An Unlikely (But Worthy) Journal Editorial Topic: Forgiveness of Student Loan Debt

August 1st, 2014 · No Comments · budget policy, economy, Education, journalism, tax policy

By Denise Tessier

To follow up on yesterday’s post, student loan debt is another topic the Albuquerque Journal editorial board has dealt with incompletely. And it has squandered opportunities to advocate for action that might help put the state and nation on firmer economic ground.

First, some background: While the Journal seems to have had no shortage of space to run stories about Republican investigations of the IRS, it has largely ignored news dispatches about the Bank on Students Emergency Loan Refinancing Act, Sen. Elizabeth Warren’s bill intended to provide much-needed relief to those in debt with student loans, which was filibustered by Senate Republicans.

New Mexico Sen. Martin Heinrich, a Democrat, ended up filling in the Journal story gap with a column, which the Journal ran June 15 (“Let’s reduce crushing burden of student loan debt”). Under Warren’s bill, which Heinrich supported, student loan debtors could have refinanced their loans, both private and federal, at the lower interest rates offered to new borrowers. Consumers other than college borrowers are already afforded this option, as when buying a car or home.

As Heinrich pointed out:

Allowing graduates to refinance would put more money in their pockets and strengthen our economy as a whole.

Why is this important? Heinrich explained:

For the first time in our nation’s history, the total amount of student loan debt has exceeded the total amount of credit card debt. (Note: The total is more than $1.2 trillion, with a “T”.) This very real problem weighs heavily on New Mexico families. . . .

Those who pursued an education to get ahead are starting out behind. . . .

In New Mexico, students are graduating with an average of nearly $18,000 in debt.

Outstanding balances not only affect families working to pay those loans – (they affect) the economy as a whole. Because of this debt, many are unable to buy a home, start a business, save for retirement, or even start a family.

In today’s economy, we should be eliminating the obstacles that keep Americans from earning the education needed to get ahead. College should not be a luxury; it should be an opportunity all Americans can afford. . . .(emphasis added)

Heinrich added:

We (Senators) had an opportunity to come together to address skyrocketing student loan debt, and instead Republicans in the Senate chose to leave families, students, and the economy behind.

Heinrich’s column didn’t state why Republicans opposed the measure (it was a column, not a news story after all). Considering the GOP’s penchant for opposing anything proposed by Democrats or endorsed by President Obama, one could speculate that the student loan bill went in with two strikes against it.

CBS News and other outlets said GOP opposition stemmed from the bill’s invoking of the Buffett Rule (named after its creator, billionaire Warren Buffett), which would have imposed a minimum 30 percent tax on millionaires earning $1 million to $2 million.

Even though a majority of senators appeared to favor the rule, Warren’s bill went down by a vote of 56 to 38 because a vote of 60 was required to end the filibuster. (New Mexico Sen. Tom Udall and others have been trying to rectify abuse of this gridlocking Senate procedure.)

On the record, Republicans said they opposed the bill because it was a “political stunt” that wouldn’t help students at all, even though the president said the bill would help 25 million borrowers save an average of $2,000 each over the life of their loans. PBS Newshour added that:

Some 40 million Americans have outstanding student loan debt totaling $1.2 trillion, making it the second-largest form of consumer debt, second only to mortgages, according to Warren’s office. People 60 and older account for some $43 billion of outstanding student loan debt.

Lack of congressional action when presented with a widespread American problem is why it is important for newspapers – through their editorials – to push back, in this case against an obstacle that hinders economic recovery in the United States.

A little background on editorials: It is Journal policy to base editorials on stories that actually run in the Journal, not on all news that is available. Conceivably, an editorial could have been launched using Heinrich’s column as a basis.

The platform for this month’s editorial, however, was a story that ran on the Sunday July 20 Business section cover, “Many over 50 burdened with student loans,” which originally ran in the Hackensack Record in New Jersey. The lengthy story focused on the shocking revelation that senior citizens “are struggling with student loan debt at a time when their earning power may be waning.” (Although this was not an entirely new story, as the rising student debt problem among seniors had been documented in other publications months and even years before).

