And yet the council on Monday night voted 12 to 0 in favor of a resolution that “urges the federal government to consider forgiving student loans as part of a stimulus package for young people and to move forward on reforming the student loan process.”

Buried within the City Council's resolution is a public service loan forgiveness program...: 

"WHEREAS, forgiving private and federal student loans should be greatly expanded in exchange for service in all public sector jobs, so as to better utilize these degrees and experience especially in our most disadvantaged sectors. The time frame for public service should be proportional to the amount of debt asking to be forgiven;"

And a plea to repeal the bankruptcy discharge exception and mandatory financial literacy training:

WHEREAS, in order to stop this cycle of destructive student debt we also urge Congress to examine the following: repealing the exception to bankruptcy discharge of private, governmentally-guaranteed and government education loans; increasing Pell Grant funding; aligning the definition of total and permanent disability discharge with the Social Security definition of a disability; requiring mandatory financial literacy training for all college students; and mandating improvements in loan counseling.

As for how stimulative a program like this might be, Mark Kantrowitz, publisher of FinAid.org weighed in with this thoughts at the Baltimore Sun Consuming Interests Blog:

"Mark Kantrowitz, publisher of FinAid.org, crunched some numbers. Kantrowitz says there is $730 billion in outstanding student loans — $598 billion in federal loans; $132 billion in private loans. But to have an immediate impact on the economy, Kantrowitz notes, you have to consider only loans that are in repayment because that’s money now going to loans and not other consumer spending.

But a little less than 4 percent of outstanding debt — or $28.8 billion a year —is now being repaid, Kantrowitz says.

“So assuming that the borrowers would spend this windfall instead of saving it or using it to pay down other debt, this proposal would involve the government spending $730 billion now in order to increase consumer spending by $28 billion,” Kantrowitz writes. “Since less than 4% of the cost of this proposal would be spent by consumers in the first year, it will clearly not have the “immediate stimulating effect” claimed by the proposal’s proponents.”

Kantrowitz adds: “Forgiving all debt provides a financial windfall to borrowers who are capable of making their monthly loan payments, such as wealthy doctors and lawyers, and not just to borrowers who are experiencing financial difficulty. There are more effective and better-targeted ways of spending taxpayer money.”

As for comments from readers at the NY Times, they generally fall into two camps:

• Those who would benefit from such loan forgiveness:

  • "This is a HUGE step for advocates of this movement. While many have their petty arguments, and false facts to try and degrade this movement, we are showing our strength. I can say for sure, that even with plenty of grants and financial aid that 2 years out of college, I still have over 30k in college debt to account for. I really and truly hope that leaders across this country read into this and see it as a REAL way to help our economy out!  I am SO proud to say today that I am a member of this movement!"

  • "As a recent graduate from a double masters program, I like it!"

• "I completely agree. As a fairly recent graduate myself I feel like it can be difficult to get a repayment plan that works for people who are in low paying jobs/ looking for work. Even a degree of relief would be really helpful!"

• Everyone else (and even one with student loans):
  
  • "People not repaying their loans were partly responsible for the banking collapse of 2008. Forgiving student debt is a horrible idea. Let them pay their loans."

• "I wonder how many supporters of this idea don’t have student loans. Probably not many. This is just another example of money being taken from one group of people (the 53% of Americans that pay taxes) and given to another group (the people with student loans). It’s not much different than stealing. If we are just going to hand out money, why not give money to everyone? Everyone’s got their hands out and nobody is reaching for their wallet."

• "Seriously though, this is a horrible idea in this bailout nation we have become. The sense of entitlement is overwhelming - and scary… And yes, I do have substantial amount of student loans from a private university I chose to attend (instead of a public school option that would have been significantly cheaper) but I take responsibility for my actions and decisions. I wish everyone else would do the same."