The student debt crisis: Moving beyond interest rates

It's time to think about reducing student debt.

In case you missed it, Congress stuck it to young people once again.

Members of the House and Senate knew well in advance that without direct action by Congress, the interest rates on certain student loans would double from 3.4 percent to 6.8 percent on July 1. Predictably, that date passed with no action?leaving students on the hook for even more debt upon graduation unless Congress can take remedial action before a new round of loans is issued for the upcoming school year:

WASHINGTON ? College students taking out new loans for the fall term will see interest rates twice what they were in the spring ? unless Congress fulfills its pledge to restore lower rates when it returns after the July 4 holiday.

Subsidized Stafford loans, which account for roughly a quarter of all direct federal borrowing, went from 3.4 percent interest to 6.8 percent interest on Monday. Congress' Joint Economic Committee estimated the cost passed to students would be about $2,600.

Now, the typical "non-partisan" writeup of this travesty will blame partisan bickering for this Congressional impotence, but the truth is what one might come to expect: Democrats did what they could to help students and young people, while Republicans chose to sacrifice them on Ayn Rand's free market altar. Sen. Elizabeth Warren, for instance, proposed that our nation's students should get the same low interest rate of 0.75 percent that big banks get from the federal government. Other Democrats in the Senate had their own proposals, including an offering from Sen. Jack Reid to extend the former rate of 3.4 percent for another two years. The Republican House, however, countered with this:

House Republicans passed the ?Smarter Solutions for Students Act,? which lets loan rates fluctuate yearly, pegged to the 10-year rate plus 2.5%, but capping the rate at 8.5% (loans for parents and graduate students would have a 10.5% cap). This means that rates, even on existing loans, will go up as rates climb, likely all the way to the 8.5% cap as the economy recovers. This is more than if Congress does nothing and just lets the rates double July 1. The Congressional Budget Office (CBO) projects rates would rise to 7.7% in 2023, which is more than double the current rate. Many are calling the Republican plan the ?Bill to Make College More Expensive.?

Please continue below the fold.

In other words, Democrats tried to come up with ways to at least hold the line on loan interest costs for students, if not dramatically reduce them. Republicans, however, passed a bill through the House that would be worse for students than the current result of having done nothing at all. But let's say that Republicans in Congress don't get their way and force students into paying even more in interest on their subsidized Stafford loans. Let's say that Democrats actually succeed in restoring the previous rate. Heck, let's say a miracle happens, lightning strikes from a clear sky, and Republicans accede to Senator Warren's proposal. That might feel like an accomplishment, but it's only the tip of the iceberg in terms of the student debt crisis that America is facing.

In most cases, the subsidized Stafford loans whose interest rates have doubled are but a minority of the total package of debt that students leave school with. That interest rate increase certainly doesn't help, but it's barely scratching the surface of the real problem: the rising cost of college, and the concomitant horrific rise in student indebtedness. College costs themselves are soaring: as of August 2012, the cost of a college education in the United States had increased twelvefold over the past three decades?a rate four times faster than the Consumer Price Index. The increase in student debt is even more drastic:

Student-loan debt has doubled since 2007. At an estimated $1.1 trillion, it?s the nation?s second biggest form of household indebtedness, after mortgages. One in five families have such loans, with an average balance of $26,682 at last count. Many owe far more than that ? more, in some cases, than they can imagine ever being able to repay.

The end result is a massive drag on our nation's economy, as young people with excessive student debt are often unable to leave their parents' homes, much less afford major purchases or feel that they can engage in entrepreneurial activities that may not pay off right away. Even worse, the rise in college costs and student debt lead to increased societal stratification. Higher education is supposed to be that engine of social mobility, but increased costs lead to an even greater disparity between the haves and the have-nots. As Emily Crockett notes at the AFL-CIO blog:

We're talking about a system that gives wealthy students a triple advantage?more choice of elite schools because financial aid isn't an issue, no extra stress about working while trying to finish school and no debt eating up paychecks afterward.

Today's students grew up trusting that college means economic opportunity and following your dreams. If the only barrier to their dreams is the dotted line?a barrier that their counselors say they must cross, and that is no big deal to cross because everybody does?a "choice" on paper becomes an inevitability in practice.

Clearly, doing something about our student debt crisis must go beyond keeping interest rates from rising. Fortunately, California is setting an example for the rest of the nation to follow: earlier this week, Gov. Jerry Brown signed into law the Middle Class Scholarship Act, authored by Assembly Speaker John Perez. Upon full implementation in fiscal year 2017-18, this landmark legislation will use money from the general fund cut tuition by 40 percent at state universities for students whose families make less than $100,000 a year?thus helping to guarantee that public education will actually be affordable to the public it is supposed to serve.

Nothing could better illustrate the contrast between progressive and regressive governance than the contrasting approaches to student debt from the California Legislature and the House of Representatives. While the Republicans in Congress are actively seeking to make things even worse for students than they are now, California progressives understand that real student debt reform has to go beyond interest rates and actually address the problem of college affordability.

Join Daily Kos and Credo: sign the petition asking all U.S. senators to support Elizabeth Warren's Bank On Student Loan Fairness Act, which will give students a 0.75% interest rate on their federal Stafford loans.

Source: http://feeds.dailykos.com/~r/dailykos/index/~3/2WYZy3LWRAo/-The-student-debt-crisis-Moving-beyond-interest-rates

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