Two-thirds of students in the United States leave college with a crushing load of debt. This national debt total is now $1.2 trillion.
It’s not only debilitating to the kids who owe it, it’s also crippling their parents. It’s a drag on the entire economy.
The Institute for College Access and Success Project on Student Debt says the average borrower is in the hole for $26,600 by the time he ends his college career.
One in 10 of them is more than $40,000 in the red. Although the number of students with debt of $100,000 or more is tiny — about 1 percent — they’re out there, too.
Student loans are the equivalent of payday loans for the middle class, second only to home mortgages as the highest form of consumer debt in the nation. They account for 6 percent of the nation’s $16.7 trillion debt.
These are staggering statistics. Not only have we hocked our kids’ and grandkids’ futures to the already-here-and-growing climate change crisis, but we’ve put a debt monkey on their backs that many of them won’t be able to shake.
The latest proposed solution to the problem, and the one currently getting the most media attention, has come from Sen. Elizabeth Warren, D-Mass.
Ms. Warren introduced the “Bank on Students Emergency Loan Refinancing Act” in the Senate on Tuesday. The act would allow borrowers with outstanding student loans to refinance them at the same low rates offered to new borrowers in the student loan program.
But Ms. Warren’s excellent bill has what is probably a fatal flaw: She’s counting on passage of the “Buffett Rule” to fund it.
The rule, named after billionaire investor Warren Buffett, would increase the income tax rate on people who earn more than $1 million a year. Mr. Buffett doesn’t believe that rich people should pay less in federal taxes as a portion of their income than middle- and lower-income people.
Senate Republicans disagree and killed the bill in 2012.
If that’s not enough to doom Ms. Warren’s legislation, another portion of the bill might be. That part would allow borrowers to refinance their private loans from lenders like Sallie Mae, once a federally chartered student loan operation, now a private company. Ms. Warren wants student-debtors to have access to low-interest loans from the U.S. Department of Education to pay off their private debt.
The private lenders deserve to eat the loss. Many of them used what the Consumer Financial Protection Bureau called “subprime-style” lending tactics in making loans to borrowers who had a slim chance of paying them back. But will they take a bath? Not with this Congress.
The main reason students and their parents have incurred high debt is the precipitous decline in state funding for higher education over the past 30 years. Forty-seven states spend less on college students now than they did in 2008, with the average state spending 23 percent less.
Coupled with that decline was the laudable goal of making sure most young people could attend college, and the decline of the sorts of manufacturing and unionized industry jobs that had formerly employed many kids without college degrees.
To compete for students and their federal loan money, colleges and universities built ever-grander campuses with more bells-and-whistles and hired more administrators at higher salaries. University presidents are paid on par with the CEOs of successful businesses.
Schools used their posh surroundings and administrative skills to justify consistent tuition increases.
“Since 1980, inflation-adjusted tuition at public universities has tripled; at private universities it has more than doubled,” Benjamin Ginsberg, a political science professor at Johns Hopkins University, wrote in Washington Monthly in 2011. “Between 1975 and 2005, total spending by American higher educational institutions, stated in constant dollars, tripled, to more than $325 billion per year.”
All along, lenders have continued to hand out money to students, safe in the knowledge that all loans are guaranteed by the government. Federal aid (inflation adjusted) increased more than 500 percent between 1973 and 2012.
It’s unconscionable, and yet it’s been continuing for decades.
Borrowers have little chance to adjust their loans. Even bankruptcy is not an option because student loans can’t be discharged. The Department of Education offers an Income-Based Repayment plan for borrowers who are having “partial financial hardship.” Designed to reduce monthly payments to make loan debt more manageable, the enrollment process is so complicated that borrowers often throw up their hands in despair.
So let’s credit Ms. Warren with dragging the issue back to the front burner. Take the good things her legislation includes (like allowing borrowers to refinance at lower interest rates) and match it up with a plan like what is being offered in the state of Oregon.
Nearly a year ago, the legislature there adopted a flat-tax loan plan for graduates of in-state public universities. Kids go to school for free and repay 3 percent of their annual earnings for 25 years after they graduate. Payback for community college grads is 1.5 percent, and students who attend school for less time pay a pro-rated fee.
Part of the beauty of the Oregon plan is that students are not required to pay tuition upfront so there are no traditional loans. No one is making money off a kid’s desperate effort to get an education.
How radical — educating students and not forcing them to make deals with the debt devil.
Oregon shouldn’t occupy this territory alone. It won’t solve the student loan crisis, unless the feds see fit to try something along the same lines, but it would be a great help to students, their parents and the economy.
— Copley News Service
