Student Loan Debt Crisis

This was first published on 11/6/2014 on a blog I wrote for previously (which is no longer being updated).

On September 16, 2014, Senator Elizabeth Warren introduced the Bank on Students Emergency Loan Refinancing Act, which would allow refinancing of high interest student loans to current interest rates.

The bill has only been introduced and no further motion has been made. When Senator Warren introduced the bill, she claimed Republicans refuse to debate the topic, and she pleaded for them to offer alternatives to parts of the bill they do not like.  In her speech, Warren stated some of the following facts: 40 million Americans have student loans debt totaling $1.2 trillion, and a quarter of them are behind in their payments.  She also makes the point many economists have been harping on for a long time now: the tremendous burden student loans have put on Americans drags down the economy.  Student loan debt causes a drop in the ability to buy homes, cars, and contribute to the economy as a whole.

Here is Senator Warren's introduction of the bill:

Some other interesting points made in Warren's speech hit on the topic of what the Republicans believe is and is not an issue.  The $1.2 trillion debt is "no big deal" to the Republicans, but instead it is the rising costs of college.  Warren agreed, but noted that both are really an issue for the 40 million Americans with Student Loan debt.  What is probably the biggest issue for the Republicans is that the bill is paid for by closing tax loopholes for the rich.  As apparent as it has been to most Americans, the rich and the idea that "corporations are people" are the "people" Republicans are most interested in protecting, and not the middle class.

The Facts on Student Loans

According to a Mother Jones article from 2013, student loan debt has quadrupled over the past ten years, mostly because the expense for four-year colleges and higher education costs a lot more than it used to.  In 1980, the average price for one year in a four-year college was around $8,700, but in 2010 it hovered at $21,600.  This isn't directly related to inflation, as the change in costs exceeds the rate of inflation.  Of course, one statistic is good for America, and that's the fact that more Americans are going to college. This positive move forward into higher education is also the reason why the student loan debt total is so high.  However, this leads us to wonder: is the benefit of earning a diploma worth it?

In a Forbes article by John T. Harvey, dated 4/28/2014 entitled Student Loan Debt Crisis?, Harvey writes:

"...student debt loads are a problem, and a serious one. Not only do they create a significant drag on short-term economic activity, but they will stunt our long-term growth as well. And the situation is deteriorating. The disease is real, it’s just more subtle and insidious than a financial market boom and bust."

College graduates' student loan payments equal that of a new car, or in some cases, a mortgage payment.  Whether they get a wonderful job or struggle to even find a job, the money being spent on student loans detracts from the growth of the Gross Domestic Product (GDP), which gauges the health of a country's economy.  Slow GDP growth means a slower growth in the economy.

Despite these facts, there is a benefit in earning a diploma.  In May, the Washington Post reported the following:

"As many challenges as some students are having paying back their student loans, unemployment data demonstrate that people are still much better off having borrowed to attend college than to not borrow and not enroll in college at all.  The most recent data from the Bureau of Labor Statistics show that people holding a bachelor’s degree have an unemployment rate of 4 percent (and even lower if they hold an advanced degree), while 7.5 percent of those with only a high school diploma are unemployed."

The U.S. Department of Education's Budget

Earlier this year, I read an article about how the U.S. Department of Education's (DOE) budget cut was due to the amount of profits from Student Loans.  Essentially, less money was needed in the DOE's budget because Student Loan profits helped pay for the programs within the DOE.  After a tremendous amount of time searching for this article, the best reference I can provide for this information is an article found on HuffPost: Student Loan Borrowers' Costs To Jump As Education Department Reaps Huge Profit.  (Please note, I do not like to use HuffPost as a resource because I believe it is biased and I prefer to use non-biased references as often as possible.  I wish I could have found the original article).

The fact that the budget called for less resources is good for the U.S. budget's bottom line.  It looks nice on paper.  However, as we've discussed before, the pitfalls of the Student Loan Debt Crisis is more of a concern.  During Senator Warren's speech, noted above, she said that some student loans carry 8 to 12% interest rates, and sometimes higher.  Her bill would allow for those interest rates to be refinanced to a rate closer to 6%.  This means less profit for the DOE, but it would still be making enough profit to pay for essential programs already in place, and for additional borrowing from students.

The Disparity Between Big Money and Students/Graduates

One important fact that should be mentioned, and perhaps debated, is how student loans and students themselves are essentially being taken advantage of when you compare their interest rates to the rates banks receive from The Federal Reserve.  The Fed will allow banks to borrow money at extremely low interest rates, depending on the type of loan and the life of the loan.  In some instances, the interest rate is as low as 0.09%.

Yes, this is like comparing apples to oranges.  I don't deny that.  However, banks make money off lending money, and we all know from recent history there were plenty of banks that were bailed out because they were "too big to fail."  So I ask, what about Americans?  Aren't we, as a whole, too important to fail?  Americans and their purchases, employment, and borrowing is what drives the economy.  American individuals are just as important as the banks, and if The Fed can afford to let banks borrow at such low interest rates, shouldn't the government allow students to borrow financial aid money at a low interest rates too?

Take Action!

Please ask your Senator to step up and debate the Bank on Students Emergency Loan Refinancing Act.  Whether changes are made to the bill or not, the simple act of debate among our leaders is essential to solving the Student Loan Debt Crisis.

Contact your Senator today:
http://www.senate.gov/general/contact_information/senators_cfm.cfm