Although many of its supporters howl in protest at this observation, the Occupy Wall Street movement remains unfocused, without clear policy reforms and proposals. Organizers are more unified about rules for gender-neutral pronouns than they are for legislative proposals (read). Seriously, though, there is a natural policy push for mainstream demonstrators across the country — debt forgiveness of student loans and mortgage relief for underwater mortgage holders, meaning those with mortgage debts higher than the value of their homes.
Debt forgiveness in its entirety is a bad idea. It’s an insult to those who struggle to pay their debts, as well as those people who were prudent enough not to buy bubble-inflated homes. However, the numbers of distressed holders of debt is alarming. Almost $1 trillion — a staggering sum — is owed by college students and graduates. Two-thirds of college graduates are entering the workforce with an average of $24,000 in debt. For-profit colleges are raking in money by accepting students with college loans, a healthy percentage of whom don’t graduate with a good job. That has spurred the movement for college loan debt forgiveness from MoveOn.org, a bill from a U.S. congressman, petitions and Web sites like this (click).
What will likely happen is a compromise that the White House is advocating. It will cap monthly payments from student loan debt holders from 15 percent to 10 percent. (that’s already scheduled to happen in 2014) It won’t forgive the debt, but it will make the monthly nut a bit less. However, smaller payments also mean the loan principal will hang around longer.
As for mortgages, things are trickier. The administration’s efforts to provide mortgage relief have been abysmal, due to tough qualifying rules and inconsistent bank/mortgage holder communications. The almost 15 million of mortgage holders who are underwater, can’t even qualify for private sector-generated mortgage relief due to the low values of their homes. Ezra Klein, a blogger for the Washington Post, said the administration should have long ago purchased the underwater mortgages and lowered rates.
The argument for this is similar to an argument for college loan forgiveness. It ends financial stress for millions and potentially pours the money saved into the economy. The argument against this is — besides any lower profits to unloved financial institutions — what I mentioned earlier: The unfairness of making prudent people who didn’t rack up huge college debt or buy overpriced homes pay for, via taxes, the mistakes of the unfortunate and imprudent.
A compromise is suggested by New York Times contributor Martin S. Feldstein, who was Chairman of the Council of Economic Advisers in the Reagan Administration and now teaches at Harvard. He suggests reducing principal on underwater homes to 110 percent of value. Have the government absorb half the loss of a mortgage, and the banks the other half. Have the mortgage holder voluntarily agree that “non-housing assets could be seized if he defaults.” (read)
Underwater mortgages and college loan debt are two big crisis that span generations in today’s economy. Finding sound policy proposals to both would add depth to the OWS movement.
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I’m not entirely sure how the people who incurred these school loan debts can justify why they are not obligated to repay them. If you take a loan to buy a car, why should you not repay that loan? How is a loan you accept to pay for your education be any different? You needed the money, you borrowed it, you should repay it.
Your other option is to work your way through college. That takes longer, but at least you don’t have a large debt to repay.
Accept the loan, accept the responsibility to repay the debt. It’s not a difficult concept.
Owain, I’m certainly not for debt forgiveness, which will be part of a platform from some factions. But remodifying loans is not a completely objectionable option, given that similar assistance was given to financial institutions and the auto industry.
If you listen to the protesters, loan modification is not what they are asking for. They are demanding (!) loan forgiveness.
To my knowledge, anyone can go into a loan/mortgage holder and see about having a loan restructured or refinanced, so I don’t see where there is a problem there, or am I missing something? Is someone telling these folks that CAN’T restructure their loans?
Finally, ‘bailing out’ holders of student loans as we did with financial institutions and GM is not something I’d be willing to support. It was a mistake with the auto and financial industries, and it won’t be any less of a mistake with anyone else. Two wrongs not making a right, and all that.
The expectation that all those protesters should, must, have one goal in mind, or that what some of them are asking for necessarily represents the ends of all of them is both quaint, and unrealistic.
There is a preliminary study out about who all these protesters are. With suitable cautions about the limited nature of the data, how they were collected, etc. the results are interesting and suggestive. Link below, with embedded links to the full report:
http://freethoughtblogs.com/dispatches/2011/10/26/who-are-the-occupy-wall-street-protesters/
If you can’t afford a home then you turn it back to the bank and rent. What we’re all whining about is saving people from losing their equity, not from losing their home, and even if they can’t pay for it any more, that’s what bankruptcy is for. Bankruptcy is not the end of life, as tens of millions of people have amply proved.
That might be true, but you can’t get student loans forgiven through bankruptcy. The only way they can be forgiven is a catastrophic injury or death.
