Dan Wasserman on Readin,' Writin' and the Rich guys

Click on the cartoon to see what he has to say about Bill Gates and the Wall St. privateers.

For more cartoons from Wasserman on the charter schools and Race to the Top, check out his website here.

Follow-up/Robert Applebaum's Proposal

After my interview with Robert Applebaum and the jump in followers to this blog, it is clear that people (regardless of their opinion on this movement) want to know more details about Applebaum's proposal. For supporters, the reasoning behind Forgive Student Loan Movement was based upon common sense. But for its opponents that provides little satisfaction. They argue that it lacks substance.

In my view, Applebaum's arguments for this proposal have sharpened by leaps and bounds since he started the Forgive Student Loan Debt Movement on Facebook in January 2009. The increased level of evidentiary detail behind his proposal demonstrates two things. First, he is putting those analytical skills he acquired in law school to work! Second, he provides his followers with a synthetic interpretation of large, historical forces - economics and politics, culture and society - that have shaped the student lending industry in deleterious ways for those Americans below or a part of the middle class(es) . (I follow his arguments and evidence he puts forth closely, read as many newspaper articles about the movement, and correspond with Applebaum via email 2-4 times a day- that's been a pleasure. It has allowed me to understand the motivations behind his group and be witness to the unfolding of his political thought). The series of question and answer below, which can be found at Applebaum's site here, illustrate the intellectual growth behind this movement.

Frequently Asked Questions

1. Why do students deserve a "bailout"?

They don't. Nobody "deserves" a bailout - not students, not Wall Street, the banks, insurance companies or auto companies. The American economy, however, needs to be rebuilt for the 21st century. During the past 2 years, we've seen jobs disappear at rates not seen since the Great Depression. Fewer jobs mean that the average American worker has less disposable income and, thus, spends less money on goods and services. 70% of the U.S. GDP is fueled by consumer spending and unless and until that critical aspect of our economy is restored, we're going to continue to spin our wheels in a dragging economy [my emphasis].

A recession is as much a psychological phenomenon as it is an economic one. The driving factor in today's economy is fear. Fear of losing your job or income, fear of losing your health insurance, fear of not being able to keep up with mortgage or rent payments, and, yes, fear of not being able to keep up with student loan repayment obligations. When people are afraid of such things, they tend not to spend money on anything but the bare necessities. While savings is generally a good thing during prosperous economic times, it's what perpetuates the retraction during tough economic times.

The trillions of dollars that have already been spent and will be spent by Washington to try and dig us out of this hole have not had any appreciable effect on the middle class - and certainly not on the middle class student loan debtors who, regardless of income or ability to pay, are expected to repay their student loans ahead of any other concerns, including food, shelter and clothing.

Trillions of taxpayer dollars have been, and continue to be handed over to the very institutions that were responsible for the near collapse of our economy last fall. This is the very type of "trickle-down" economic practice that has led to the ever-widening gap between rich and poor over the last 30 years. For a fraction of the cost of what has been and will be spent, forgiving the student loan debt obligations of all Americans would have an immediate and continuing stimulative effect on our economy - one that seeks to rebuild our economy from the bottom up by helping real people with real struggles. Thus, while nobody "deserves" a bailout, new and unprecedented solutions are required to solve new and unprecedented challenges.

2. What are the benefits to non students?

The proposal is not limited to current students. The proposal advocates the forgiveness of ALL outstanding student loan debts, both public and private, regardless of the degree sought or when the degree was obtained, if at all. Ultimately, the goal of the proposal is to stimulate economic growth. By forgiving student loan debt, millions of Americans who are currently struggling month to month would have hundreds or, in some cases, thousands of extra dollars every month with which they could buy goods and services from the very sectors of our economy that are currently ailing (e.g., housing, autos, durable goods, travel & tourism), spurring economic growth. When the economy grows, everyone benefits. Jobs are created, consumers start to spend, credit unfreezes, prices stabilize, and the fear referred to above starts to dissipate. Therefore, everybody benefits.

3. How would this proposal help stimulate the economy?

Think of the proposal as a tax cut. The Republican/conservative theories on taxation suggest that if you cut tax rates, the aggregate amount of revenue collected by the government would actually go up, due to economic growth. Here, instead of cutting taxes in the form of a $44 per month reduction in one's payroll taxes (which is what the average American worker got out of the American Recovery and Reinvestment Act of 2009), the millions of middle class Americans saddled with student loan debt would suddenly have hundreds and, in some cases, thousands of dollars extra EVERY MONTH. The removal of this debt repayment obligation would also remove much of the fear discussed above as consumers will start to regain confidence that they will have enough income in the future, allowing them to start spending money now. Again, 70% of the American economy is made up by consumer spending. The key to restoring our economy, therefore, is to get people to start spending money again.

