MetroWest Daily News Editorial: A better deal on student debt
June 8, 2014
As members of the Class of 2014 marched out of their college commencement exercises, they carried with them more than pride in their accomplishments, the best wishes of their families and upgraded resumes. They also carried a boatload of student loan debt.
The Wall Street Journal reports the average 2014 graduate will owe $33,000. That's up from $31,000 in the last year. The average for the Class of 1993, for comparison, was just $10,000.
This is a huge problem for the Class of 2014, many of whom will have a hard time finding jobs that match their degrees. Whether employed or not, the loan payments are due six months after graduation, whether they've found a job or not.
Most of America's college grads are in a deep hole because of money they borrowed and invested in their educations. Outstanding student loans now total more than $1.2 trillion. One borrower out of seven defaults on student loans within three years of beginning payments.
This isn't just a burden on graduates and their families, it's a drag on the economy as a whole. Young people saddled with debt don't buy furniture or cars. They linger in their parents' homes rather than start families and households of their own. Their inability to spend is one of the factors that has kept the economic recovery from gaining momentum.
Many of these borrowers are paying interest rates of nearly 7 percent. With interest rates still near record lows, thousands of Americans have refinanced their mortgages and other debt at lower rates. But the federal government holds most student loan debt, and it would take an act of Congress for those borrowers to take advantage of lower rates.
Congress will soon have the opportunity to give young people the debt relief they desperately need. The "Bank on Students Emergency Loan Refinancing Act," whose chief author is Sen. Elizabeth Warren, D-Mass., is expected to come before the Senate as early as this week. It would allow those holding federal student loans to refinance at a rate of 3.68 percent - the same rate Congress set last year for new student loans.
This bill would be an easy sell in Congress if student loans worked like mortgages, with lenders competing by offering lower rates. But the federal government holds these loans, and makes a handsome profit off of them. A recent federal report estimated the government will make $66 billion on student loans issued between 2007 and 2012.
To keep the federal budget deficit from growing, Warren's bill proposes replacing that revenue by implementing the "Buffett rule," which sets a minimum tax rate of 30 percent on incomes larger than $1 million a year. That counts as a tax increase, which ensures opposition from Republicans in Congress.
While it might be an easier pill for Republicans to swallow if the student loan bill's costs were offset by a provision that was less a partisan lightning rod than a tax hike, Warren defends it. Given the state of the economy, she argues, which is a more worthy investment: college education for America's young adults, or tax loopholes for its wealthiest earners?
That's a question voters should put to every candidate running for Congress this year. The answer, to us, is clear. Allowing those weighed down by student debt to refinance at lower rates would make it easier for young people to find their financial footing and would give the consumer economy a much-needed boost.
Congress should put partisanship aside and approve the "Bank on Students" bill. Consider it a graduation present to the Class of 2014.
Read the editorial online here.