It's time to fix the student loan mess
June 11, 2014
If, as the congressional tea party says, taking money via taxes from wealthy corporations and individuals is bad for the economy, then why is it not equally bad or even worse for our economy to be extracting unnecessary money from virtually all young adults who carry student loan debt?
Today, students are caught in an economic vise. Total student loan debt exceeds $1.2 trillion — more than credit card debt. Between 2004 and 2012, average student loan balances increased by 70 percent. Meanwhile, between 2000 and 2012 real median household income actually decreased by 6.6 percent. Since there are often multiple student debt carriers in a middle income family, you can see the economic vise squeezing away at students and their families.
This huge student debt mess started with the “starve the beast” philosophy that the political right imposed upon state governments beginning with California’s Prop 13 back in 1978. Similar efforts in many states decimated support for education for decades. State governments used to strongly support “public higher education for all” with decent state appropriations. In Montana 60 percent of the cost of public higher education used to be borne by the public itself because the people believed that more education meant a better society as well as better economics.
But draconian cuts in state funding for higher education imposed by the right forced universities to find their money by rapidly increasing tuition, way beyond the level of middle class affordability. How was a student to cover the cost of that high tuition thrust upon him or her? The easy answer advanced by the bank-dominated student loan cartel was to “take out a loan” — or two or three or more.
Worsening the student loan debt problem was the interest rate extracted from students. Older federal loans carried an interest rate as high as 8 or 9 percent. Older bank-backed student loan interest rates sometimes reached 13 or 14 percent.
Thankfully, last year Congress set maximum interest rates for new undergraduate student loan debt at 3.86 percent. But it did nothing to help with previously existing student loan debt. The Government Accountability Office recently projected that the payment of federal student loans issued between 2007 and 2012 alone will produce $66 billion in “profit” for the government.
Why is it OK for Congress to extract that huge amount from the buying power of emerging young students while at the same time refusing to make Warren Buffett pay taxes at the same rate as his secretary? Protecting the millionaires, billionaires and corporations and punishing the student. Is that any way to build a stronger future for our nation?
President Barack Obama’s recent executive action capping student loan monthly payments at 10 percent of their monthly income is a big improvement, but it just extends the life of high interest student loans. So, Congress still needs to act.
Sen. Elizabeth Warren’s bill would allow all previous government and private undergraduate student loan debt to be refinanced at 3.86 percent. That would result in $61,000 total savings on $50,000 of 20-year student debt when compared to the loans at 12 percent. Those lower monthly payments would allow more students and young people to move out of their parents' homes, perhaps save for a home down payment or buy a starter home, maybe start a small business, or purchase a car, all of which would help the economy grow.
If a private corporation refinanced its high interest rate debt at lower interest rates, the political right would hail it as a smart and prudent business practice. Yet, few if any of them have signed on to this important bill for students.
In Montana, kudos to governors Brian Schweitzer and Steve Bullock, who have helped students by forging tuition freeze agreements for four-year units in two of the last four state budgets and every year since 2008 for two-year higher education.
But, isn’t it time for Congress to do their part and treat those who seek to advance themselves through education with the same respect it treats the millionaires, billionaires and corporations who, through their expensive lobbyists, buy prosperity with special favors from our elected representatives?
Isn’t it time?
(Evan Barrett of Butte has spent the last 45 years at the top level of Montana economic development, government, politics and education. He is currently the director of business and community outreach and an instructor at Highlands College of Montana Tech. These are his personal views.)