4. Why should student loan debt and not credit card debt be forgiven?

Choices have to be made. In a perfect world, I'd love for everyone to be debt free so that they can go on to have completely prosperous lives. But that's simply not feasible. Accepting the premise that there is only a finite amount of debt forgiveness that could be implemented, as a public policy choice, I believe that student loan debt is more deserving of forgiveness than other types of debt for several reasons. First, practically all students who have ever borrowed money to pay for school were encouraged to do so under the assumption that student loan debt was "good debt" - an investment in one's future. That promise is significantly less true today than it used to be, considering today's job market and declining wages. Second, unlike all other types of debtors, student loan borrowers have suffered inequitable hardships such as the stripping away of nearly all consumer protections, including bankruptcy, statutes of limitations, truth in lending requirements, etc. Further, as many student loan debtors will attest, the amounts originally borrowed by the students differ markedly from the amounts those same borrowers are expected to and often wind up paying. Fees, penalties, compounding interest and economic disincentives for lenders to help keep student borrowers out of default have caused millions of Americans who thought they were doing the right thing by borrowing money for their education to disproportionately bear the burdens of a lending system that is both predatory and inescapable.

Moreover, a well-educated citizenry benefits society as a whole, not just the students themselves. In order for the U.S. to compete on a global scale in the 21st Century economy, we need a workforce that is not only well-educated, but adaptable to the dynamics of our ever-changing economic challenges. To the extent the American worker is shackled by debt, we, as a society, potentially stifle innovation, entrepreneurship and growth. Removing these hurdles can lead to unleashing an entire generation, allowing them to realize their full potential in the new economy.

5. What would happen to student loans that are several years or possibly decades old?

They should be forgiven as well to the extent they have outstanding balances. This proposal makes no distinction between new loans or old loans, private loans or public loans, loans in default versus loans in good standing, loans for trade schools versus loans for liberal arts schools, etc. A hundred dollars spent on goods or services by a person whose 20 year old loan was just forgiven will have the same stimulative effect on the economy as a hundred dollars spent by a recent graduate whose loans were just forgiven.

6. What would happen to future students, would they be entitled to loan forgiveness as well?

Inherent in this proposal is a belief that, going forward, the way we fund higher education in America needs to be fundamentally changed. 40 years ago, a higher education was obtained mostly through grants and scholarships with small amounts of student loans making up the difference. Today, student loans are the primary source of funding for school. As tuition rates continue to soar at more than twice the rate of inflation, more and more students necessarily have to borrow more and more money just to obtain a degree that no longer has the same value it once did. This is a recipe for disaster as it is inarguably unsustainable. Moreover, I recognize the "moral hazard" element to this proposal - why should future students feel obligated to repay their loans if everyone's loans today were forgiven? As such, part and parcel of this proposal is that, going forward, fundamental changes to the way we fund higher education in this country need to be made.

7. What is the difference between federal and private loans?

Federal loans are guaranteed by the government, meaning, if the borrower were to default, the lender would be paid by the government, minimizing the risk to the lender. Private loans have no such guarantee and, therefore, are usually accompanied by much higher interest rates. As tuition rates continue to soar at more than twice the rate of inflation, students are required to turn to private loans with ever-increasing frequency, subjecting themselves to even higher repayment obligations down the road. All student loans, both federal and private, have been stripped of consumer protections mentioned above and, as such, private loans are nearly completely unregulated, potentially subjecting the borrower to many unforeseeable legal and financial pitfalls down the road.

8. What is predatory lending and how is it destroying the economy?

Predatory lending is essentially going after target demographics with promises of affluence for borrowing more than one should. We've seen it in the sub-prime mortgage crisis where millions of Americans were sold houses they could never hope to afford because predatory lenders convinced them that repayment would not pose a problem. The same problem exists in the student loan industry to a degree that, one could argue, is much more insidious because the target demographic is essentially kids aged 17-22. What on earth do 17 year olds know about economics, debt, earnings, compounding interest, deferrals, forbearance or any of the other hard lessons that are eventually learned the hard way years later? Promises of easy repayment schedules, advanced earning potentials, and guaranteed jobs, not only by the lenders, but by their witting accomplices in every financial aid office in every college and university in America is, in my opinion, the very definition of predatory lending.

