In his 2013 State of the Union address, President Barack Obama focused on ways to continue the nation’s economic recovery following the Great Recession. Not surprisingly, he included higher education as one of the areas of the economy that needs work. He said,
“It’s a simple fact: The more education you’ve got, the more likely you are to have a good job and work your way into the middle class. But today, skyrocketing costs price too many young people out of a higher education or saddle them with unsustainable debt.”
Perhaps in response to this, Campus Progress just issued a call for a federal program for refinancing for all student loans, including private loans. The student arm of the Center for American Progress, Campus Progress is dedicated to journalism and activism about progressive causes, and has focused more attention on student loan reform in recent years, as college costs have increased.
This latest call for action highlights the fact that while many groups and individuals are taking advantage of current low rates to refinance mortgages and other debts, “there is one critical group, however, that is getting left behind in the refinancing boom: students and families who take out loans to pay for higher education.”
The debt picture for college graduates and current students isn’t pretty. As Campus Progress explains:
“More than 13 percent of students whose loans came due in 2009 defaulted on that debt within three years as a result of long-term failure to make payments. Another 26 percent of borrowers at five of the major loan-guaranty agencies became delinquent on their loans-one stop short of default.”
This problem cannot be ignored, and it’s much bigger than any individual student. Student loan debt may be one of the most important elements of the continued growth of the national economy: once today’s students enter the workforce they may be so saddled with debt that they cannot purchase cars, homes, or pay for their children’s education. Also, private loans account for a substantial amount of the defaulted loans, which hurts the lending institutions and can result in the same sort of economic crisis as the sub-prime mortgage debacle. This can severely damage the economy.
What Does Campus Progress Propose?
Campus Progress urges that “we should enact meaningful reforms that include an interest-rate reduction and that provide a way for private-loan borrowers to consolidate their debt into the federal student loan program or otherwise modify the terms of their loans.” They argue,
“A federally backed refinancing and loan-modification program would reduce the interest rates paid by borrowers, provide new options and protections to borrowers in the private-lending sector, and stimulate the economy. It would also provide direct relief to the tens of millions of current borrowers, engaging them in the effort to improve our higher-education system.”
For students, this could mean a whole new field of opportunities, as cost would be a less prominent factor in their academic decisions about what to study, where to attend, and what kind of degree to earn. The “relief” mentioned above, Campus Progress suggests, should be achieved by “swapping” private loans for federal direct loans. This would immediately reduce interest rates and thereby lower monthly loan payments, affecting the daily lives of millions of Americans who would then have more money to spend on necessities such as housing, food, and medical care.
Chances of Success?
Campus Progress’s suggestions are likely to be opposed by many politicians, should they even get as far as the federal congress. During the election of 2012, many conservative candidates argued that the federal government has no business making education loans in the first place. The official Republican Party platform stated that “the federal government should not be in the business of originating student loans; however, it should serve as an insurance guarantor for the private sector as they offer loans to students.”
That means that the Republicans that currently form the majority in the House of Representatives would in all likelihood block any proposal or bill attempting to create student loan refinancing or to convert private into federally-supported direct student loans. This plan would run counter to their stated objective of reducing government spending.
This may be short-sighted. If millions of students cannot pay back their public or private loans, due to high interest rates, the financial institutions that loaned the funds will collapse. There will be less money flowing into the federal treasury, which will cause program cuts across the board. It might be wise to take Campus Progress’s suggestions seriously, and consider whether some revenue coming from interest is better than no money at all.