Still, the story provided a chance for the Journal to print an editorial that would recognize and rail against these problems that exacerbate the student loan debt problem:

  • Student loans lack basic consumer protections.
  • There is no statute of limitations on student debt. (From the Journal’s Hackensack Record story: “There is very little in the legal system that has no statute of limitations, maybe only murder or treason,” said (a) staff attorney with the student loan borrower assistance project . . .in Boston. “To have something like this follow you form the 1970s is ridiculous.”)
  • Student loans cannot be erased through bankruptcy.
  • If a parent, grandparent or other person who helped a student by co-signing a private loan dies, the loan immediately comes due for the grieving student. (This is not true of federal loans.)
  • The government is garnishing senior citizens’ Social Security checks to claw back education loans they co-signed, costing seniors up to 15% of their earned benefits each month, according to Campaign for America’s Future. Again, neither the borrower nor the co-signer can have student debt absolved in bankruptcy court.

Instead, the Journal editorial board took the tack that both blame and a solution lie with personal responsibility. The editorial, “School-loan defaults show risk-reward analysis vital,” began by snidely calling such responsibility a “quaint notion” and then equated the borrowing of money for a college education with buying a car, house or taking a vacation:

There was a time when people had the quaint notion that borrowing money was done with the understanding you would have to pay it back, with interest, whether for a car, a house, a vacation or college.

The editorial mentioned that the man profiled in the Hackensack Record article, 63-year-old Andrew Jones, couldn’t discharge his default on nearly $5,000 in loans incurred in 1970, but the editorial let that matter drop without addressing the bankruptcy exclusion as part of the problem, without recognizing that student loans are held to a different standard than car, house or vacation loans.

The editorial then mentioned that the president recently ordered expansion of a program that would limit monthly student loan repayments to 10 percent of a person’s income. It mentioned a bipartisan proposal that would “put borrowers on an automatic 10 percent of their income repayment plant instead of the standard 10-year plan that often leads to defaults.” It did not take a position on these proposals.

Instead, it faulted Jones and all college students for lacking “financial literacy”:

. . . a little financial literacy on the burden of compounding interest is in order for prospective students. If Jones had paid off his principal in a timely fashion, he wouldn’t be looking at a debt more than four times that initial balance 44 years after the fact.

Seeing no problem with Jones’ being strapped for 44 years to a debt that couldn’t be wrangled, key factors in the massive problem of student loan debt were summed up in a single line:

The still-recovering economy, a lingering scarcity of higher-paying jobs and the escalating costs of college have contributed to the growing student loan debt.

The Hackensack Record story said the number of borrowers taking out federal Parent Plus loans for their children’s schooling increased after the recession, when housing prices dipped and home equity loans and lines of credit were scaled back. From the story:

Betsy Mayotte, director of regulatory compliance for American Student Assistance, which administers federal education loans, said: “This problem is getting worse and is going to continue to get worse. We’re going to see a higher population of people using Social Security to pay off loans.”

The Journal editorial then mentioned the Higher Education Affordability Act, which would allow student loans to be set aside in bankruptcy. But the editorial did not endorse the concept, and rather left the impression the Journal would oppose such a measure, saying:

. . .’affordable’ should not equate with on someone else’s dime.

At this point, the editorial again equated student loans to car, home and vacation loans (making its point that one shouldn’t take out a loan if one can’t afford to pay it back). But in the very next sentence, the editorial illustrated exactly why students’ loans are not the same as loans for material goods or vacations. Here is the paragraph:

The reality is that like a car, home or vacation, a college education is a financial decision. Unlike material goods, it should also be an investment that leads to better economic outcomes, not a lifetime of debt and fixed-income garnishments.

As such, student loans have to be weighed on a risk-vs.-reward basis, including whether the borrower is going to ultimately at least get back what they put in.