9. What benefits do you see from stimulating the economy from the ground up as opposed to a top-down trickle effect?

We have over 30 years of evidence that the trickle-down approach only works well for those already at the top. Sure, our economy grew during the 1980s and 1990s thanks to tax cuts, corporate subsidies and low interest rates, but the gap between rich and poor grew exponentially, too, and real wages adjusted for inflation have actually gone down for middle-income Americans. The middle class is the backbone of this country and since we're already standing in the ruins of more than 30 years of greed and excess, the rebuilding process should focus on the very people who drive this economy and who make this country work.

10. What do you suggest should happen to the students who have paid off their loans prior to this proposal?

I fully recognize that this isn't fair to them. I'm sorry that many of them will see the implementation of this proposal as punishment for their having done the right thing. I could only hope that they look beyond their own self-interests to see the benefits of this proposal to all Americans if it achieves the goal it's designed to accomplish - economic growth.

Why Wall Street Greed is connected to education matters

Here's a concern for me: what's education worth? Why does it matter? Who cares about funding education and why? Education obviously has pragmatic purposes (learning the basics like spelling, arithmetic, etc.). That goes for earning a 4-year degree, too. Pragmatism isn't necessarily bad when it comes to education policy.

But Wall Street has cast a dark shadow over education in this country. In many ways, it seems that the aim of education has become tied up with only making money. The desire to make money isn't necessarily bad. But what happens to a culture when the financial industry rules above all else?

Before the financial crisis many students who started at the Ivies had one thing in mind - making it to Wall Street and making it big. Everyone wanted to be in finance. I have a hunch that that certainly wasn't out of a true passion to work 80 hours a week in stocks and bonds. Obviously that drive has changed - that's a good thing. Young adults are rethinking their options and looking into other industries. When it comes to the way education matters, it's painful to learn that Wall Street rewarded those who were not entrepreneurial and were not interested in growing companies for the right reasons (to create solid products, develop strong relationships). Instead, they were driven by greed. Some may accuse me of simplifying the aims. Granted, it's a complicated story, and even good writers like Michael Lewis have a hard time untangling the details . But from this angle, it seems clear as day. There is validity in those who can analyze from the outside - that's an example of why education matters and why the financial industry ought to be regulated to some degree.

There's another problematic piece to this whole story of greed and economics. Obama has a mission to improve things, especially education. As I already said, that's admirable. But take a look at those who are closest to him, Larry Summers. It seems Summers has a questionable history when it comes to finance - take Harvard as an example. The school last year had a $36.9 billion endowment (yes, that's correct. I didn't make an error in the numerical evidence). Keep in mind, in 1990 its endowment was at a healthy $4.8 billion. The financial crisis hit its guilded halls and in the first four months of the fiscal year of 2008, Harvard lost a staggering $8 billion. To those who are aware of the endowment numbers for other Ivies, that loss is mundane and shocking. For example Columbia's endowment is around $7 billion, and Brown - my alma mater as a Ph.D. student - in Ivy-circles is known for being the poorest Ivy of them all. Its coffers are at roughly $2 billion. (Brown struggles to keep their graduate programs afloat and sadly many people who have gone there have paid the price, and I don't mean in terms of dollars. That story is to come later).


On top of that, when Summers left the school , the man made millions speaking to companies that later collapsed or needed bailout money from the government. The name Harvard is so powerful in academic and financial circles that any other reputable school's value shrinks by comparison (I'm not suggesting that that is valid or necessarily true). But will Harvard's emblematic prowess disappear with the age of excessive deregulation that defined the post 9/11 world? There are murmurings in the lovely, ueber-intellectual streets of Cambridge, nervous chatter can be heard around Harvard Square and in popular watering holes like Grendel's Den, that Summers drove the university into the ground. He did so by making poor and risky investment decisions, or so many people suggest. One thing is certain, and as VF's article illustrates, Harvard is facing some hard times.

But the U.S. is facing even harder times, and perhaps this economic downturn will result in new analysis and positive change for educational institutions. This moment could also us enable us become better guardians and attend to our educational priorities. It just might allow us to get back to the basics, and that would mean re-emphasiing good, well-rounded education, over a putatively utiltarian approach that equals just getting some degree you can "use" in order to make, for example, oodles of money on Wall Street. All the while your personal life remains distant from your existenial experiences or even worse it is just a continual storm of chaos. After al, if those who earned practical degress (MBAs, business degrees, finance, etc) can't get jobs to pay of their student loans, maybe the sciences - soft and hard - as well as the liberal arts and humanities will benefit.

Crises don't have to lead to future crises. If we seize this moment, reasseess our values about money and finance and Wall Street, and have people educated in stronger, better ways, this society could very well flourish.