Congress Failing Our Students

July 1st, 2013 · No Comments · economy, Education

By Denise Tessier

The Albuquerque Journal can’t be blamed, because it has published not one, but two editorials in the past month encouraging Congress to pass legislation that would have stopped today’s doubling of the interest rate on federal Stafford student loans — from 3.4 to 6.8 percent.

Several bills aimed at curbing student loan interest rates had been proposed in both the House and Senate, but rather than simply freeze interest rates at the current level, partisan bickering froze progress, allowing the interest rate to rise.

A month ago, Sen. Elizabeth Warren, D-Mass.,  introduced a bill that would have given students the same low interest rate enjoyed by big banks in with federal lending – currently .75 percent.

This past week, she wrote that her Bank on Students Loan Fairness Act seemed “like commonsense to me, but, in this Congress, I knew it would be a long and tough battle,” then added:

I am in total disbelief, though, that the Republicans made clear this week they won’t even allow a vote to keep the rate at 3.4 percent. Instead, they are pushing a plan to make more money off students. The government is already profiting $51 billion off its student loan program this year alone, and the Republicans want a deal that would increase those profits even more.

By not freezing the current rate, student loans will cost already cash-strapped college students an average of $1,000 a year.

This chart from the Democracy for America web site illustrates through statistics the damage the student loan debt burden already has inflicted on our young people and the U.S. economy, showing:

  • 75 percent of loan holders have made personal or financial sacrifices because of student loan debt.
  • 49 percent have put off buying or leasing a car. (The share of younger households buying or leasing a car dropped from 73 percent in 2007 to 66 percent in 2011.)
  • 29 percent have put off buying a house.
  • 15 percent have put off getting married.

This chart from Forbes shows how student loan debt/disbursements cause fluctuations in the economy.

And here’s a statistic from USAA Magazine, the financial services company that serves military personnel: “41 percent of active-duty service members say they’re struggling with student loan debt, according to a 2012 Defense Department survey.”

The Albuquerque Journal has been reporting regularly on student debt. The Money page of Sunday’s Journal (June 30) carried a Los Angeles Times report  saying that many of the 95 million members of the “millennial” generation ”can’t even afford to leave their parents’ homes to rent their own apartments, much less buy a home of their own.”

“We haven’t done well by this generation in terms of opportunities,” the story quoted University of Southern California social-trend scholar Morley Winograd as saying. “We tell them they have to go to college to get ahead these days but there’s no GI Bill to pay for their education. . .”

Tuition costs continue to rise. The Journal reported on April 28 that tuition at the University of New Mexico had doubled in the last 10 years. Tuition at all of the state’s research universities had increased; at New Mexico State University it was nearly 85 percent in one decade.

The Journal ran a comparison of state college costs on May 21, showing tuition went up at all state universities except Eastern New Mexico University.

The Journal has also run stories pointing out that it is taking students longer to graduate from colleges and universities, which increases the cost of an education. (One disgruntled parent wrote to the Journal’s anonymous Speak Up! column that her UNM senior was unable to graduate on time because one class necessary for her graduation was already closed to registration. Students using lottery scholarships to pay for tuition know that the lottery does not apply when a student takes that one last class – and falls short of the credit hour minimum.)

As Journal business writer Richard Metcalf explained in a story in October 2011, reporting on results of an August 2012 study by the Federal Reserve Bank of Kansas City, federal student loans can help students go to college, but “. . .once the federal student loan has gone into default, which is typically 270 days without a payment, the borrower faces a likely financial catastrophe.”

What kind of catastrophe are we talking here? According to the article:

The entire amount becomes due, plus collection fees and court costs. Consequences can include having tax refunds intercepted and wages garnished. Defaulted borrowers can be denied a professional license. The borrower’s credit score can take a big hit, curtailing access to other forms of credit.

There’s not much wiggle room to get out of student debt. As a rule of thumb, it can’t be discharged or erased by filing bankruptcy.

In December 2011, when NMSU was seeing what it considered a high default rate on loans, the Journal in an editorial chided both students – for not being realistic in determining what they would earn when leaving college – and the schools – for letting students take out more in loans than they can afford.  That editorial, “”Loans Big on Learning But Short on Realism,” was a bit short of realism itself. How can students realistically gauge what they’ll make upon graduation?

And how good are those estimates with the uncertainty of today’s economy and with its scarcity of jobs?

The Annual Report of the CFPC Student Loan Ombudsman from the Consumer Financial Protection Bureau (October 2012) said Americans now owe more money in student debt than credit card debt, which the estimated student loan debt pegged at more than $1 trillion.

In 2009, The Atlantic ran a column aptly entitled “Student Loans Are the New Indentured Servitude.”

Students are our future – and they need our help.

At this point, Congress should be helping students, not only by ensuring they can borrow money for education at low interest rates. They should also be helping students come out from under the burden of existing debt.

It would probably astonish Journal readers if the state’s leading newspaper ever were to go beyond editorializing for reasonable student loan interest rates and advocate writing off this debt as bankruptcy cases.

But it would not be unprecedented.

Twelve years ago, on July 29, 2001, the Journal published one of many editorials I had written while there about the threat AIDS/HIV and tuberculosis posed to African nations.

This editorial (no link available) merits mention because in it, the Journal allowed me to advocate for the writing off of International Monetary Fund and World Bank loans as a way to eliminate a obstacle that was compounding the health epidemics – the obstacle of debt and the onerous conditions governments put on access to health and education because of that debt.

From the 2001 editorial:

It is time to consider writing off these loans as bankruptcy cases.

Today, it is imperative — for the economic health of the United States and the mental health of its young people — that Congress not only freeze, but lower interest rates on the loans that enable students to go to school.

Just as important, however, it is time to do something about the $1 trillion in existing student loan debt – that gigantic burden that is keeping young adults from leading fully adult lives.

Personally, I would like to see the U.S. atone for its usurious attitude toward students by writing off these loans as bankruptcy cases.

At the least, Congress should allow those already suffocating under debt to refinance their student loans at lower rates –  rates at least as low as those enjoyed by the big banks.

 

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