One change I think would be justified is this: currently student loan obligations cannot be removed by bankruptcy proceedings. I don’t see why that should be. Should be resolvable as all other loans are, in bankruptcy proceedings.
And no, I don’t think that would lead to mass declarations of bankruptcy across the land. It’s a fairly drastic way to deal with debt beyond someone’s ability to pay and has long term adverse consequences for those seeking it. But if corporations can use bankruptcy proceedings [e.g. Delta airlines for example, or Borders Books --- and corporations let us recall are legally people the Courts say] to escape from debt they cannot pay, and other people can to be free of say medical debt they cannot pay or even credit card and other debt beyond their ability to repay, I don’t see why student loan debt and student loan debt only should be exempt from bankruptcy proceedings.
I have worked very hard all of my life, along with going to college and raising a family. Like many people recently, we lost our home and filed chapter 13. Right after that my student loan payments kicked in with payments overdue. Still owing $110,000 in student loans. The jobs pay less than they did several years ago. I don’t think we’ll ever recover.
That (bankruptcy not touching student loan debt) was a modification under the Clinton admin, IIRC as one of the body blows in the federal student loan handover to Wall Street. The argument then, again IIRC, was that kids were graduating from college and promptly declaring bankruptcy. I never saw any numbers back then, but it always sounded to me like the execrable “welfare queen” arguments.
I can’t imagine graduating from from an average state school today with, what, $20,000 in debt? This is not counting the credit cards (the companies used to set up shop in university malls and give out free stuff for signing up; that’s how I got THREE credit cards as an undergrad). And all of this to enter an uncertain job market.
I think what’s getting missed in all of this is that bankruptcy leaves the bank with a house it doesn’t want that will sit on the market for ages while the bank tries to wait out the market. Some kind of mortgage cramdown could have eased much of this financial crisis. Allowing people/banks to adjust their principal is a win-win for both the banks and the borrowers.
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I agree Doug that students should not be forgiven of their loan debts. I have been paying for my Master’s Degree for over ten years, and it has not been easy, but I feel a better sense of accomplishment and pride in knowing that not only did I earn the degree, but I can also be responsible enough to pay it back. I’m not so sure that the Occupy Wall Street Protestors need a clear focus, or proposed solutions to what they are protesting. When my parents’ generation protested the Vietnam War, all they wanted was for the war to end. I don’t think they had any suggestions or solutions for how to end the war, but they wanted it to end, nevertheless. Perhaps some of these Wall Street Protestors are a bit ignorant and protest just because it is a hip and trendy thing to do at the moment. That would be the case in any organized group who wants to protest something, I would think.
The argument against loan forgiveness is the unfairness to taxpayers who didn’t get into debt, the prudent people who have to pay for the mistakes of others – but what about the unfairness to taxpayers when the banks were bailed out? Nobody thought about that. Nobody asked taxpayers if they wanted to bail out the banks. They didn’t ask for a show of hands.
Over on the Volohk Conspiracy someone posted I thought an interesting idea regarding those student loans. He suggested they should be able to be eliminated by bankruptcy [like any other debt] after five years, but henceforth the schools approving the loans should have to pay back to the government 10% or 15% of the amount eliminated by bankruptcy proceedings for their students/graduates. This, he suggested, would put a halt to the recruiting of students, particularly [but not exclusively] by proprietary schools which students will be funded largely by federally backed loans they can not reasonable expect to pay off with the degree they are seeking.
I wonder if some way could be found to exempt medical bankruptcies from that provision. But the 10/15% clawback from the schools managing the loans is an intriguing idea. Or so it seems at first glance. At least it’s a idea on the table, which in itself is a rare thing.
I don’t know that punishing colleges and universities is the right way to go. They are providing a service. It is up to the consumer to determine if the services they offer is worth the money you pay for those services. You don’t blame a car dealership if someone buys a car that is far beyond their means or needs.
The difference between the car dealership and colleges is that when you go to buy a car, you aren’t inundated with all sorts of agencies trying to throw money at you. You have to pass a credit check, for one thing. You may have to make a down payment. You may have to offer additional collateral. Neither I nor any of my children have taken school loans, but I suspect that isn’t the case with educational loans.
Just like with the housing bubble, if you make unsecured loans to people without regard to their ability to repay those loans, you are asking for trouble. If you run up a $100,000 debt at a university on a degree that no one will pay you a living wage, you need to have your head examined.
“They didn’t ask for a show of hands.”
Unfortunately, in effect, that is exactly what happened, figuratively speaking. Our elected representatives approved of those bail outs. We elected them, so that was the ‘show of hands’ we had.