That line – “better economic outcomes” – alludes to exactly the reason why students are encouraged to attend college. Colleges and financial institutions, eager to have students come to their schools and take out their loans – have encouraged students to go into debt, with the promise of better income and opportunities in terms of the job market.

It is ludicrous to burden students completely with the blame and rely on the expectation they have “financial literacy,” especially in the United States, where such literacy rarely is taught in schools, is rarely provided by family and is drowned out by continuous invitations from companies to go into debt for things far more frivolous than the opportunity for a better life. Students are encouraged from all quarters to take out student loans, just as they were bombarded with pre-approved high-interest credit card offers while still in school (which was considered predatory at the time, and with good reason).

Add to the mix the proliferation of private colleges, some with their own lending partner companies, and the problem intensifies.

To its credit, the Journal in the past has editorialized in favor of an interest cap on student loans as a “long-term fix” on the debt problem. Last year, Democrats and Republicans in Congress came together to prevent a doubling of student loan interest rates, and the Journal expressed its support (although those have since risen, as they are tied to Treasury rates).

The Journal also mentioned in another editorial a lack of ethics in the awarding of loans, saying:

While predicting future job markets for student borrowers might be dicey, shouldn’t there be some consideration of ability to repay? Otherwise, why call it a loan? What are the ethics of a system that encourages young people to rack up huge debts they have little chance of repaying?

The point of that editorial, however, was not to help students with the debt they already have, but to suggest that lenders consider credit worthiness and projected ability to repay when issuing loans.

That’s not much of a solution considering students rarely have credit when they enter college. A college loan is intended to help students get an education so they can become productive members of society, which in turn benefits society as they work, pay taxes and stimulate growth through purchases of a car, home and furnishings and perhaps even a vacation.

A little more background on editorials: A commenter on JournalWatch colleague Arthur Alpert’s Fourth of July editorial criticism said he wondered whether Journal editorial ideas come directly from the publisher.

The answer, based on the eight years I was on the Journal’s editorial board, is that generally has not been the case. With rare exception, all ideas and positions came from the editorial writers, and on some occasions the publisher was consulted. The exceptions were endorsements for president or state governor, and some other specific political endorsements.

Some editorial ideas were killed by the editorial page editor or editor – sometimes even after they’d been approved in the editorial board meeting and written – merely in anticipation of the publisher’s possible reaction. Personally, this happened only a few times, and related to gender/homosexuality research, the death penalty and an environmental matter in China.

What JournalWatch readers might find surprising is that the Journal did allow me to write – and it published – an editorial calling for debt relief in African nations. The editorial ran July 19, 2001 (no online version available). Under the headline “News Stories Paint Bleak Image of Africa,” it addressed the pandemic proportions of AIDS, malaria and TB, “compounded by the fact that little is spent – because little can be spent – on human services in African nations weighted under by billions in debt.” The editorial continued:

Most is interest on International Monetary Fund and World Bank loans made to prior, unaccountable regimes.

It is time to consider writing off these loans as bankruptcy cases. In too many instances, however, debtor nations are being required to levy user fees on health care and education – services that were previously free or nearly free. The result: Children are being denied education – and they are dying – because their parents cannot pay the fees.

Secretary of State Colin Powell has characterized Africa’s turmoil as a security risk for the United States. The health problems are receiving attention. President Bush should do what he can to address the problem of unpayable African debt.

Some of the same points could be made about student loan debt: that little progress is possible – either by individuals or the United States in general – while so many struggle with crushing debt that, in many cases, cannot be paid.

Sometimes usurious loans have historically been the only option for students desirous of a college education. In the absence of fair, low-interest loans with consumer protection, what choice would a “financially literate” person facing an unsure job market have but to abandon the whole idea of college. The days of the GI Bill are long past.

In effect, young Americans and New Mexicans are being denied education. And they’re being denied hope.

It’s time the Journal considered forgiveness of student loan debt, to remove this burden from individuals – whether young or of retirement age – and make headway with the trillion-dollar debt that hobbles a still depressed and struggling economy.

 

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