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Asking for Student Loan Forgiveness


In just two short months, Robert Applebaum has become something of a spokesman for a generation of people burdened with student loan debt. Applebaum, a 35-year-old attorney in New York, started a Facebook group in January called "Cancel Student Loan Debt to Stimulate the Economy," fed up with news reports about bank executives spending millions to redecorate their offices and receiving hefty bonuses. "I wanted to rant, so instead of sending an e-mail to a couple of my friends, I decided to start a Facebook group," says Applebaum, who finished law school owing $80,000 in student loans. "I figured maybe just a few of my friends would join."

He was wrong. By the end of the second week 2,500 people had joined, and the group now has more than 138,500 members, many of whom are pressing their representatives in Congress for legislation that would forgive student loan debt. "It's just snowballed," says Applebaum.

Student loan repayment can be difficult for young people starting off their careers and has become even more challenging now with the economic downturn, as recent graduates lose their jobs or struggle to land one. Groups like Applebaum's on Facebook, and other organizations such as StudentLoanJustice.org, are part of a new movement advocating for an overhaul of the country's troubled student loan system. Frustrated with often unaffordable monthly payments, loans that are nearly impossible to discharge, and restrictive loan repayment plans, student borrowers are pushing the government and private loan companies to devise new solutions.

Assets of a Couch and a TV "I think the economic crisis and the sort of clamor from borrowers like we see on that Facebook group should help make that case," says Edie Irons, a spokeswoman for the Project on Student Debt, a Berkeley (Calif.)-based nonprofit that raises awareness about student financial aid. "The size of the group really illustrates how concerned people are."

Applebaum, who graduated from Fordham Law School in 1998, took a job as an attorney at the Brooklyn District Attorney's Office after graduation, at a starting salary of $36,000 a year. His salary was so low that he put his loans in forbearance for five years, until they ballooned 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."

Applebaum is one of thousands of graduates struggling with the repercussions of student loans years after graduation. There were nearly $131 billion in outstanding private loans in 2008, according to Mark Kantrowitz, founder of FinAid.org, which tracks the college financial aid industry. In addition, there is $544 billion in outstanding federal loans for fiscal year 2009, up from $502 billion in 2008, according to the Education Dept.

Shackled by Student Loans Meanwhile, the average debts of students graduating with loans rose from $18,796 in 2006 to $20,098 in 2007, according to the Project on Student Debt.

For some, the debt is unshakable. Mel Crow of American Fork, Utah, owes $60,000 in student loans from his days at the Academy of Art University in San Francisco. He has spent the last five years struggling to find a computer animation job in his field, with no luck. His parents had to refinance their home so he could consolidate his loans, and he now pays them $500 a month with the $10.50-per-hour he earns at a local cosmetic company. If he defaults on his loan, his parents will lose their home, Crow says. Meanwhile, he and his wife, an algebra teacher, are barely scraping by, living in the basement of her parents' home. Because of Crow's debt, he says the couple will have to delay buying a home and having kids for several years.

"Sometimes I think going to school is the worst single mistake I've ever made," says Crow, a member of Applebaum's Facebook group and the first in his family to attend college. "I could have worked at Wal-Mart (WMT) for four years and been in a better position than I am now. I feel like I'm almost a slave to this debt."

Signs of Change Others, like Eric Zapata, an aircraft mechanic in California, say their student debt is a constant worry. Zapata owes about $48,000 in student loans and worries he won't be able to afford an engagement ring for his girlfriend. "I've been saving now for two years, but I haven't been able to get the ring yet," he says. "The $400 in monthly [debt] payments just kills me."

There are already some signs that change is on the way, at least for those with federal loans. The Income-Based Repayment plan, part of the College Cost Reduction and Access Act of 2007, will provide some relief to federal student loan borrowers when it goes into effect on July 1. The program will cap most borrowers' monthly payments at less than 10% of their gross income for 25 years, after which any remaining debt will be forgiven. Another program, the Public Service Loan Forgiveness, allows borrowers to make income-based repayments and have their debt discharged after 10 years. "These programs actually provide some major help now and in the immediate future," says Irons of the Project on Student Debt.

But the situation is not quite as rosy for private loan borrowers. Many of these debtors have been unable to meet their monthly payments, putting their loans in forbearance for several years or, in the worst-case scenario, defaulting on their loans. Making matters worse for private borrowers is a clause in the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act that included private student loans as one of 10 debts that can't be forgiven in bankruptcy cases.

Continuing the Fight Alan Collinge, author of The Student Loan Scam and founder of StudentLoanJustice.org, has been a student loan activist for nearly four years. He is working to reverse the bankruptcy laws and establish limits on how lenders pursue borrowers. Collinge graduated with three degrees in aerospace engineering from the University of California several years ago and $38,000 in student debt, which he's still working to pay off. He's traveled around the country talking to elected officials and working to restore what he considers "basic consumer" rights. As of yet, he's had no luck, but he hasn't given up hope. "Until someone shows me why student loans should specifically be exempt from bankruptcy protections, it's definitely a fight worth fighting," he says.
Damast is a staff writer for Bloomberg Businessweek.

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